Professional Documents
Culture Documents
APPROACH TO TAXES
TAX YEAR 2016
6th EDITION
Income Tax
Sales tax
Capital Value Tax
Federal Excise Act & Rules, 2005
By:
NADEEM BUTT
Chartered Accountant
FCA, FPFA, B.Com.
AUTHOR
NADEEM BUTT
Chartered Accountant
FCA, FPFA, B.Com.
Helpful for the students & teachers of CA - Final, ACCA (PAK), Higher National Diploma
(HND), MBA, MPA, PIPFA & LLB.
Added various examples & solved practice questions to demonstrate the theory.
Reference of relevant provisions of income tax & sales tax law has been given.
Added after each chapter past papers topic wise theoretical questions of ICMA Stage IV from
tax year 2003 to 2015 & CA Module C / Stage-II CAF-06 from tax year 2001 to 2015.
Added past papers numerical questions of ICMA Stage IV from tax year 2003 to 2015 & CA
Module C / Stage-II CAF-06 from tax year 2001 to 2015.
Useful for all who want to learn, teach & practice Income tax & Sales tax.
With the grace of Almighty ALLAH and prayers of my family, friends, and students, I am presenting
the Sixth Edition of Conceptual approach to taxes. This book is primarily for the students of CAF
- of ICAP, Stage IV of ICMAP and M. Com.
I hope this book will serve the purpose of the students, teachers & other persons related with the
taxation. The book primarily consists of notes on each chapter with examples, multiple choice
questions, practical problems with solutions and topic wise last year questions from tax year 2003
to 2015.
I am grateful to all those who contributed a lot in the completion of this book. My special thanks
are due to my staff.
All positive criticism with suggestions for the improvement will be entertained.
Nadeem Butt
Chartered Accountant
Mr. Nadeem Butt qualified as a Chartered Accountant in 1998 & after working with a well
known professional firm as Tax Manager has started his own professional firm under the
name and style Nadeem & Co. Chartered Accountants in 2007 & is practicing as Fellow
member of ICAP mainly in audit, income tax & sales tax for more than 200 various
corporate and non-corporate clients in Pakistan. He is also the life time member of Lahore
Tax Bar Association and Audit & Tax advisor of All Pakistan Cottage Industry & Small
Traders Association.
Member, (special invitees) Taxation Committee of Lahore Chamber of Commerce & Industry
(LCCI).
Appointed as auditor on behalf of the tax department by the Federal Board of Revenue for
Special Audit Under section 4A of the repealed Income Tax Ordinance of various corporate
and non-corporate entities.
Two students of Mr. Nadeem Butt (FCA) got 1st & 2ndpositions all over the Pakistan by
scoring 98% & 97% marks in Taxation exam of ICMAP.
Student of Mr. Nadeem Butt (FCA) got the first gold medal in the history of SKANS School
of Accountancy, Lahore in Financial Accounting Module C exam of ICAP.
INCOME TAX
For CA & ICMAP Students
S. No. CHAPTERS Page No.
1 Taxation System 1
2 Ethics in tax Laws 9
3 Constitutional Provisions 17
4 Preliminary 27
5 Introduction & geographical source of income 59
6 Computation of taxable income 71
7 Income from Salary 85
8 Income from property 111
9 Income from business 125
10 Assets and depreciation 147
11 Method of accounting & records 171
12 Capital gains 183
13 Income from other sources 205
14 Losses 219
15 Tax credits 237
16 Common rules 255
17 Returns and Assessments 265
18 Appeals & Revisions 287
19 Income Tax Authorities 301
20 Exemptions other than Covered in Respective Chapters 319
Solved Past Papers Income Tax Numericals of CA Module
21
C - (2001 to 2015) 323
For CA Mod F & ICMAP Students
S. No. CHAPTERS Page No.
22 Final Tax Regime & Minimum Tax 383
23 Deduction / Payment of Tax 407
24 Offences and prosecutions 455
25 Insurance business 465
26 Oil, natural gas & other mineral deposits 473
27 Banking business 481
28 Solved Past Papers Income Tax Numericals of ICMAP Stage IV 489
(2003 to 2015)
SALES TAX
For CA & ICMAP Students
S. No. CHAPTERS Page No.
1 Preliminary 535
2 Registration 549
3 Sales Tax Returns 561
4 Records & Books 569
5 Scope and Payment of Tax 577
6 Practice questions with solutions 603
7 Solved Past Papers Sales Tax Numericals of ICAP - (2003 to 2015) 615
1 Definition 733
2 Levy, Collection & Payment of Duty 737
3 Offences & Penalties 745
4 Federal Excise Rules, 2005 751
Syllabus CAF-6 OF ICAP
Objective
The aim of this paper is to develop basic knowledge and understanding in the core areas of Income Tax and its
chargeability as envisaged in the Income Tax Ordinance 2001 and the Income Tax Rules 2002 (relevant to the
syllabus), Sales Tax Act 1990 and the Sales Tax Rules (relevant to the syllabus).
Grid Weighting
Objective, system and historical background, constitutional provisions and ethics 10
Income tax 65
Sales tax 25
Total 100
Syllabus
Contents Level Learning Outcome
Ref
B Constitutional provisions
1 Federal financial procedures 1 LO 2.1.1: Demonstrate familiarity with the Federal
(Article 78 to 88 of the Constitution Consolidated Fund and Public Account
of Pakistan) LO 2.1.2: Demonstrate familiarity with the expenditure
that can be charged upon Federal Consolidated Fund
2 Provincial financial procedures 1 LO 2.2.1: Demonstrate familiarity with the Provincial
(Article 118 to 127 of the Consolidated Fund and Public Account
Constitution of Pakistan) LO 2.2.2: Demonstrate familiarity with the expenditure
that can be charged upon Provincial Consolidated
Fund
i
Syllabus
Contents Level Learning Outcome
Ref
ii
Syllabus
Contents Level Learning Outcome
Ref
D Income Tax
1 Chapter I Preliminary (concepts 1 LO 4.1.1: Describe the definitions given in section 2
of terms defined section 2 sub- sub-section 1, 5, 5A, 6, 7, 9, 10, 11A, 19, 19C, 20, 21,
section 1, 5, 5A, 6, 7, 9, 10, 11A, 22, 23, 29, 29A, 29C, 36, 37, 38, 41, 44A, 46, 47, 49,
50, 51, 52, 53, 68
19, 19C, 20, 21, 22, 23, 29, 29A,
LO 4.1.2: Describe other definitions covered under
29C, 36, 37, 38, 41, 44A, 46, 47,
relevant sections
49, 50, 51, 52, 53, 68) LO 4.1.3: Apply definitions on simple scenarios
2 Chapter II Charge of tax 2 LO 4.2.1: Explain the chargeability of tax with simple
(excluding section 7) examples
3 Chapter III Tax on Taxable 2 LO 4.3.1: Compute taxable income and tax thereon
income (Excluding Section 29A, 30 relating to salary, income from property, income from
and 31) business, capital gain, dividend, profit on debt, ground
rent, rent from sub-lease, income from provision of
amenities, utilities or any other services connected
with rented building and consideration for vacating the
possession of building
4 Chapter IV (Part I, II and III) 1 LO 4.4.1: Understand and apply on simple scenarios
Common rules (Excluding Sections provisions for income of joint owner, apportionment of
78 and 79) deductions, fair market value and receipt of income
LO 4.4.2: Explain using simple examples the
provisions relating to tax year
LO 4.4.3: Explain with simple examples the provisions
relating to disposal and acquisition of assets, cost and
consideration received
5 Chapter V Part I Central 2 LO 4.5.1: Describe with simple examples the meaning
concepts of persons, resident and non-resident persons and
associates
6 Chapter V Part II Div I and II 2 LO 4.6.1: Describe with simple examples the
Individuals (Excluding Section principles of taxation of individuals
88A)
7 Chapter V Part III Association of 2 LO 4.7.1: Describe with simple examples the
persons principles of taxation of association of persons
8 Chapter VII Part II Taxation of 2 LO 4.8.1: Understand the applicability of tax on
foreign-source income of residents foreign salary income, credit against foreign tax and
treatment of foreign loss of a resident on simple
scenarios.
9 Chapter X Part I Returns 2 LO 4.9.1: Identify persons required to furnish a return
of income
LO 4.9.2: Identify persons not required to furnish a
return of income
LO 4.9.3: Identify persons required to furnish wealth
statements
LO 4.9.4: List the contents of wealth statement
10 Chapter X Part II Assessments 1 LO 4.10.1: Understand the meaning of assessment by
Commissioner and power of Commissioner to conduct
audit
iii
Syllabus
Contents Level Learning Outcome
Ref
iv
Syllabus
Contents Level Learning Outcome
Ref
E Sales Tax
Sales Tax Act 1990
1 Chapter I Preliminary (concepts 2 LO 5.1.1: Describe the definitions given in section 2
of terms defined Section 2 sub- sub-section 3, 5AA, 9, 11, 14, 16, 17, 20, 21, 22A, 25,
sections 3, 5AA, 9, 11, 14, 16, 17, 27, 28, 29A, 33, 35, 39, 40, 41, 43, 44, 46
20, 21, 22A, 25, 27, 28, 29A, 33, LO 5.1.2: Describe other definitions covered under
35, 39, 40, 41, 43, 44, 46) relevant sections
LO 5.1.3: Apply definitions on simple scenarios
2 Chapter II Scope and payment of 2 LO 5.2.1: Understand the application sales tax law on
tax taxable supplies including zero rated and exempt
supplies
LO 5.2.2: State the determination, time and manner of
sales tax liability and payment using simple examples
3 Chapter III Registration LO 5.3.1: State the requirement and procedure of
registration
4 Chapter IV Book keeping and LO 5.4.1: List the record to be kept by a registered
invoicing requirements person
LO 5.4.2: State the requirements of tax invoice
LO 5.4.3: Explain the retention period of record using
simple examples.
5 Chapter V Returns LO 5.5.1: Understand the various types of returns
required to be filed by registered and un-registered
persons.
Sales Tax Rules, 2006
1 Chapter I Registration, 2 LO 6.1.1: Explain the requirement and procedure of
Compulsory registration and De- registration, compulsory registration and
registration deregistration using simple examples
2 Chapter II Filing of return 2 LO 6.2.1: Explain the requirement and procedure of
filing of return using simple examples
3 Chapter III Credit and Debit And 2 LO 6.3.1: Explain the requirement and procedure of
Destruction of Goods issuing debit and credit notes using simple examples
LO 6.3.2: State the procedure for destruction of goods
4 Chapter IV Apportionment of 2 LO 6.4.1: Explain the requirement and procedure of
Input Tax apportionment of input tax using simple examples
v
Syllabus ICMAP Stage IV
Introduction:
This course covers Income Tax Ordinance, 2001, the Income Tax Rules, 2002 and other Tax Laws such
as the Sales Tax Act, 1990, Customs Act, 1969 and Federal Excise Act and Rules, 2005, as amended
to date.
Objectives:
To provide the students with an in-depth knowledge of Tax Laws, enabling them to apply in decision-
making process in different business situations.
Outcomes:
On completion of this course, students should be able to:
identify and interpret principal types of taxation, such as direct taxes on individuals, income,
business individuals, Association of persons, registered and unregistered firms and companies,
trading profit and capital gains, and indirect taxes such as sales tax, customs duty and central excise
duty,
describe features of the direct and indirect taxes,
describe record-keeping, filing and tax payment requirements of principal types of taxation, relating
to business,
compute for recommendations to the management on issues, pertaining to tax liabilities of company
or firm, arising from income generation and capital gains,
compute and advise on tax liabilities of individuals, arising from income receipts, capital gains,
business or professions and other sources, and
Identify foreign tax obligations, situations and apply appropriate methods for relieving from such tax.
Indicative grid
INCOME TAX
A 50%
1. Income Tax Ordinance, 2001
2. Income Tax Rules, 2002
INDIRECT TAX (SALES TAX)
3. Sales Tax Act, 1990
B 30%
4. Sales Tax Rules
5. Sales Tax Special Procedures
6. Federal Excise Act and Rules, 2005
INDIRECT TAX (OTHER INDIRECT TAXES)
7. Sindh Sales Tax on Services Act, 2011
8. Sindh Sales Tax on Services Rules, 2011
9. The Punjab Sales Tax Ordinance 2000
C 10. Punjab Sales Tax on Services Rules, 2012 20%
11. Islamabad Capital Territory (Tax on Services) Ordinance,
2001
12. The North-west Frontier Province Sales Tax Ordinance,
2000
13. The Balochistan Sales Tax Ordinance, 2000
TOTAL 100%
Note: The weightage shown against each section indicates, study time required for the topics in that
section. This weightage does not necessarily specify the number of marks to be allocated to that section
in the examination.
vi
Detailed Contents of Syllabus of ICMAP Stage IV
PART-A
INCOME TAX
1. The Income Tax Ordinance 2001
Definitions; charge to tax; tax on taxable income (computation of income from salary, property,
business, capital gains (as per Capital Gain Tax Ordinance 2012), other sources, exemptions, losses,
deductible allowances, tax credits); common rules (general, tax year, assets); provisions governing
persons (concept, individuals, AOP, companies); special industries (insurance, oil & gas and other
mineral deposits); international (geographical source of income, taxation of foreign source of income of
residents, taxation of non-residents, double taxation); anti-avoidance; procedures (returns,
assessments, appeals, collection and recovery of tax, payments and deductions, refunds, records and
audit, penalty, offence and prosecutions, additional tax); administration (general, transitional advance
tax provisions, miscellaneous); Schedules (first schedule, second schedule, third schedule, sixth
schedule, seventh schedule). Special provisions regarding depreciation, initial allowance, intangibles,
pre-commencement expenses, scientific research expenditures, employees training and facilities, profit
on debt, financial costs and lease payment, bad debts, provisioning regarding consumer loans, profit on
non-performing debts, transfer to participating reserve and tax accounting. Nature and areas of tax
management; deduction of tax at source; advance payment of tax; minimum tax.
2. Income Tax Rules, 2002
Definitions related to the rules; heads of income; income of residents; tax of non-residents; transfer
pricing; records and books of accounts; certificates; advance tax collection or deduction, payment,
statements of tax collected or deducted. Income tax recovery rules, registration of income tax
practitioners, Recognized terminal benefits funds.
vii
PART-B
SALES TAX
3. The Sales Tax Act, 1990
Chapter No. I, II, III, IV, V VII, VIII and IX of the Act, as amended up-to-date covering; definitions; scope
and payment of tax; registration; book-keeping and invoicing requirements; returns; offences and
penalties, appeals and recovery of arrears.
4. The Sales Tax Rules 2006
Definitions related to rules, registration, compulsory registration and de-registration, filing of returns,
credit and debit note destruction of goods, apportionment of input tax, refund, supply of zero-rated
goods to diplomats, diplomatic missions, privileged persons and privileged organizations, taxpayers
authorized representatives, alternative dispute resolution, special procedure for issuance of electronic
sales tax invoices between buyers and sellers.
5. Sales Tax Special Procedure Rules 2007
Payment of Sales Tax by Retailers, providing or Rendering Services Subject to Tax under Provincial
Laws, Refund claim by the Persons Engaged in Making Zero Rates, payment of Sales Tax by Importers.
Payment of Tax by Steel Melters and Ship Breakers, sales tax special procedure (withholding) Rules
2007.
INDIRECT TAX
Federal Excise Act, 2005, Sections 2 to 19, 31 & 33 to 39, Federal Excise Rules, 2005, Rules 7 to 10,
15 to 17, & 32 to 34. Capital value tax: section 7 of the Finance Act 1989 as amended up-to-date.
Notifications, rules general orders and circulars, issued under the above-mentioned laws
PART C
Preliminary, Scope of Tax, Payment and Collection of Tax on Taxable Services, Registration & De-
Registration, Book Keeping and Audit Proceedings, Returns
Preliminary, Scope of Tax, Payment & Collection of Tax on Taxable Services, Registration & De-
Registration, Book Keeping And Audit Proceedings, Returns, First schedule (Classification of Services),
Second Schedule (Taxable Services)
viii
Syllabus M.Com.
COURSE DESCRIPTION:
This course is designed to give student an understanding of the structure of taxation system in Pakistan
and the policy factors essential to the application of tax system in business enterprise. This
comprehensive course will enable students to know how the taxation system of the Pakistan allows
them to take effective business decisions.it will also guide them to apply current tax rules in their
organization for effective usage of resources,
LEARNING OBJECTIVES:
After studying this course the student should be able:
a) to understand the various terms with concepts used under the income tax and sales tax law in
Pakistan;
b) to compute income, total income and taxable income and tax thereon of individuals, AOPs /
partnerships and corporations after taking into account the different exemptions and reliefs
available;
c) to compute the advance tax liability under section 147 and withholding tax provisions under
specific sections of the Income tax Ordinance, 2001;
d) to understand how income tax returns are filed, how assessment under various sections framed
and ultimately the procedure to file appeals under the Income tax Ordinance, 2001; and
e) to file the various sales tax returns and how to compute the sales tax liability / refund of various
persons in Pakistan.
Course contents:
INCOME TAX ORDINANCE 2001 AND INCOME TAX RULES 2002
Overview, scheme and scope
Comprehension of basic rules and concepts
Basic principles of construction, relevant definitions / concepts
1. Assessment [section 2(5) ]
2. Business[section 2,(9) ]
3. Deductible allowance[section 2(16) ]
4. Dividend [section 2(19) ]
5. Employment [section 2(22) ]
6. Income [section 2(29) ]
7. Permanent establishment [section 2(41) ]
8. Persons [section 2(42) ]
9. Taxable income [section 2(64) Read with total income under section 2(69)]
10. Taxpayer [section 2(66) ]
11. Tax year [[section 2 (68) ]
TAX ADMINISTRATION
[COVERED IN 19TH CHAPTER]
1. Tax authorities [section 207]
2. Circulars, orders and directions issued by the FBR [Section 206,213 and 214]
3. Advance rulings [section 206 A]
Provisions governing persons [Section 80 to 84]
Central concepts
Person
Resident and non / resident persons
Associates
ix
Tax on taxable income
Salary
[Sections 12 to 14 along with all other operating sections read with rule 3 to 7 income tax rules, 2002]
1. Basis of assessment
2. Residence
3. Employee share schemes
4. Perquisites and benefits in kind
5. Taxation at source
6. Pension, gratuity and receipts from provident fund
7. Exemptions and tax concession
1 Basis of charge
2 Non / adjustable amounts received in relation to buildings
[Sections 18 to 36, relevant clauses of Second Schedule and Rules 10 TO 12 and 13]
Capital gains
[Sections 2(10) read with 37, section 76, 77, 78, 79, 95 to 97 and various exemption clauses]
x
Tax credits [Sections 61 to 65]
Advance tax and withholding tax regime [Sections 14, 231A to 236B]
Procedure for filing of income tax returns and assessment [Sections 114 to 126]
xi
SALES TAX ACT 1990 OR REFORMED GST WITH RELEVANT RULES / NOTIFICATIONS
Return
Monthly return
Turnover tax return
Retail tax return
Special return
Final return
Return deemed to have been made
xii
Taxation System Chapter-01
Chapter
1 TAXATION SYSTEM
In undivided India (now consisting of Pakistan, Bangladesh and India) income tax was introduced for the first
time in the year 1860. It was introduced by Income Tax Act, 1860 and exactly the same pattern was followed
that was prevailing in those days in the United Kingdom. This Act came into force on July 31, 1860 and
continued for only five (5) years upto 01-08-1865 when it was completely withdrawn. A major characteristic of
this Act was that the agricultural income from land, above the rental value of RS.600 per annum, was taxable.
In Pakistan, Federal Government is empowered to levy and collect tax on the income of a person other than
the income taxable in the domain of the respective Provincial Governments.
Later on some of the provinces imposed general income tax on traders being as Income Tax Act of 1886. This
Act of 1886 was a great improvement on earlier enactments. Its basic scheme, by and large, survives till today.
It introduced the definition of agricultural income which is almost the same as in the income tax ordinance
2001. This Act continued in force for 32 years till 1918.
The 1918 Act consolidated a number of wartime amendments. A graduated super tax on income over
Rs.50,000 and on the undistributed profits of the corporation and other entities was introduced by the Super
Tax Act of 1917 and continued in force through modifications by the Super Tax Act of 1920. The Income Tax
Act and the Super Tax Act were later on consolidated in another Act i.e. the Income Tax Act of 1922.
After independence from British rule on 14-08-1947, the Pakistan Government adopted the Income tax Act,
1922, as amended upto that date. The provisions of the Act were extended to the whole of Pakistan except the
special areas. The Income tax Act 1922 continued for 57 years till 1979. Due to a number of changes the
Government has faced difficulties in its implementation the Government introduced Income tax Ordinance,
1979.
The job of improving the law continued after the promulgation this Ordinance through National Tax Reforms
Commission in 1985. The commission suggested that Income Tax Ordinance 1979 should be replaced by
Income Tax Ordinance, 2001. This new Income Tax Ordinance was promulgated on 13-09-2001 and it has
became effective from 01-072002. The Central Board of Revenue (now FBR) has claimed that the new
Ordinance is a justifiable, pragmatic, easy to understand and in accordance with the global environment. All
the income tax returns for the income earned from 01-07-2002 onwards are being taxed under this law.
3. Income tax Act, 1918 including Super Tax Act, 1917 Enforced till 1920
4. Income tax Act, 1922 (Merged Income Tax Act, 1918 with Effective till 30-06-1979
Super Tax Act, 1917)
1. Income tax Ordinance, 2001 Being as direct tax the income Tax Ordinance, 2001, tax is
levied on the taxable income of a taxpayer earned during a
tax year computed by applying the specified tax rates as
applicable to respective Taxpayer.
For the purpose of the charge of tax and the computation of
total income, all income is classified under the following five
heads:
2. Income Support Act, 2013 Although effective from tax year 2013 on every individual
whose net moveable wealth as per wealth statement
exceeds from Rs. 1 Million, he has to pay income support
levy @ 0.5%. However this Act has ultimately repealed
retrospectively through Finance Act, 2014.
3. Capital Value Tax Capital Value Tax on different transaction such as transfer
of immoveable property, transfer of rights and acquisition of
shares of listed Companies etc.
INDIRECT TAXES
Following are the indirect Taxes under the Pakistani Taxation System.
1. Customs Act, 1969 Goods imported and exported from Pakistan are liable to Customs
duties as prescribed through code or otherwise in Pakistan
Customs Tariff. Customs duties in the form of import duties and
export duties constitute a major part of the total tax receipts. The
rate structure of customs duty is determined by a large number of
socio-economic factors. However, the general scheme envisages
higher rates on luxury items as well as on less essential goods.
The import tariff has been given an industrial bias by keeping the
duties on industrial plants and machinery and raw material lower
than those on consumer goods.
2. Federal Excise Act, 2005 Federal Excise duties (FEDs) are leviable on a limited number of
goods produced or manufactured, and services provided or
rendered in Pakistan. On most of the items FED is charged on the
basis of value or retail price. Some items are, however, chargeable
to duty on the basis of weight or quantity. Classification of goods is
done in accordance with the Harmonized Commodity Description
and Coding system which is being used all over the world. All
exports are liable to 0% FED.
3. Sales Tax Act, 1990 Sales tax is a value added tax system. Being as indirect tax
collectable from whole supply chain i.e. importers, manufacturers,
wholesalers (including dealers and distributors) and retailers with
certain exceptions. Therefore , the sales tax is a multi stage tax
payable at standard rate of 17% u/s 3 of the Sales tax Act, 1990
on:
Goods imported into Pakistan;
All taxable supplies by a registered person in respect of any
taxable activity carried on by him;
VAT is a percentage tax levied on the price each registered person
charges for goods or taxable services rendered by him.
VAT normally utilizes as system of tax credit (being as input tax
adjustment) to place the ultimate and read burden on tax on the
final consumer and to relieve the intermediaries from any tax
burden except the final consumer.
Further there are also the concepts of minimum tax and Final tax
under the sales tax Act on specific persons or class of persons or
sectors as the case may be.
Payment of taxes should be based on the ability to pay principle; the higher income of the tax payer the
bigger amount of the tax paid.
It is levied by the state which has jurisdiction over the person or property.
As a general rule, only persons, properties, acts, right or transaction within the jurisdiction of the taxing
state are subject for taxation.
It is levied by the law making body of the state.
This means that a prior law must be enacted first by the Parliament in Pakistan.
It is levied for public purposes.
Taxes or imposed to support the government for implementation of projects and programs.
Fiscal adequacy
Means that the sources of revenue taken as a whole should be sufficient to meet the expanding
expenditures of the government regardless of business, export taxes, trade balances, and problems of
economic adjustment. Revenues should be capable expanding or contracting annually in response to
variations of public expenditures.
Equality or Theoretical Justice.
Means the taxes levied must be based upon the ability of the citizen to pay.
Administrative Feasibility.
This principle connotes that in a successful tax system, such tax should be clear and plain to taxpayers,
capable of enforcement by an adequate and well-trained staff of public office, convenient as to the time
and manner payment, and not unduly burdensome upon on discouraging to business activity.
Consistency or Compatibility with Economic Goals.
This refers to the tax laws that should be consistent with economic goals or programs of the
government. These are the basic services intended for the masses.
3.5 Forms of escape from taxation
Shifting
It is one way of passing the burden of tax from one person to another.
For example: Taxes paid by the manufacturer may be shifted to the consumer by adding the
amount of the tax paid to price of the product.
Kinds of Shifting
Forward shifting occurs when the burden of the tax is transferred from a factor of the production
to the factor of distribution.
Backward shifting occurs when the burden of tax is transferred from the consumer to the
producer or manufacturer.
Onward shifting occurs when tax is shifted to two or more times either forward or backward.
Capitalization
This refers to the reduction in the price of the tax object to the capitalized value of future taxes
which the purchaser expects to be called upon to pay.
For example: A reduction made by the seller on the price of the real estate, in anticipation of the
future tax to be shouldered by the future buyer.
Transformation occurs when the manufacturer or producer upon whom the tax has been
imposed pays the tax and endeavor to recoup (make up for) himself by improving his process
of production
Tax Exemption is the grant of immunity or freedom from a financial charge or obligation or
burden to which others are subjected.
Grounds for tax exemption:
3.7 Example
Explain which type of Tax strategy is being employed by following persons and what are its legal
consequences:
To strengthen anemic enterprises by granting them tax exemptions or other conditions or incentives for
growth;
To protect local industries against foreign competition by increasing local import taxes;
As a bargaining tool in trade negotiations with other countries;
4.3 Example
Chapter
1. Ethics
In the second Chapter, we discussed the provisions of Constitution of Pakistan which empowers the legislators
to legislate for levy of Taxes on the masses. These powers are not unfettered and it should carry some ethical
and rational basis. This matter is further discussed as under:
(vii) Canon of Simplicity: The system of taxation should be made as simple as possible. The entire
process should be simple, non-technical and straightforward. Along with the canon of certainty, where
the amount, time duration and manner of payment is made certain, the canon of simplicity avoids cases
of corruption and tax evasion if the entire method is made simple and easy.
(viii) Canon of Diversity: Canon of diversity refers to diversifying the tax sources in order to be more
prudent and flexible. Being heavily dependent on a single tax source can be detrimental for the
economy. Canon of diversity states that it is better to collect taxes from multiple sources rather than
concentrating on a single tax source. Otherwise, the economy is more likely to be confined, and hence,
its growth will be limited as well.
(ix) Canon of Flexibility: Canon of flexibility means that the entire tax system should be flexible enough
that the taxes can easily be increased or lowered, in accordance with the government needs. This
flexibility ensures that whenever the government requires additional revenue, it can be generated
without much hassle. Similarly, when the economy isnt booming, lowering taxes shouldnt be a problem
either.
Conclusion:
So these are the nine (9) canons of taxation that are used as the fundamentals for any taxation system and
study about taxation principles. Although Mr. Adam Smith originally presented the first four canons. Later, in
order to better suit to modern economies and for the sake of evolution as well, more canons were introduced.
2.4 Responsibilities of the tax legislators
The tax structure is a part of economic organisation of a society and therefore fit in its overall economic
environment. No tax system that does not satisfy above canons of Taxation can be termed a good one.
Moreover, the state should pursue that the primary aim of the tax should be to raise revenue for public
services, however, People should be asked to pay taxes according to their ability to pay and assessment of
their taxable capacity should be made primarily on the basis of income and property. May it be added here that
tax should not be discriminatory in any aspect between individuals and also between various groups.
3. ETHICS FOR TAX ADMINISTRATORS
3.1 Ethics for tax administrators introduction
Federal Board of Revenue is empowered under the law to monitor, assess, levy, collect taxes according to the
tax legislations. There are a number of occasions whereby they possess any of the following descretionary
powers.
Asses taxes;
Collect Revenue;
Seize Property;
Attatch Bank A/cs;
Commence legal (criminal/civil) proceedings against the taxpayer
Such descretionary powers may be misused and can become abusive powers as exercise of that power can
result in the following against the taxpayer:
Loss of property and income;
Imprisonment
So, these power can result in the loss of some of the fundamental human rights of the taxpayer. Ethics tend to
bring these powers within the principles of good and morality.
Example:
Mr. Asif is running a textile unit and income tax amounting to Rs. 15(M) is assessed against him. His bank
accounts balance is Rs. 10M, however, he has to fulfil his exports orders. In case he fails to fulfil his orders,
he will loose his clients and that orders. Moreover, he has to face SBP penal action for non export.
Considering his present critical financial position, Mr. Asif believes that tax recovery proceedings by recovery
from bank account (Attachment of bank account) will entail to an irreparable loss to his organisation. So he
requested to Commissioner Inland Revenue for allowing him to pay the due tax in instalments.
Now Commissioner Inland Revenue has power to allow him instalments (but to be paid with default
surcharge) or recover this tax directly from his bank account, unless stay order provided by the taxpayer from
the Commissioner Inland Revenue (Appeals) or honourable High Court. Justice and equity demands that his
request should be entertained; if not so then stay order as discussed shall be in the field. However the
allowablility of instalments will result into for the continuation and prosperity of business that eventually result
in payment of better taxes in future whereas recovery of tax will jeopardise his business operation.
Example:
Income Tax Ordinance, sales Tax law, Federal excise law empower tax authorities to select cases for Audit
under various sections of the respective laws. This power can be misused by selecting some cases while
leaving many unaudited even in the presence of power of amendment in assessment under section 122 of
the Income Tax Ordinance, 2001. Thus, despite the law provides unfettered powers however, such powers
should be exercised on some ethical and rational basis.
2. Transparency
All Proceedings must be transparent and must be seen as transparent.
3. Equity
Best Tax administration is not that which collects most revenue rather it depends how this revenue
generation is accomplished. Whether all stakeholders are taxed fairly or tax is collected from poor
/salaried class after failing to collect taxes from entrepreneurs/businesses. Thus, equity demands that
tax administrator should not achieve its objectives in an irrational manner.
4. Accountability
There must be a strong system of accountability for wrong doers which should curb corruption, nepotism
and maladministration.
Under the four pillars, some of the ethical issues facing Tax administration:
1. Acceptance of gifts;
2. Conflict of Interest;
3. Selective application of the law/ or inconsistency in applying the law;
4. Political influence;
5. Confidentiality/secrecy;
6. Discretion;
7. Corruption;
8. Lack of Autonomy
In order to avoid pitfalls of the abusive use of discretion, seven principles for structuring discretion are defined
which are as under:
Open plans,
Open policy statements,
Open rules,
Open findings,
Open reasons,
Open precedents and
Fair informal procedure
3.3 Responsibilities of the tax implementing authorities
The tax administrator shall perform the following responsibilities:-
1. implement the tax administration reforms;
2. promote voluntary tax compliance and to make the tax administration a service oriented organization
and to implement comprehensive policies and programs for the education and facilitation of taxpayers,
stakeholders and employees, etc.;
3. adopt modern effective tax administration methods, information technology systems and policies in
order to consolidate assessments, improve processes, organize registration of tax payers, widen the tax
base, and make departmental remedies more efficient including enforcement of, or reduction or
remission in, duty, penalty or tax, in accordance with the relevant law for the time being in force;
4. improve the productivity through a comprehensive and effective human resource strategy;
5. identify and select through Internal Job Posting process the employees for designated jobs;
6. grant additional allowances or any other incentives and rewards to the employees and members of the
Board;
7. take appropriate measures including internal controls to combat corruption within the organizations
under the Board and provide checks to ensure the integrity of employees that is verified periodically
through applicable procedure which shall be made one of the criterion for promotion and incentives;
8. re-designate existing posts within its jurisdiction, prepare job description of any post and create posts as
per rules;
9. direct or advise, where necessary, investigation or inquiry into suspected duty tax evasion, tax and
commercial fraud, money-laundering, financial crimes cases and to coordinate with the relevant law
enforcement agencies;
10. introduce and maintain a system of accountability of performance, competence and conduct of the
employees.
11. implement international obligations pursuant to a treaty, resolution or any international commitment;
12. create a surplus pool of employees as and when required;
13. make regulations, policies, programs, strategies in order to carry out the purposes of this Act;
14. regulate and enter into any agreement, contract, understanding, with any international organization or
institution or donor agency or counterpart entity with approval of the FG;
15. set up mechanism and processes that facilitate removal of grievances and complaints of the tax payers;
16. enable electronic communication in respect of all taxation matters such as e-filing, e-payments, e-
notice, e-notification, digital imaging, protocols or agreements as may be prescribed; and
4. ETHICS FOR TAX PRACTITIONERS
When we turn to aid to the poor, utilitarians will approve because transferring resources from rich to poor
increases the happiness of the poor more than it reduces the happiness of the rich. Virtue ethicists will approve
because with redistribution the poor can be helped to flourish and develop virtues, and because looking after
the less fortunate is itself a virtue (although voluntary charity may be a greater virtue than forced payment).
And deontologists can recognize a duty to care for the poor.
A taxation addressing the needs of all these ethical thoughts can get better compliance. Morality for Taxpayers
to pay taxes is very justified as state is responsible to provide infrastructure for a decent life. Moreover, State is
responsible for providing facilities to the masses then it is the duty of the masses to pay taxes for it. State also
provide level playing field to all the concerned so that talent can be explored at full. So it is necessary that
taxes should be paid to provide facilities, to control law & order situation, infrastructural development etc.
Chapter
3 CONSTITUTIONAL PROVISIONS
Notwithstanding anything contained in the foregoing provisions relating to financial matters, at any time when
the National Assembly stands dissolved, the Federal Government may authorize expenditure from the Federal
Consolidated Fund in respect of the estimated expenditure for a period not exceeding four months in any
financial year, pending completion of the procedure prescribed in Article 82 for the voting of grants and the
authentication of the schedule of authorized expenditure in accordance with the provisions of Article 83 in
relation to the expenditure.
1.11 Secretariats of Majlis-e-Shoora (Parliament) [Under Article 87]
Each House shall have a separate Secretariat: Provided that nothing in this clause shall be construed as
preventing the creation of posts common to both Houses.
Majlis-e-Shoora (Parliament) may by law regulate the recruitment and the conditions of service of persons
appointed to the Secretarial staff of either House.
Until provision is made by Majlis-e-Shoora (Parliament) under clause (2), the Speaker or, as the case may be,
the Chairman may, with the approval of the President, make rules regulating the recruitment and the conditions
of service, of persons appointed to the secretarial staff of the National Assembly or the Senate.
1.12 Finance committees [Under Article 88]
The expenditure of the National Assembly and the Senate within authorised appropriations shall be controlled
by the National Assembly or, as the case may be, the Senate acting on the advice of its Finance Committee.
The Finance Committee shall consist of the Speaker or, as the case may be, the Chairman, the Minister of
Finance and such other members as may be elected thereto by the National Assembly or, as the case may be,
the Senate.
The Finance Committee may make rules for regulating its procedure.
2 PROVINCIAL FINANCIAL PROCEDURES
2.1 Introduction
Provincial financial Procedures are almost the same as Federal Financial Procedures; however, these are
discussed in detail as under:
2.2 Provincial consolidated fund and public account [Under Article 118]
All revenues received by the Provincial Government, all loans raised by that Government, and all revenues
received by the Provincial Government, all loans raised by that Government, and all moneys received by it in
repayment of any loan, shall form part of a consolidated fund, to be known as the Provincial Consolidated
Fund.
All other moneys:
received by or on behalf of the Provincial Government; or
Received by or deposited with the High Court or any other court established under the authority of the
Province;
shall be credited to the Public Account of the Province.
2.3 Custody, etc., of provincial consolidated fund and public account [Under Article 119]
The custody of the Provincial Consolidated Fund, the payment of moneys into that Fund, the withdrawal of
moneys there from, the custody of other moneys received by or on behalf of the Provincial Government, their
payment into, and withdrawal from, the Public Account of the Province, and all matters connected with or
ancillary to the matters aforesaid, shall be regulated by Act of the Provincial Assembly or, until provision in that
behalf is so made, by rules made by the Governor
2.4 Annual budget statement [Under Article 120]
The Provincial Government shall, in respect of every financial year, cause to be laid before the Provincial
Assembly a statement of the estimated receipts and expenditure of the Provincial Government for that year, in
this Chapter referred to as the Annual Budget Statement.
The Annual Budget Statement shall show separately:
The sums required to meet expenditure described by the Constitution as expenditure charged upon the
Provincial Consolidated Fund; and
The sums required to meet other expenditure proposed to be made from the Provincial Consolidated Fund;
and shall distinguish expenditure on revenue account from other expenditure.
2.5 Expenditure charged upon provincial consolidated fund [Under Article 121]
The following expenditure shall be expenditure charged upon the Provincial Consolidated Fund:
The remuneration payable to the Governor and other expenditure relating to his office, and the remuneration
payable to:
the Judges of the High Court; and
the Speaker and Deputy Speaker of the Provincial Assembly;
the administrative expenses, including the remuneration payable to officers and servants, of the High
Court and the Secretariat of the Provincial Assembly;
all debt charges for which the Provincial Government is liable, including interest, sinking fund charges,
the repayment or amortization of capital, and other expenditure in connection with the raising of loans,
and the service and redemption of debt on the security of the Provincial Consolidation Fund;
any sums required to satisfy any judgment, decree or award against the Province by any Court or
tribunal; and
Any other sums declared by the Constitution or by Act of the Provincial Assembly to be so charged.
2.6 Procedure relating to annual budget statement [Under Article 122]
So much of the Annual Budget Statement as relates to expenditure charged upon the Provincial Consolidated
Fund may be discussed in, but shall not be submitted to the vote of, the Provincial Assembly.
So much of the Annual Budget Statement as relates to other expenditure shall be submitted to the Provincial
Assembly in the form of demands for grants, and that Assembly shall have power to assent to, or to refuse to
assent to, any demand, or to assent to any demand subject to a reduction of the amount specified therein:
No demand for a grant shall be made except on the recommendation of the Provincial Government.
2.7 Authentication of schedule of authorised expenditure [Under Article 123]
The Chief Minister shall authenticate by his signature a schedule specifying:
the grants made or deemed to have been made by the Provincial Assembly under Article 122, and
The several sums required to meet the expenditure charged upon the Provincial Consolidated Fund but
not exceeding, in the case of any sum, the sum shown in the statement previously laid before the
Assembly.
The schedule so authenticated shall be laid before the Provincial Assembly, but shall not be open to
discussion or vote thereon.
Subject to the Constitution, no expenditure from the Provincial Consolidated Fund shall be deemed to be duly
authorized unless it is specified in the schedule so authenticated and such schedule is laid before the
Provincial Assembly as required above.
It shall be the duty of the National Finance Commission to make recommendations to the President as to:
the distribution between the Federation and the Provinces of the net proceeds of the taxes mentioned in
clause (3);
the making of grants-in-aid by the Federal Government to the Provincial Governments;
the exercise by the Federal Government and the Provincial Governments of the borrowing powers
conferred by the Constitution; and
Any other matter relating to finance referred to the Commission by the President.
The taxes referred above are the following taxes raised under the authority of Majlis-e-Shoora (Parliament),
namely:
taxes on income, including corporation tax, but not including taxes on income consisting of remuneration
paid out of the Federal Consolidated Fund;
taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed;
export duties on cotton, and such other export duties as may be specified by the President;
export duties on cotton, and such other export duties as may be specified by the President;
such duties of exercise as may be specified by the President; and
Such other taxes as may be specified by the President.
The share of the Provinces, in each Award of National Finance Commission shall not be less than the share
given to the Provinces in the previous Award.
The Federal Finance Minister and Provincial Finance Ministers shall monitor the implementation of the Award
biannually and lay their reports before both Houses of Majlis-e-Shoora (Parliament) and the Provincial
Assemblies.
As soon as may be after receiving the recommendation, of the National Finance Commission, the President
shall, by Order, specify, in accordance with the recommendations of the Commission under paragraph two (2)
above, the share of the net proceeds of the taxes mentioned in above which is to be allocated to each
Province, and that share shall be paid to the Government of the Province concerned, and, notwithstanding the
provision of Article 78 shall not form part of the Federal Consolidated Fund.
The recommendations of the National Finance Commission, together with an explanatory memorandum as to
the action taken thereon, shall be laid before both Houses and the Provincial Assemblies.
At any time before an Order as above is made, the President may, by Order, make such amendments or
modifications in the law relating to the distribution of revenues between the Federal Government and the
Provincial Governments as he may deem necessary or expedient.
The President may, by Order, make grants-in-aid of the revenues of the Provinces in need of assistance and
such grants shall be charged upon the Federal Consolidated Fund.
3.3 Natural gas and hydro-electric power [Under Article 161]
Notwithstanding the provisions of Article 78:
the net proceeds of the Federal duty of excise on natural gas levied at well-head and collected by the
Federal Government and of the royalty collected by the Federal Government, shall not form part of the
Federal Consolidated Fund and shall be paid to the Province in which the well-head of natural gas is
situated.
the net proceeds of the Federal duty of excise on oil levied at well-head and collected by the Federal
Government, shall not form part of the Federal Consolidated Fund and shall be paid to the Province in
which the well-head of oil is situated.
The net profits earned by the Federal Government, or any undertaking established or administered by the
Federal Government from the bulk generation of power at a hydro-electric station shall be paid to the Province
in which the hydro-electric station is situated.
Explanation: for the purposes of this clause "net profits" shall be computed by deducting from the revenues
accruing from the bulk supply of power from the bus-bars of a hydro-electric station at a rate to be determined
by the Council of Common Interests, the operating expenses of the station, which shall include any sums
payable as taxes, duties, interest or return on investment, and depreciations and element of obsolescence,
and over-heads, and provision for reserves.
3.4 Prior sanction of President required to Bills affecting taxation in which provinces are interested
[Under Article 162]
No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is
assigned to any province, or which varies the meaning of the expression "agricultural income" as defined for
the purposes of the enactments relating to income-tax, or which affects the principles on which under any of
the foregoing provisions of this Chapter moneys are or may be distributable to provinces, shall be introduced
or moved in the National Assembly except with the previous sanction of the President.
3.5 Provincial taxes in respect of professions, etc [Under Article 163]
A Provincial Assembly may by Act impose taxes, not exceeding such limits as may from time to time be fixed
by Act of Majlis-e-Shoora (Parliament), on persons engaged in professions, trades, callings or employments,
and no such Act of the Assembly shall be regarded as imposing a tax on income.
3.6 Grants out of consolidated fund [Under Article 164]
The Federation or a Province may make grants for any purpose, notwithstanding that the purpose is not one
with respect to which Majlis-e-Shoora (Parliament) or, as the case may be, a Provincial Assembly may make
laws.
3.7 Exemption of certain public property from taxation [Under Article 165]
The Federal Government shall not, in respect of its property or income, be liable to taxation under any Act of
Provincial Assembly and, subject to clause (2), a Provincial Government shall not, in respect of its property or
income, be liable to taxation under Act of Majlis-e-Shoora (Parliament) or under Act of the Provincial Assembly
of any other Province.
If a trade or business of any kind is carried on by or on behalf of the Government of a Province outside that
Province, that Government may, in respect of any property used in connection with that trade or business or
any income arising from that trade or business, be taxed under Act of Majlis-e-Shoora (Parliament) or under
Act of the Provincial Assembly of the Province in which that trade or business is carried on.
Nothing in this Article shall prevent the imposition of fees for services rendered.
3.8 Power of Majlis-e-Shoora (Parliament) to impose tax on the income of certain corporations, etc.
[Under Article 165A]
For the removal of doubt, it is hereby declared that Majlis-e-Shoora (Parliament) has, and shall be deemed
always to have had, the power to make a law to provide for the levy and recovery of a tax on the income of a
corporation, company or other body or institution established by or under a Federal law or a Provincial law or
an existing law or a corporation, company or other body or institution owned or controlled, either directly or
indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of
such income.
All orders made, proceedings taken and acts done by any authority or person, which were made, taken or
done, or purported to have been made, taken or done, before the commencement of the Constitution
(Amendment) Order 1985, in exercise of the powers derived from any law referred to in above para, or in
execution of any orders made by any authority in the exercise or purported exercise of powers as aforesaid,
shall, notwithstanding any judgment of any court or tribunal, including the Supreme Court and a High Court, be
deemed to be and always to have been validly made, taken or done and-shall not be called in question in any
court, including the Supreme Court and a High Court, on any ground whatsoever.
Every judgment or order of any court or tribunal, including the Supreme Court and a High Court, which is
repugnant to the provisions of above paras shall be, and shall be deemed always to have been, void and of no
effect whatsoever.
49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured
or consumed, except sales tax on services.
50. Taxes on the capital value of the assets, not including taxes on immovable property.
51. Taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy.
52. Taxes and duties on the production capacity of any plant, machinery, undertaking,
establishment or installation in lieu of any one or more of them.
53. Terminal taxes on goods or passengers carried by railway, sea or air; taxes on their fares
and freights.
Keeping in view the above provisions, following laws are enacted by the Federal Government:
Taxes on income other than agricultural income; Income Tax Ordinance, 2001
Taxes on corporations.
Taxes on mineral oil, natural gas and minerals for
use in generation of nuclear energy.
Taxes on the sales and purchases of goods Sales Tax Act, 1990, Federal Excise Act, 2005,
imported, exported, produced, manufactured or Customs Act, 1969
consumed, except sales tax on services Taxes and
duties on the production capacity of any plant,
machinery, undertaking, establishment or
installation in lieu of any one or more of them.
Taxes on the capital value of the assets, not Income Support Levy, 2013 (repealed through
including taxes on immovable property. Finance Act of 2014) & Capital Value Tax levied
through Finance Act, 1989
Q. NO. 9 (b) Autumn 2014 Briefly describe the duties of National Finance Commission.
Chapter
4 PRELIMINARY
The provisions of this Ordinance shall apply notwithstanding anything to the contrary contained in any other law for the time
being in force.
Definitions [U/S 2]
"Accumulated profits" [U/s 2(1)] in relation to distribution or payment of a dividend, include-
(a) any reserve made up wholly or partly of any allowance, deduction, or exemption admissible under this Ordinance;
(b) all profits of the company including income and gains of a trust up to the date of such distribution or such payment, as
the case may be; and
(c) includes all profits of the company including income and gains of a trust up to the date of its liquidation;
Explanation: From the above it is clear that the term "accumulated profits" out of which companies may distribute or pay
dividends include reserve made up wholly or partly of any allowance, deduction, or exemption available under this
Ordinance, advance or loan to a shareholder and profits where distribution is made on liquidation.
"Appellate Tribunal" [U/s 2(2)] means the Appellate Tribunal Inland Revenue established u/s130;
Explanation: The Tribunal, established u/s130 of the Ordinance enjoys jurisdiction to hear cases of income tax, sales tax
and federal excise. The Customs Tribunal, however, remains separate and independent.
Tribunal is the final fact finding forum. Its decisions on law point are also final if not further contested or entertained by High
Court u/s133 of the Ordinance.
"Approved gratuity fund" [U/s 2(3)] means a gratuity fund approved by the Commissioner Inland Revenue in accordance
with Part III of the Sixth Schedule;
"Approved Annuity Plan" [U/s 2(3A)] means an Annuity Plan approved by Securities and Exchange Commission of
Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Life Insurance Company registered with the
SECP under Insurance Ordinance, 2000;
"Approved Income Payment Plan" [U/s 2(3B)] means an income Payment Plan approved by Securities and Exchange
Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Pension Fund Manager
registered with the SECP under Voluntary Pension System Rules, 2005;
"Approved Pension Fund" [U/s 2(3C)] means Pension Fund approved by Securities and Exchange Commission of
Pakistan (SECP) under Voluntary Pension System Rules, 2005, and managed by a Pension Fund Manager registered with
the SECP under Voluntary Pension System Rules, 2005;
Explanation of u/s 2(3A) (3B) and (3C): In terms of section 63, eligible persons are allowed tax credit for depositing an
amount in the fund, which is lesser of 25% of their taxable income a person joining at the age of 41 or above is allowed from
1st July 2006 to additional contribution of 2% for the first 10 years for each year exceeding 41 but his contribution should not
exceed 50% of his taxable income or up to Rs. 500,000. This regime allows tax credit to contributions and exemption to
investment income and then taxes the benefits at the time of premature or excessive withdrawals, Existing asset
management companies and life insurance companies are eligible to apply for licenses to set up pension funds and EFU
Life Insurance Company and three leading asset management companies including Arif Habib Investments and Atlas Asset
Management Company are running such schemes.
"Approved Employment Pension or Annuity Scheme" [U/s 2(3D)] means any employment related retirement scheme
approved under this Ordinance, which makes periodical payment to a beneficiary i.e. pension or annuity such as approved
superannuation fund, public sector pension scheme and Employees Old-Age Benefit Scheme;
"Approved Occupational Savings Scheme" [U/s 2(3E)] means any approved gratuity fund or recognized provident fund;
Explanation of u/s 2(3D) and (3E): The schemes include pension scheme and Employee Old-Age Benefit Scheme. No
approval for the second type of scheme is mentioned in Schedule to the Ordinance.
As regards clause (3E), it exclusively defines the terms to mean any approved gratuity or recognised provident fund. In other
words this has to be read in conjunction with section 2(3B), 2(3C) and Sixth Schedule to this Ordinance.
"Approved superannuation fund" [U/s 2(4)]: means a superannuation fund, or any part of a superannuation fund,
approved by the Commissioner Inland Revenue in accordance with Part II of the Sixth Schedule;
Explanation: It exclusively defines statutory superannuation funds that are approved by the Commissioner Inland Revenue
in accordance with Part II of the Sixth Schedule to the Ordinance read with rules 91 to 121.
"Assessment" [U/s 2(5)] includes provisional assessment, re-assessment and amended assessment, and the cognate
expressions shall be construed accordingly;
Explanation: The amended definition of the expression "assessment" has historic background based on judicial
pronouncements that the original assessment order, reassessment orders and final assessment orders are really but steps
in a series of judicial proceedings all connected on intrinsic unity and are regarded as one legal proceeding.
"Assessment year" [U/s 2(5A)] means assessment year as defined in the repealed Ordinance;
Explanation: It is a fixed period of twelve months starting from 1st July and ending on 30th June.
"Asset management company" [U/s 2(5B)] means an asset management company as defined in the Non-Banking
Finance Companies and Notified Entities Regulations, 2007;
"Association of persons" [U/s 2(6)] "AOP" includes a firm, a Hindu undivided family, any artificial juridical person and
anybody of persons formed under a foreign law, but does not include a company;
Explanation: Now the Ordinance treats all kinds of bodies of persons except companies as AOP. It means that Punjab Bar
Council, which is an artificial juridical person, is to be treated as an AOP.
The taxation of AOPs is elaborated in section 92 and 93. If there is a change in the constitution of an AOP, section 98A will
apply. The CBR has clarified that not all AOPs are obliged to deduct tax u/s153 as clause (c) sub-section (9) of the said
section providing that only AOP "constituted by or under law" should act as withholding agent. The concept of AOP under
section 2(6) read with section 80 is different from one provided in section 153(9)(c).
"Banking company" [U/s 2(7)] means a banking company as defined in the Banking Companies Ordinance, 1962 and
includes anybody corporate which transacts the business of banking in Pakistan;
Explanation: Previously only specific statutory bodies like Pakistan Industrial Credit Investment Corporation (PICIC),
ADBF, National Bank of Pakistan, Band of Punjab, formed under specific law and doing banking business, were covered
under this definition, whereas now all bodies corporate, if engaged in banking business in Pakistan, will be considered
banking companies and will be subjected to higher rate of tax, till the time the rate of tax of public and banking companies
come at par.
The body corporate simplicitor and body corporate formed by or under a law are two different categories.
However, the expression "banking business" remains the same in both the enactments meaning by that only those bodies
corporate will be covered which are engaged in the banking business. The "banking business" is not an ordinary dictionary
expression. It has specific, technical meaning under the relevant law i.e. the Banking Companies Ordinance of 1962, which
reads as under:
"Banking Company" means any company which transacts the business of banking in Pakistan.
Banking means accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on
demand or otherwise, and withdraw-able by cheque, draft, or otherwise.
Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money
from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to
transact the business of banking within the meaning of this clause.
"BOARD" [U/s 2(8)] means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 and
on the commencement of Federal Board of Revenue Act, 2007, the Federal Board of Revenue established u/s 3 thereof;
"Bonus shares" [U/s 2(9)] includes bonus units in a unit trust;
Explanation: This is an inclusive definition which retains the generally accepted meaning of the word "bonus shares" but
includes in its ambit "bonus units' in a unit trust. The purpose is to treat profit distribution by NIT and other unit trusts at par
with stock dividend issued by companies. Bonus shares shall now to be taxed separately in the hands of shareholders @
5% due to inclusion of the same in the income as provided in section 2(29) of the Ordinance.
"Business" [U/s 2(10)] includes any trade, commerce, manufacture, profession, vocation or adventure or concern in the
nature of trade, commerce, manufacture, profession or vocation, but does not include employment;
Explanation: The Legislature has merged profession or vocation in the definition of '"business." This definition is not
exhaustive. It includes some specific categories but specifically excludes "employment" meaning by that professionals like
doctors, lawyers, accountants, engineers etc. while deriving income from employment will not be charged to tax under the
head "Income from Business" although they derive emoluments from rendering of professional services.
This verifies the principle laid down in 2000 PTD (Trib.) 457 that professional receipts (hospital share) derived by a doctor in
addition to emoluments as employee are not salary.
"Capital asset" [U/s 2(11)] Capital asset means property of any kind held by a person, whether or not connected with a
business, but does not include the following:
(a) Any stock-in-trade, consumable stores or raw materials held for the purpose of business;
(b) Any depreciable and intangible property; or
(c) Any movable property held for personal use by the person or any member of the persons family dependent on the
person but including the following as stated in section 38(5):
A painting, sculpture, drawing or other work of art, Jewellery, a rare manuscript, folio or book, a postage stamp or first day
cover, a coin or medallion; or an antique.
"Charitable purpose" [U/s 2(11A)] includes relief of the poor, education, medical relief and the advancement of any other
object of general public utility;
"Chief Commissioner Inland Revenue" [U/s 2(11B)] means a person appointed as Chief Commissioner Inland Revenue
u/s208 and includes a Regional Commissioner of Income Tax and a Director-General of Income Tax and Sales Tax;
Explanation: This definition was inserted after merger of income tax, sales tax and federal excise into one unified Inland
Revenue Service and after this insertion, consequently, the definition of "Regional Commissioner" appearing in u/s 2(46A)
was deleted.
"Collective investment scheme" [U/s 2(11C)] Collective Investment Scheme means a closed end fund and open-end
scheme as assigned under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;
Explanation: Closed End Fund means an investment Company or a closed end scheme;
Open end Scheme means a scheme constituted by way of a trust deed that continuously offer for sale its units as
specified in the constituted document that entitle the holder of such units on demand to receive his proportionate share of
net assets of the scheme less any applicable charges.
"Company" [U/s 2(12)] "company" means -
(i) a company as defined in the Companies Ordinance, 1984;
(ii) a body corporate formed by or under any law in force in Pakistan;
(iii) a modaraba;
(iv) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;
(v) a co-operative society, a finance society or any other society;
(va) a non-profit organization
(vb) a trust, an entity or a body of persons established or constituted by or under any law for the time being in force;
(vi) a foreign association, whether incorporated or not, which the Board has, by general or special order, declared to be a
company for the purposes of this Ordinance;
(vii) a Provincial Government;
(viii) a Local Government in Pakistan; or
(ix) a Small Company;
Explanation: This is a referral definition adopting the same meaning as given in section 80. For the interpretation of the
expressions "formed by" or "under any law" see (2000) 82 TAX 52 (H.C.Lah.) = 2000 PTD 3388. A company is defined in the
Companies Ordinance, 1984, as under:
"company" means a company formed and registered under this Ordinance or an existing company;
"Commissioner Inland Revenue" [U/s 2(13)] means a person appointed as Commissioner Inland Revenue and includes
any other authority vested with all or any of the powers and functions of the CIR;
Explanation: The nomenclature of Commissioner Inland Revenue has been changed as a consequence of merger of
income tax, sales tax and federal excise into Inland Revenue Service.
The law after the said amendment envisaged two types of Commissioner Inland Revenues; one appointed as
Commissioner Inland Revenue u/s 208 and the other being taxation officer who was vested with powers of Commissioner
Inland Revenue u/s 209(2). A taxation officer [defined u/s 2(65)] exercising delegated powers u/s 210, however, is not
covered in this definition as explained in section 211(1). The second part of definition only covers those officers who enjoy
original jurisdiction of a case u/s 209(2) and not as delegates u/s 210 and thus to be treated as Commissioner Inland
Revenue as envisaged in section 209(4).
"CIR (Appeals)" [U/s 2(13A)] means a person appointed as a Commissioner Inland Revenue (Appeals) u/s 208;
Explanation: In order to cater for the amendments in income tax, sales tax and federal excise laws, merging all the three
into Inland Revenue. Commissioner Inland Revenue Inland Revenue (Appeals) now hears appeals for income tax, sales tax
and federal excise matters. Commissioner Inland Revenue of Appeals is the first appellate authority. His appointment,
functions and jurisdiction are governed u/s 127 to 129, 208 and 209.
The Board's instructions issued u/s 206 or otherwise are not binding on Commissioner Inland Revenue (Appeals). He is
bound to follow the orders of Income Tax Appellate Tribunal (ITAT) and higher courts as explained in [1996] 73 TAX 132
(Trib)].
Consumer goods [U/s 2(13AA)] means goods that are consumed by the end consumer rather than used in the
production of another good;
"Contribution to an Approved Pension Fund" [U/s 2(13B)] means contribution as defined in rule 2(j) of the Voluntary
Pension System Rules, 2005;
Explanation: At the same time a proviso is added that total tax credit available for the contribution made to approved
employment pension or annuity scheme and approved pension fund under Voluntary Pension System Rules, 2005 should
not exceed the limit prescribed or specified in section 63.
"Co-operative society" [U/s 2(14)] means a co-operative society registered under the Co-operative Societies Act, 1925 or
under any other law for the time being in force in Pakistan for the registration of co-operative societies;
Explanation: This refers to such cooperative societies that are governed under the Cooperative Societies Act of 1925 or
under any other law in force for the registration of cooperative bodies in Pakistan.
The courts have consistently held that cooperative societies are not companies within the ambit of section 16(2)(b) of the
Repealed Ordinance - [now section 80(2)(b)].
Section 3(e) of the Corporative Societies Act, 1925 says: "society" means a society registered or deemed to be registered
under the Act."
Section 2(e) of Corporative Societies Act defines "registered" to mean a society registered or deemed to be registered under
this Act."
The following enactments for registration of various cooperative societies and regulation of their affairs exist:
Cooperative Societies Act, 1925; (ii) Punjab Amendment Act I of 1992; (iii) Co-operative Societies Act, 1912; (iv) Co-
operative Societies Rules, 1927; (v) Sindh Co-operative Societies Reforms Rules, 1973; (vi) Multi-Unit Co-operative
Societies Act, 1942; (vii) Co-operative Development Board Ordinance, 1962; (viii) Co-operative Farming Act, 1976; (ix)
Co-operative Societies (Reforms) Ordinance, 1980; and (x) Sindh Co-operative Farming Societies.
"Debt" [Section 2(15)] means any amount owing, including accounts payable and the amounts owing under promissory
notes, bills of exchange, debentures, securities, bonds or other financial instruments;
Explanation: It is exclusively defined to mean any amount owing, including accounts payable and the sums owing under
promissory notes, bills of exchange, debentures, securities, bonds and other financial instruments.
The various terms used in this definition clause are defined in their respective law as under:
Section 4 of Negotiable Instruments Act, 1881: "Promissory not" - A "promissory note" is an instrument in writing (not
being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay on demand or at
a fixed or determinable future time a certain sum of money only to, or to the order of, a certain person, or to the bearer of the
instrument.
Section 5 of Negotiable Instruments Act, 1881: "Bill of exchange" - A "bill of exchange" is an instrument in writing
containing an unconditional order, signed by the maker, directing a certain person to pay on demand or at a fixed or
determinable future time a certain sum of money only to, or to the order of, a certain person or to the bearer of the
instrument.
An order to pay out of a particular fund is not unconditional within the meaning of this section; but an unqualified order to
pay, coupled with-
(a) an indication of a particular fund out of which the drawee is to reimburse himself or a particular account to be debited
to the amount, or
(b) a statement of the transaction which gives rise to the note or bill, is unconditional.
Where the payee is a fictitious or non-existing person the bill of exchange may be treated as payable to bearer.
Section 2(a) of the Securities Act of 1920: "security - means a marketable deed or document that endeavours to secure
against pecuniary loss, e.g., bearer bonds, stock certificates, treasury bills etc. Currency notes are not covered under this
definition.
Section 2(34) of the Companies Ordinance, 1984: "security' - means any share, scrip, debenture, participation term
certificate, modaraba certificate, musharika certificate, term finance certificate bond, pre-organization certificate or such
other instrument as the Federal Government may, by notification in the official gazette, specify for the purpose.
Section 2(12) of the Companies Ordinance, 1984: "Debenture" - includes debenture stock, bonds, term finance
certificates and any other securities, other than a share of company, whether constituting a charge on the assets of the
company or not.
"Deductible allowance" [U/s 2(16)] means an allowance that is deductible from total income;
Explanation: This definition has been introduced with reference to specific deductions for Zakat and Workers' Welfare Fund
(WWF).
"Depreciable asset" [U/s 2(17)] "depreciable asset" means any tangible movable property, immovable property (other than
unimproved land), or structural improvement to immovable property, owned by a person that -
(a) has a normal useful life exceeding one year;
(b) is likely to lose value as a result of normal wear and tear, or obsolescence; and
(c) is used wholly or partly by the person in deriving income from business chargeable to tax,
but shall not include any tangible movable property, immovable property, or structural improvement to immovable
property in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost
of the property or improvement in the tax year in which the property is acquired or improvement made by the person.
Developmental REIT Scheme [U/s 2(17A)] means Developmental REIT Scheme as defined under the Real Estate
Investment Trust Regulations, 2015;
"Disposal" [U/s 2(18)] A person who holds an asset shall be treated as having made a disposal of the asset at the time
when the asset is sold, exchanged, transferred or distributed or cancelled, redeemed, relinquished, destroyed, lost, expired
or surrendered, transmitted by succession or under a will, in case of a business asset applied to personal use or discarded
or ceased to be used in business.
Explanation of section 2(18) "disposal" However, the language is restrictive and does not convey this meaning. If
definition of the term is only restricted for the purpose of section 75, then this clause is redundant.
Explanation: PE of a non-resident is taxable on attributable profits in Pakistan u/s 105 or in terms of applicable provisions of
a double taxation treaty, if available. A Branch and head office is not independent or separate entities as are a holding or a
subsidiary company.
Example: Iqbal Industries (Pvt.) Ltd. had paid up capital of Rs.100,000 divided into 10,000 shares of Rs.10 each and
accumulated profit of Rs.50,000 at the time of liquidation. The official liquidator realized Rs.380,000 out of which Rs.230,000
was paid to the creditors. Remaining was paid to shareholders. Mr. Amir had 500 shares at the time of liquidation.
Required: Calculate (a) the amount received by Amir and (b) how much out of this amount is to be treated as dividend
income.
Solution:
Total amount received by Amir (150,000 x 500 / 10,000) 7,500
Amount treated as dividend to the extent of accumulated profit
(50,000 x 500 / 10,000) 2,500
Example: Under what circumstances advance or loan to a shareholder by a private company would be treated as 'dividend'
with reference to the Income tax Ordinance, 2001.
Solution: Loan or advance to the extent of accumulated profits paid to a shareholder by a private company as defined in the
Companies Ordinance, 1984 or by a trust shall be treated as dividend.
However, if the company is involved in the business of money lending then loan or advance in the ordinary course of
business shall not be treated as dividend.
"Eligible Person" [U/s 2(19A)] for the purpose of Voluntary Pension System Rules, 2005, means an individual Pakistani
who holds a valid National Tax Number or Computerised National Identity Card or National Identity Card for Overseas
Pakistanis issued by the National Database and Registration Authority:
Provided that the total tax credit available for the contribution made to approved employment pension or annuity scheme and
approved pension fund under Voluntary Pension System Rules, 2005, should not exceed the limit prescribed or specified in
section 63.
Explanation: For the purpose of voluntary pension scheme, the condition of computerized National Identity Cards or
National Identity Card for Overseas Pakistanis is provided in case of non-availability of National Tax Number.
"Definitions in Electronic Transactions Ordinance" [U/s 2(19B)] the expressions "addressee", "automated",
"electronic", "electronic signature", "information", "information system", "originator" and "transaction", shall have
the same meanings as are assigned to them in the Electronic Transactions Ordinance, 2002;
"Electronic record" [U/s 2(19C)] includes the contents of communications, transactions and procedures under this
Ordinance, including attachments, annexes, enclosures, accounts, returns, statements, certificates, applications, forms,
receipts, acknowledgements, notices, orders, judgments, approvals, notifications, circulars, rulings, documents and any
other information associated with such communications, transactions and procedures, created, sent, forwarded, replied to,
transmitted, distributed, broadcast, stored, held, copied, downloaded, displayed, viewed, read, or printed, by one or several
electronic resources and any other information in electronic form;
"Electronic resource" [U/s 2(19D)] includes telecommunication systems, transmission devices, electronic video or audio
equipment, encoding or decoding equipment, input, output or connecting devices, data processing or storage systems,
computer systems, servers, networks and related computer programs, applications and software including databases, data
warehouses and web portals as may be prescribed by the Board from time to time, for the purpose of creating electronic
record;
"Telecommunication system" [U/s 2(19E)] includes a system for the conveyance, through the agency of electric,
magnetic, electro-magnetic, electro-chemical or electro-mechanicals energy, of speech, music and other sounds, visual
images and signals serving for the impartation of any matter otherwise than in the form of sounds or visual images and also
includes real time online sharing of any matter in manner and mode as may be prescribed by the Board from time to time.";
Explanation of u/s 2(19B) to (19E): The insertion of three expressions, namely, "electronic record", "electronic resource"
and "telecommunication system" should have been under their respective alphabetical place, a pattern universally applied in
section 2.
These definitions are necessitated by the fact that the law now requires mandatory e-filing by the companies. These
expressions take into account the mode of keeping electronic record and method of its communication through electronic
modes.
"Employee" [U/s 2(20)] means any individual engaged in employment;
Explanation: This is an exclusive definition which says that "employee" means any individual engaged in employment.
"Employer" [U/s 2(21)] means any person who engages and remunerates an employee;
Explanation: This is an exclusive definition that says that "employer" means a person who engages and remunerates an
employee.`
"Employment [U/s 2(22)] includes -
(a) a directorship or any other office involved in the management of a company;
(b) a position entitling the holder to a fixed or ascertainable remuneration; or
(c) the holding or acting in any public office;
Explanation: The legislature wants to treat certain persons as employees although in their case the relationship of
"employer" and "employee" (master and servant) is not in existence. Such persons draw remuneration by way of holding
office and not through employment, but for the purpose of this Ordinance they are to be treated as employees. These
include amongst others the President, MNAs, MPAs and part-time directors of companies etc.
Fast moving consumer goods [U/s 2(22A)] means consumer goods which are supplied in retail marketing as per daily
demand of a consumer;
"Fee for technical services" [U/s 2(23)] means any consideration, whether periodical or lump sum, for the rendering of
any managerial, technical or consultancy services including the services of technical or other personnel, but does not
include-
(a) consideration for services rendered in relation to a construction, assembly or like project undertaken by the recipient;
or
(b) consideration which would be income of the recipient chargeable under the head "Salary";
Explanation: The key words in this definition are "managerial", "technical" or "consultancy" services, including services of
"technical" or "other" personnel. The contracts for services are distinguishable on the parameters of "technical" and "non-
technical" services, although the line of demarcation may be very thin and difficult to be drawn in certain circumstances.
Filer [U/s 2(23A)] means a taxpayer whose name appears in the active taxpayers list issued by the Board from time
to time or is holder of a taxpayers card.
"Financial institution" [U/s 2(24)] means an institution as defined under the Companies Ordinance, 1984 as follows;
Explanation: This is an inclusive definition that in addition to finance societies established under the relevant law covers all
such cooperative societies that accept money on deposit or otherwise for the purpose of advancing loans or making
investment in the ordinary course of their business.
"Firm" [U/s 2(26)] "firm" means the relation between persons who have agreed to share the profits of a business carried on
by all or any of them acting for all;
Explanation: This has the meaning as defined in section 80 which is the same as contained in the Partnership Act of 1932:
"Foreign-source income" [U/s 2(27)] An amount shall be foreign-source income to the extent to which it is not Pakistan-
source income.
Explanation: It means income as defined u/s 101(16). Section 101 has to be kept in mind to determine whether any income
is foreign-source or not. The concept of geographical source of income has been provided in the Ordinance to distinguish
between incomes accruing or arising in Pakistan or treated to be so and those having no Pakistani connection.
"House Building Finance Corporation" [U/s 2(28)] means the Corporation constituted under the House Building Finance
Corporation Act, 1952;
Explanation: This refers to statutory corporation viz. House Building Finance Corporation (HBFC) established under the
relevant Act, 1952.
Imputable income [U/s 2(28A)] in relation to an amount subject to final tax means the income which would have
resulted in the same tax, had this amount not been subject to final tax;
"Income" [U/s 2(29)] includes any amount chargeable to tax under this Ordinance, any amount subject to collection or
deduction of tax at source covered under final tax regime, any amount treated as income under any provision of this
Ordinance and any loss of income;
Explanation: The Ordinance describes different sources of income and prescribes various modes of computation under
each head. The definition in this clause is inclusive and not exhaustive. It includes all kinds of profits and gains or receipts
that are chargeable to tax under this Ordinance.
In the expression "income" the amounts subjected to collection of tax u/s 148, 150, 152(1), 153, 154, 156, 156A, 233, 233A,
234(5), 236M and 236N were included. The word "deduction" has also been added to preclude the possibility of any benefit
by interpreting that only where some tax is collected income will be chargeable to tax and not otherwise. Likewise after
section 234 the words "any amount treated as income under any provision of this Ordinance" are added to cover those
incomes which are artificially made taxable under the Ordinance.
Example: Mr. A is a filer and being as shareholder of S Ltd. In tax year 2016 he received net dividend of Rs.18,000 and
bonus shares of having day end (ex-bonus) value on first day of closure of books Rs.50,000. Calculate his taxable income
and tax liability for tax year 2016.
Solution:
Mr. A
Tax year 2016
Computation of taxable income and tax liability: Rs.
Dividend (Final Tax Regime) (18,000 x 100/90) 20,000
Bonus shares (Final Tax Regime) (at first day end price) 50,000
34 Conceptual Approach to Taxes
Preliminary Chapter-04
Explanation: This definition is retained as still used and is relevant under a number of provisions of the new Ordinance.
"Individual Pension Account" [U/s 2(29B)] means an account maintained by an eligible person with a Pension Fund
Manager approved under the Voluntary Pension System Rules, 2005;
Explanation: This refers to assets mentioned in section 24, viz. all shades of intellectual property, or other like property or
right that provides advantage or benefit for a period of more than one year. This is an exclusive definition and therefore
eliminates any other possible meaning of the term "intangible." Since the word "intangible" is defined in section 2, it covers
the entire Ordinance unless there is anything repugnant in the subject or context.
"Investment company" [U/s 2(30A)] means an investment company as defined in the Non-Banking Finance Companies
Rules, 2003;
Explanation: "Investment company" was not defined in Investment Companies Advisors Rules, 971. Rather, certain
conditions were laid down for the companies intending to carry on the business of investment. They were as under:
Eligibility for registration
A company proposing to commence business as an investment company shall be eligible for registration under these rules if
it fulfils or complies with the following conditions or requirements, namely:-
- that such company is registered as a public limited company under the Companies Ordinance, 1984;
- that it is to function as a closed-end investment company with a capital of not less than Rs. 100 million:
Provided that an existing investment company shall raise its capital to Rs.100 million within a period of 3 years;
- that no director, officer or employee of such company has been convicted of fraud or breach of trust;
- that no director, officer or employee of such company has been adjudicated as insolvent or has suspended payment
or has compounded with his creditors;
that the promoters of such company are, in the opinion of the Authority, persons of means and integrity and have special
knowledge of matters which the company may have to deal with as an investment company.
KIBOR [U/s 2(30AA)] means Karachi Interbank Offered Rate applicable on first day of each quarter of the financial year-
Explanation: The introduction of KIBOR as basis for calculating additional tax and compensation rather than determining
these without prevalent market rates. U/s 171 at KIBOR concept has been introduced but for levy of additional tax u/s 205,
KIBOR plus 3% is discriminatory. For both purposes, the same basis should be applied.
"Leasing company" [U/s 2(30B)] means a leasing company as defined in the Non-Banking Finance Companies and
Notified Entities Regulation, 2007;
Explanation: The relevant provision of the said law reads as under:
"Leasing company" means a company engaged wholly in the business of leasing or which invests in such business at any
one time an amount equivalent to at least 75% of its assets.
Provided that cash and bank balances and investment in government securities shall be excluded to calculate investment in
leasing business for purposes of this definition.
"Liquidation" [U/s 2(31)] in relation to a company, includes the termination of a trust;
Explanation: This is an inclusive definition that in addition to the term 'liquidation' in relation to a company also covers the
termination of a trust.
"Local Government" [U/s 2(31A)] shall have the same meaning as in the Punjab Local Government Ordinance, 2001, the
Sindh Local Government Ordinance, 2001, the NWFP Local Government Ordinance, 2001 and the Baluchistan Local
Government Ordinance, 2001;
Explanation: The expression, "Local Government" has been inserted, replacing the term "local authority" wherever it
appears in the Ordinance. These two expressions are different in scope under their respective laws. The expression "local
authority" as denned in Section 2(28) of the General Clauses Act, 1897 has peculiar legal connotations to cover even "local
government" institutions. Definition of the term "Local Governments" which is a system of governance introduced in 2001
cannot be a substitute for "local authority".
Explanation: This is in relation to an AOP which also now includes partner in a firm as u/s 80 firms under the Partnership
Act are now included in the term 'AOP'-
"Minor child" [U/s 2(33)] means an individual who is under the age of 18 years at the end of a tax year;
Explanation: This is a new definition prescribing the age of 18 years for minority at the end of the tax year.
"Modaraba" [U/s 2(34)] means a modaraba as defined in the modaraba Companies and Modarabas (Floatation and
Control) Ordinance, 1980;
Explanation of u/s 2(34)"modaraba"
It means a Modaraba as defined in the Modaraba Companies and Modarabas Ordinance, 1980. The definition of the term in
the said law reads as under:
"Modaraba" means a business in which a person participates with his money and another with his efforts or skill or both his
efforts and skill and shall include Unit Trusts and Mutual Funds by whatever name called;
"Modaraba certificate" [U/s 2(35)] means a modaraba certificate as defined in the Modaraba Companies and Modarabas
(Floatation and Control) Ordinance, 1980;
Explanation: It has the same meaning as under the relevant law i.e. Modaraba Companies and Modarabas Ordinance of
1980., which says;
"Modaraba Certificate" means a certificate'' of definite denomination issued to the subscriber of the Modaraba
acknowledging receipt of money subscribed by him;
"modaraba company" means a company engaged in the business of floating and managing modaraba;
"Mutual Fund" [U/s 2(35A)] means a mutual fund registered or approved by the Securities and Exchange Commission of
Pakistan;
Explanation: The definition of "mutual fund" cover only such funds that are approved by the Securities and Exchange
Commission of Pakistan (SECP). Previously this condition was not imposed.
NCCPL [U/s 2(35AA)] means National Clearing Company of Pakistan Limited, which is a company
incorporated under the Companies Ordinance, 1984 and licensed as Clearing House by the SECP;
"Non-banking finance company" [U/s 2(35B)] means an Non-Banking Finance Company (NBFC) as defined in the
Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
Explanation: There was a choice between a specific definition of every type of financial institution and one general definition
covering all of them. At present there simultaneously exist specific definitions in respect of various financial institutions as
well as general definition of the expression 'financial institutions'. Drafting assignments should be given to some professional
draftsmen to make the new Ordinance free of such legal mistakes and duplications.
Non Filer [U/s 2(35C)] means a person who is not a filer.
"Non-profit organization" [U/s 2(36)] means any person other than an individual, which is -
(a) established for religious, educational, charitable, welfare or development purposes, or for the promotion of an
amateur sport;
(b) formed and registered under any law as a non-profit organization;
(c) approved by the Commissioner Inland Revenue for specified period, on an application made by such person in the
prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents
as may be required by the Commissioner Inland Revenue and none of the assets of such person confers, or may
confer, a private benefit to any other person;
Explanation: It covers organizations running for charitable, religious,-educational purposes and promotion of non-
professional sport. It covers such organizations that adhere to the above activities and get registered with the Commissioner
Inland Revenue and do not confer a private benefit on any other person. The concept is similar to organizations covered
under Rule 47(1) (d) of the repealed Income Tax Rules, 1982. For approval in terms of sub-clause (c) please see rule 211.
"Non-resident person" [U/s 2(37)] A person shall be a non-resident person for a tax year if the person is not a resident
person for that year.
Explanation: It means a person defined in section 81 as "A person shall be a non-resident person for a tax year if the
person is not a resident person for that year."
"Non-resident taxpayer" [U/s 2(38)] means a taxpayer who is a non-resident person;
Explanation: It means a person who is covered in clause (37) above.
"Officer of Inland Revenue" [U/s 2(38A)] means any Additional Commissioner Inland Revenue, Deputy Commissioner
Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officer, Inland Revenue Audit Officer or any
other officer howsoever designated or appointed by the Board for the purposes of this Ordinance;
Explanation: The expression "taxation officer" defined in omitted clause (65) of section 2 became redundant after merger of
income tax, sales tax and federal excise in Inland Revenue Service.
"Originator" [U/s 2(39)] means Originator as defined in the Asset Backed Securitization Rules, 1999;
Explanation: It is as defined in Asset Backed Securitization Rules, 1989 as means a person who transfers to a Special
Purpose Vehicle any assets in the form of present or future receivables as a consequence of Securitization;
"Pakistan-source income" [U/s 2(40)]
(1) Salary shall be Pakistan-source income to the extent to which the salary -
(a) is received from any employment exercised in Pakistan, wherever paid; or
(b) is paid by, or on behalf of, the Federal Government, a Provincial Government, or a Local Government in
Pakistan, wherever the employment is exercised.
(2) Business income of a resident person shall be Pakistan-source income to the extent to which the income is
derived from any business carried on in Pakistan.
(3) Business income of a non-resident person shall be Pakistan-source income to the extent to which it is directly or
indirectly attributable to -
(a) a permanent establishment of the non-resident person in Pakistan;
(b) sales in Pakistan of goods merchandise of the same or similar kind as those sold by the person through a
permanent establishment in Pakistan;
(c) other business activities carried on in Pakistan of the same or similar kind as those effected by the non-
resident through a permanent establishment in Pakistan; or
(d) any business connection in Pakistan.
(4) Where the business of a non-resident person comprises the rendering of independent services (including
professional services and the services of entertainers and sports persons), the Pakistan-source business income of
the person shall include in addition to any amounts treated as Pakistan-source income under sub-section (3) any
remuneration derived by the person where the remuneration is paid by a resident person or borne by a permanent
establishment in Pakistan of a non-resident person.
(5) Any gain from the disposal of any asset or property used in deriving any business income referred to in sub-
section (2), (3) or (4) shall be Pakistan-source income.
(6) A dividend shall be Pakistan-source income if it is paid by a resident company.
(7) Profit on debt shall be Pakistan-source income if it is -
(a) paid by a resident person, except where the profit is payable in respect of any debt used for the purposes of a
business carried on by the resident outside Pakistan through a permanent establishment; or
(b) borne by a permanent establishment in Pakistan of a non-resident person.
(8) A royalty shall be Pakistan-source income if it is -
(a) paid by a resident person, except where the royalty is payable in respect of any right, property, or information
used, or services utilised for the purposes of a business carried on by the resident outside Pakistan through a
permanent establishment; or
(b) borne by a permanent establishment in Pakistan of a non-resident person.
(9) Rental income shall be Pakistan-source income if it is derived from the lease of immovable property in Pakistan
whether improved or not, or from any other interest in or over immovable property, including a right to explore for, or
exploit, natural resources in Pakistan.
(10) Any gain from the alienation of any property or right referred to in sub-section (9) or from the alienation of any
share in a company the assets of which consist wholly or principally, directly or indirectly, of property or rights referred
to in sub-section (9) shall be Pakistan-source income.
(11) A pension or annuity shall be Pakistan-source income if it is paid by a resident or borne by a permanent
establishment in Pakistan of a non-resident person.
(12) A technical fee shall be Pakistan-source income if it is -
(a) paid by a resident person, except where the fee is payable in respect of services utilised in a business carried
on by the resident outside Pakistan through a permanent establishment; or
(b) borne by a permanent establishment in Pakistan of a non-resident person.
(13) Any gain arising on the disposal of shares in a resident company shall be Pakistan-source income.
(13A) Any amount paid on account of insurance or re-insurance premium by an insurance company to an overseas
insurance or re-insurance company shall be deemed to be Pakistan source income.
(14) Any amount not mentioned in the preceding sub-sections shall be Pakistan-source income if it is paid by a resident
person or borne by a permanent establishment in Pakistan of a non-resident person.
(15) Where an amount may be dealt with under sub-section (3) and under another sub-section (other than sub-section
(14)), this section shall apply -
(a) by first determining whether the amount is Pakistan-source income under that other sub-section; and
(b) if the amount is not Pakistan-source income under that sub-section, then determining whether it is Pakistan-
source income under sub-section (3).
(16) An amount shall be foreign-source income to the extent to which it is not Pakistan-source income.
Explanation: It means income defined in section 101 covering both the Pakistan source and foreign source income.
"Pension Fund Manager" [U/s 2(40A)] means an asset management company registered under the Non-Banking Finance
Companies Rules, 2003, or a life insurance company registered under Insurance Ordinance, 2000, duly authorized by the
Securities and Exchange Commission of Pakistan and approved under the Voluntary Pension System Rules, 2005, to
manage the Approved Pension Fund;
"Permanent establishment" [U/s 2(41)] Means a fixed place of business through which the business of the person is
wholly or partly carried on, and includes:
(a) a place of management, branch, office, factory or workshop, premises for soliciting orders, warehouse, permanent
sales exhibition or sales outlet, other than a liaison office except where the office engages in the negotiation of
contracts (other than contracts of purchase);
(b) a mine, oil or gas well, quarry or any other place of extraction of natural resources;
(c) an agricultural, pastoral or forestry property;
(d) a building site, a construction, assembly or installation project or supervisory activities connected with such site or
project but only where such site, project and its connected supervisory activities continue for a period or periods
aggregating more than ninety days within any twelve-months period ;
(e) the furnishing of services, including consultancy services, by any person through employees or other personnel
engaged by the person for such purpose;
(f) a person acting in Pakistan on behalf of the person other than an agent of independent status acting in the ordinary
course of business as such, if the agent -
(i) has and habitually exercises an authority to conclude contracts on behalf of the other person;
(ii) has no such authority, but habitually maintains a stock-in-trade or other merchandise from which the agent
regularly delivers goods or merchandise on behalf of the other person; or
(g) any substantial equipment installed, or other asset or property capable of activity giving rise to income;
Explanation: The concept of PE was never a part of the domestic law and was always defined in various tax treaties. The
definition of PE incorporated in the new Ordinance is based on OECD Model Tax Treaty. It takes into account elaborate
situations and eventualities that constitute PE.
"Person" [U/s 2(42)] The following shall be treated as persons for the purposes of this Ordinance, namely:-
(a) An individual;
(b) a company or AOP incorporated, formed, organised or established in Pakistan or elsewhere;
(c) the Federal Government, a foreign government, a political sub-division of a foreign government, or public international
organisation
Explanation: This refers to the term defined in section 80.
PMEX [U/s 2(42A)] means Pakistan Mercantile Exchange Limited a futures commodity exchange company
incorporated under the Companies Ordinance,1984 and is licensed and regulated by the Securities and Exchange
Commission of Pakistan;
"Pre-commencement expenditure" [U/s 2(43)]
(1) A person shall be allowed a deduction for any pre-commencement expenditure in accordance with this section.
(2) Pre-commencement expenditure shall be amortized @ 20% on straight-line basis.
(3) The total deductions allowed in the current tax year and all previous tax years in respect of pre-commencement
expenditure shall not exceed the amount of the expenditure.
(4) No deduction shall be allowed where a deduction has already been allowed under any other section for the entire
amount of the pre-commencement expenditure in the tax year in which it is incurred.
(5) In this section, "pre-commencement expenditure" means any expenditure incurred before the commencement of a
business wholly and exclusively to derive income chargeable to tax, including the cost of feasibility studies,
construction of prototypes, and trial production activities, but shall not include any expenditure which is incurred in
acquiring land, or which is depreciable or amortized.
Explanation: This refers to expenditure referred to in section 25.
Example: A company incurred following expenses before commencement of its commercial activity.
Cost of feasibility study Rs. 40,000
Cost of trial production activities Rs. 20,000
Purchase of fixed assets Rs. 2,500,000
Required: Calculate the amount of pre-commencement expenses.
Solution:
Pre-commencement expenses Rs.
Cost of feasibility study 40,000
Cost of trial production 20,000
Total 60,000
"Prescribed" [U/s 2(44)] means prescribed by rules made under this Ordinance;
Explanation: It means as prescribed by the rules made under this Ordinance. The Board enjoys powers to make rules u/s
237. The rule-making power of the Board is subject to the limitation that any rule made should not be violative of the statute.
If a rule is repugnant to law, it will be ultra vires having no legal effect. The statements, forms, returns etc. prescribed by
rules have legal force and both the taxpayers and taxation officers are bound to make compliances, wherever required, in
the prescribed manner.
"Principal officer" [U/s 2(44A)] used with reference to a company or AOP includes -
(a) a director, a manager, secretary, agent, accountant or any similar officer; and
(b) any person connected with the management or administration of the company or AOP upon whom the Commissioner
Inland Revenue has served a notice of treating him as the principal officer thereof;
Explanation: The concept of Principal Officer is very important with reference to a company or an AOP against whom any
proceeding under the law has to be initiated. The definition covers a director, a manager, a secretary, an agent, any similar
officer as Principal Officer or any person connected with the management and administration of a company or association of
persons as Principal Officer on which the Commissioner Inland Revenue serves a notice.
"Private company" [U/s 2(45)] means a company that is not a public company;
Explanation: Private company under the Ordinance is defined exhaustively to mean a company that is not a public
company. The term "public company" is denned in section 2(47). So all the companies which are not covered in clause (47)
will automatically fall in the category of private companies. For the purpose of this Ordinance even the non-listed public
companies, which under the Companies Ordinance, 1984 are not private companies, are to be considered as private.
"Profit on a debt" [U/s 2(46)] whether payable or receivable, means -
(a) any profit, yield, interest, discount, premium or other amount, owing under a debt, other than a return of capital; or
(b) any service fee or other charge in respect of a debt, including any fee or charge incurred in respect of a credit facility
which has not been utilized;
Explanation: It is an exhaustive definition which means any profit, yield, interest, discount, premium or other amount
payable or receivable under a debt, other than a return on capital and any service fee or other charge in respect of a debt
including any such charge on a credit facility which has not been utilized.
"Public company" [U/s 2(47)] means -
(a) a company in which not less than 50% of the shares are held by the Federal Government or Provincial Government;
(ab) a company in which not less than 50% of the shares are held by a foreign Government, or a foreign company owned
by a foreign Government;
(b) a company whose shares were traded on a registered stock exchange in Pakistan at any time in the tax year and
which remained listed on that exchange at the end of that year; or
(c) a unit trust whose units are widely available to the public and any other trust as defined in the Trusts Act, 1882;
Explanation: It is defined to mean a company in which at least 50% of the shares are held by the Federal or Provincial
Governments, listed companies and unit trusts and any other public trust. This is a specific definition that has nothing to do
with the Companies Ordinance 1984, where the term is defined differently.
REIT Scheme [U/s 2(47A)] means a REIT Scheme as defined in the Real Estate Investment Trust Regulations
2015;
"Real Estate Investment Trust Management Company (RMC)" [U/s 2(47B)] means RMC as defined under the Real
Estate Investment Trust Regulations, 2015;
Rental REIT Scheme [U/s 2(47C)] means a Rental REIT Scheme as defined under the Real Estate Investment
Trust Regulations, 2015;
Explanation of u/s 2(47A) and (47Bl: "Real Estate Investment Trust (REIT) Scheme" and "Real Estate Investment
Trust Management Company (REITMC)"
These corporate bodies approved by the Securities and Exchange Commission Pakistan are meant for the purpose of
investment in real estate. These two entities have been given special benefits under the ITO, 2001 to promote a dose end
collective scheme constituted as a unit trust and managed by a real estate trust management company.
"Recognised provident fund" [U/s 2(48)] means a provident fund recognised by the Commissioner Inland Revenue in
accordance with Part I of the Sixth Schedule;
Explanation: It means a provident fund recognized in accordance with Part I of the Sixth Schedule.
"Rent" [U/s 2(49)] means rent as defined in section 15(2) and includes an amount treated as rent u/s 16; "rent" means any
amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to
use or occupy, the land or building, and includes any forfeited deposit paid under a contract for the sale of land or a building.
Rent also includes Non-adjustable amounts received in relation to buildings.
Explanation: The word "rent" wherever used in the Ordinance will have the above meanings unless the context otherwise
requires,
"Repealed Ordinance" [U/s 2(49A)] means Income Tax Ordinance, 1979;
Explanation: The Income Tax Ordinance, 1979 as a reference wherever appears in the new Ordinance will be referred to
as "repealed Ordinance". Repeal and savings should be seen in section 239.
"Resident company" [U/s 2(50)] A company shall be a resident company for a tax year if -
(a) it is incorporated or formed by or under any law in force in Pakistan;
(b) the control and management of the affairs of the company is situated wholly in Pakistan at any time in the year; or
(c) it is a Provincial Government or Local Government in Pakistan.
Explanation: A company shall be a resident company u/s 83 of the ITO, 2001 for a tax year if-
(a) it is incorporated or formed by or under any law in force in Pakistan;
(b) the control and management of affairs of company is situated wholly or almost wholly in Pakistan at any time in the
year; or
(c) it is a Provincial Government or local government in Pakistan.
"Resident individual" [U/s 2(51)] An individual shall be a resident individual for a tax year if the individual -
(a) is present in Pakistan for a period of, or periods amounting in aggregate to, 183 days or more in the tax year; or
(b) is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year.
The following method shall be used to determine residential status of an individual under Rule 14 of the Income tax
Rules, 2002
(a) Subject to clause (c), a part of a day that an individual is present in Pakistan (including the day of arrival in, and the
day of departure from, Pakistan) counts as a whole day of such presence;
(b) the following days in which an individual is wholly or partly present in Pakistan count as a whole day of such
presence, namely:-
(i) a public holiday;
(ii) a day of leave, including sick leave;
(iii) a day that the individual's activity in Pakistan is interrupted because of a strike, lock-out or delay in receipt of
supplies; or
(iv) a holiday spent by the individual in Pakistan before, during or after any activity in Pakistan; and
(c) a day or part of a day where an individual is in Pakistan solely by reason of being in transit between two different
places outside Pakistan does not count as a day present in Pakistan.
Explanation: It means a person denned u/s 82 an individual shall be a resident individual for a tax year if the individual-
(a) is present in Pakistan for a period of, or periods amounting in aggregate to,183 days or more in the tax year; or
(b) is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year.
"Resident person" [U/s 2(52)] A person shall be a resident person for a tax year if the person is -
(a) a resident individual, resident company or resident AOP for the year; or
(b) the Federal Government.
Explanation: It means a person denned u/s 81 person shall be a resident person for a tax year if the person is-
(a) a resident individual, resident company or resident association of persons for the year; or
(b) the Federal Government.
"Resident taxpayer" [U/s 2(53)] means a taxpayer who is a resident person;
Solution:
Non-resident (a) Resident (b) and (c)
"Royalty" [U/s 2(54)] means any amount paid or payable, as consideration for -
(a) the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other like
property or right;
(b) the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for use in
connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the
sale, distribution or exhibition of cinematograph films;
(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 ancillary and subsidiary to, and is furnished as a means of enabling the
application or enjoyment of, any such property or right; and
(g) the disposal of any property or right.
"Salary" [U/s 2(55)] means salary as defined in section 12;
Explanation: This refers to salary as defined in section 12 which means any amount received by an employee from any
employment, whether of a revenue or capital nature, including from clauses (a) to (g) of the said section.
"Schedule" [U/s 2(56)] means a Schedule to this Ordinance;
Explanation: It means a schedule to this Ordinance, The schedules are as good as other parts of the statutes and it is
wrong to assume that in case of conflict between statute and schedules, the latter will prevail. In fact, in case of such a
conflict harmonious approach is to be adopted by the courts.
"Securitization" [U/s 2(57)] means securitization as defined in the Asset Backed Securitization Rules, 1999;
Explanation: "Securitization" means a process whereby any Special Purpose Vehicle raises funds by issue of Term
Finance Certificates or any other instruments with the approval of the Commission, for such purpose and uses such funds by
making; payment to the Originator and through such process acquires the title, property or right in the receivables or other
assets in the form of actionable claims;
"Share" [U/s 2(58)] in relation to a company, includes a modaraba certificate and the interest of a beneficiary in a trust
(including units in a trust);
Explanation: This is an inclusive definition which in addition to the ordinary meaning of the expression "share" includes
Modaraba Certificates and the interest of a beneficiary in a trust including unit trust. The aim is to bring these two categories
at par with shareholders of companies as far as taxation of distribution of profit by modarabas and unit trusts is concerned.
"Shareholder" [U/s 2(59)] in relation to a company, includes a modaraba certificate holder, a unit holder of a unit trust and
a beneficiary of a trust;
Explanation: It includes Modaraba Certificate holder and beneficiary of a trust. Since this is an inclusive definition all other
shareholders automatically fall under its meaning.
"Small Company" [U/s 2(59A)] means a company registered on or after 1.7.2005, under the Companies Ordinance, 1984,
which,-
(i) has paid up capital plus undistributed reserves not exceeding Rs.50 million;
(ia) has employees not exceeding 250 at any time during the year;
(ii) has annual turnover not exceeding Rs.250 million; and
(iii) is not formed by the splitting up or the reconstitution of company already in existence;
Explanation: 'Small Company" is denned to mean a company registered on or after 1st July 2005 under the Companies
Ordinance 1984 having paid-up capital plus undistributed reserves not exceeding Rs. 50 million and has an annual turnover
not exceeding Rs. 250 million and the number of employees during the year at any time should not exceed 250. To qualify
under this category the company should not be formed by the splitting up or the reconstitution of the business already in
existence. There has been a demand to promote corporate culture in the country to encourage formal and documented
businesses.
"Special Judge " [U/s 2(59B)] means the special judge appointed u/s 203.
"Special Purpose Vehicle" [U/s 2(60)] means a Special Purpose Vehicle as defined in the Asset Backed Securitization
Rules, 1999;
"Speculation business" [U/s 2(61)] "speculation business" means any business in which a contract for the purchase
and sale of any commodity (including stocks and shares) is periodically or ultimately settled otherwise than by the actual
delivery or transfer of the commodity, but does not include a business in which -
(a) a contract in respect of raw materials or merchandise is entered into by a person in the course of a manufacturing or
mercantile business to guard against loss through future price fluctuations for the purpose of fulfilling the person's
other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold;
(b) a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss in the
person's holding of stocks and shares through price fluctuations; or
(c) a contract is entered into by a member of a forward market or stock exchange in the course of any transaction in the
nature of jobbing arbitrage to guard against any loss which may arise in the ordinary course of the person's business
as such member.
"Stock fund" [U/s 2(61A)] means a collective investment scheme or a mutual fund where the investible funds are
invested by way of equity shares in companies, to the extent of more than seventy five (75%) of the investment.
"Stock-in-trade" [U/s 2(62)] "stock-in-trade" means anything produced, manufactured, purchased, or otherwise acquired
for manufacture, sale or exchange, and any materials or supplies to be consumed in the production or manufacturing
process, but does not include stocks or shares;
Explanation: The persons who are dealing in stocks or shares will not be taxed u/s 18 and in their case any gain or loss
arising from the disposal of such commodities will be considered as capital gain.
"Tax" [U/s 2(63)] means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or
amount leviable or payable under this Ordinance;
Explanation: It means any tax imposed and includes any penalty, fee or other charge or any sum or amount leviable or
payable under this Ordinance.
"Taxable income" [U/s 2(64)] The taxable income of a person for a tax year shall be the total income of the person for
the year reduced (but not below zero) by the total of any deductible allowances under Part IX of this Chapter of the person
for the year.
Example: From following information, compute taxable income of the person.
Total income 400,000
Zakat paid to central zakat fund 10,000
Solution:
Total income 400,000
Less: Zakat 10,000
Taxable income 390,000
Explanation of u/s 2(64)"taxable Income" It refers to the definition given in section 9 which reads as under:
The taxable income of a person for a tax year shall be the total income of the person for the year reduced (but not below
zero) by the total of any deductible allowances.
"Taxpayer" [U/s 2(66)]
means any person who derives an amount chargeable to tax under this Ordinance, and includes-
(a) any representative of a person who derives an amount chargeable to tax;
(b) any person who is required to deduct or collect tax; or
(c) any person required to furnish a return of income or pay tax;
Explanation: It means any person who derives any amount chargeable under this Ordinance and includes.-
1. Any representative of a person, as defined u/s 172.
2. Any person who is required to collect or deduct tax under this Ordinance.
3. Any person required to furnish a return of income or pay tax under this Ordinance.
"Tax treaty" [U/s 2(67) and 107]
(1) The Federal Government may enter into an agreement with the foreign government for the avoidance of double
taxation and the prevention of fiscal evasion with respect to taxes on income imposed under this Ordinance and
under the corresponding laws in force in that country and may by notification make such provisions necessary for
implementing the agreement.
(2) Where any agreement is made as above the same shall be effective even anything contained in any law for the time
being in force with respect to the following for:
(a) relief from the tax payable under this Ordinance;
(b) the determination of the Pakistan-source income of non-resident persons;
(c) where all the operations of a business are not carried on within Pakistan, the determination of the income
within and outside Pakistan, or the income chargeable to tax in Pakistan in the hands of non-resident persons,
including their agents, branches, and permanent establishments in Pakistan;
(d) the determination of the income to be attributed to any resident person having a special relationship with a
non-resident person; and
(e) the exchange of information for the prevention of fiscal evasion or avoidance of taxes on income chargeable
under this Ordinance and under the corresponding laws in force in that other country.
(3) Any agreement referred above may include provisions for the relief from tax for any period before the commencement
of this Ordinance or before the making of the agreement.
"Tax year" [U/s 2(68)]
(1) Normal tax year shall be a period of twelve months ending on the 30th day of June and shall be denoted by the
calendar year in which the said date falls.
(2) Where a person's income year is different from the normal tax year such income year or period shall be that person's
special tax year.
(3) The Board in the case of a class of persons having a special tax year different from a normal tax year may permit to
use a normal tax year or vice versa.
(4) A person may apply, in writing, to the Commissioner Inland Revenue to allow him to use a twelve months' period,
other than normal tax year, as special tax year and the Commissioner Inland Revenue may by an order, allow him to
use such special tax year and vice versa.
(5) The Commissioner Inland Revenue shall grant permission only if the person has shown a compelling need to use
special tax year or normal tax year on such conditions as deem fit.
(6) An order shall be made after providing to the applicant an opportunity of being heard and where his application is
rejected the Commissioner Inland Revenue shall record in the order the reasons for rejection.
(7) The Commissioner Inland Revenue may, after providing to the person concerned an opportunity of being heard, by
an order, withdraw the permission granted.
(8) An order shall take effect from such date as may be specified in the order.
(9) Where the tax year of a person changes as a result of an order the period between the end of the last tax year prior to
change and the date on which the changed tax year commences shall be treated as "transitional tax year",
(10) A person dissatisfied with an order of Commissioner Inland Revenue may file a review application to the Board, and
the decision by the Board shall be final.
Explanation: It refers to the definition given in section 74.
Example: Differentiate between normal and special tax year.
(i) From 01-07-2015 to 30-06-2016
(ii) From 01-09-2015 to 31-08-2016
Solution: (i) is normal tax year while (ii) is special tax year.
"Total income" [U/s 2(69) and 10] The total income of a person for a tax year shall be the sum of the
(a) Person's income under each of the heads of income for the year; and
(b) Persons income exempt from tax under any of the provisions of this Ordinance;
Explanation: These shall have the same meanings as are assigned to them under Non-Banking Finance Companies Rules,
2003. Relevant provision of the said statute is as under;
"venture capital company" means a company licensed by the Commission to invest in venture projects through equity or
other instruments whether convertible into equity or not and provides managerial or technical expertise to venture projects,
or acts as a management company for management of venture capital fund;
"venture capital fund" means a. fund licensed under rule 26;
whistleblower [U/s 2(75)] means whistleblower as defined in section 227B;
(b) a distribution made in respect of any share for full cash consideration, or redemption of debentures or
debenture stock, where the holder of the share or debenture is not entitled in the event of liquidation to
participate in the surplus assets.
(c) any advance or loan made to a shareholder by a company in the ordinary course of its business, where the
lending of money is a substantial part of the business of the company.
(d) any dividend paid by a company which is set off by the company against the whole or any part of any sum
previously paid by it and treated as a dividend to the extent to which it is so set off.
Q.18 Eligible Person for the purpose of Voluntary Pension System Rules, 2005, means an individual Pakistani who holds:
(a) Valid National Tax Number
(b) Computerised National Identity Card
(c) National Identity Card for Overseas Pakistanis issued by the National Database and Registration Authority.
(d) Any of the above
Q.19 "Employment does not include:
(a) a directorship or any other office involved in the management of a company.
(b) a position entitling the holder to a fixed or ascertainable remuneration.
(c) the holding or acting in any public office.
(d) Sole proprietorship.
Q.20 Which of the following are treated as employee for the purpose of Income Tax Ordinance, 2001?
(a) President.
(b) MNAs and MPAs
(c) Part time directors of the companies
(d) All of the above
Q.21 Fee for technical services means:
(a) Consideration for the rendering of any managerial, technical or consultancy services.
(b) Consideration for services rendered in relation to a construction, assembly or like project undertaken by the
recipient.
(c) Consideration which would be income of recipient chargeable under the head "Salary".
(d) All of above
Q.22 Finance society includes a co-operative society which accepts money on deposit or otherwise for the purposes of:
(a) Advancing loans or making investments in the ordinary course of business.
(b) Establishment of Finance society.
(c) Making charitable donation
(d) All of the above
Q.23 "Firm" means the relation between persons who have agreed to:
(a) Establish a non-profit organization
(b) Incorporate a company under Companies Ordinance, 1984.
(c) Share the profits of a business carried on by all or any of them acting for all
(d) None of the above.
Q.24 Income include:
(a) any amount chargeable to tax under this Ordinance.
(b) any amount subject to collection or deduction of tax at source covered under final tax regime.
(c) any loss of income
(d) amount of any bonus shares
(e) All of the above
Q.50 For the purpose of residential status of an individual, the day on which he leaves Pakistan shall be:
(a) Ignored
(b) Counted as one whole day
(c) Counted as half day
(d) Counted as 2 days
Q.51 For the purpose of residential status of an individual, the day on which he leaves Pakistan shall be:
(a) Ignored
(b) Counted as whole day
(c) Counted as half day
(d) Counted as two days
Q.52 An industrial undertaking is an undertaking that is engaged in:
(a) the manufacture of goods or materials or the subjection of goods or materials to any process which
substantially changes their original condition
(b) ship-building
(c) generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power
(d) the working of any mine, oil-well or any other source of mineral deposits; and
(e) All of the above
Q.53 A small company has employees:
(a) Not exceeding 10
(b) Not exceeding 250 at beginning of the year
(c) Not exceeding 250 at any time during the year
(d) Not exceeding 250 at the beginning of the year
Q.54 Repealed Ordinance means:
(a) Income Tax Ordinance, 1979
(b) Income Tax Ordinance, 2001
(c) Income Tax Rules
(d) None of the above
Q.55 A day or part of a day where an individual is in Pakistan solely by reason of being in transit between two different
places outside Pakistan:
(a) Does not count as a day present in Pakistan
(b) Counted as whole day
(c) Counted as half day
(d) Counted as two days
Q.56 For the purpose of Income Tax Ordinance, 2001, Federal Government shall be considered as:
(a) Resident person
(b) Non-resident person
(c) None of the above
Q.57 Which of the following is not a Royalty income?
(a) the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other
like property or right;
(b) the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for
use in connection with television or tapes in connection with radio broadcasting, but shall not include
consideration for the sale, distribution or exhibition of cinematograph films;
(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;
(c) Shares
(d) Finished goods manufactured or acquired
Q.66 Taxpayer means any person who derives an amount chargeable to tax under this Ordinance, and includes-
(a) any representative of a person who derives an amount chargeable to tax
(b) any person who is required to deduct or collect tax
(c) any person required to furnish a return of income or pay tax
(d) All of the above
Q.67 Normal tax year shall be a period of twelve months ending on:
(a) 1st day of July
(b) 30th day of June
(c) 31st day of December
(d) None of the above
Q.68 Tax year which is different from normal tax year is called:
(a) Special tax year
(b) Transitional tax year
(c) Assessment year
(d) Financial year
Q.69 Where a person changes his tax year from special to normal or normal to special tax year the period between the end
of the last tax year prior to change and the date on which the changed tax year commences shall be treated as:
(a) Special tax year
(b) Transitional tax year
(c) Assessment year
(d) Financial year
Q.70 "Turnover" means:
(a) the gross receipts from sales of goods less sales tax, Federal Excise duty, trade discounts shown on invoices,
or bills and income assessed under final tax regime;
(b) the gross fees for the rendering of services for giving benefits including commissions except covered under
final tax regime;
(c) the gross receipts from the execution of contracts except covered by final tax regime; and
(d) the company's share of the amounts stated above of any association of persons of which the company is a
member.
(e) All of the above
Q.71 "Permanent establishment" means a fixed place of business through which the business of the person is wholly or
partly carried on, and includes:
(a) a place of management, branch, office, factory or workshop, premises for soliciting orders, warehouse,
permanent sales exhibition or sales outlet, other than a liaison office except where the office engages in the
negotiation of contracts (other than contracts of purchase);
(b) a mine, oil or gas well, quarry or any other place of extraction of natural resources;
(c) an agricultural, pastoral or forestry property;
(d) All of the above
Q.72 "Permanent establishment" means a fixed place of business through which the business of the person is wholly or
partly carried on and does not include:
(a) any substantial equipment installed, or other asset or property capable of activity giving rise to income;
(b) a building site, a construction, assembly or installation project or supervisory activities connected with such
site or project continue for a period or periods more than 90 days within any 12 months period ;
(c) the furnishing of services, including consultancy services, by any person through employees or other
personnel engaged by the person for such purpose;
(d) None of the above
ANSWERS
Q 1 2 3 4 5 6 7 8 9
A (d) (a) (a) (c) (b) (d) (b) (d) (d)
Q 10 11 12 13 14 15 16 17 18
A (a) (d) (d) (a) (b) (c) (d) (a) (d)
Q 19 20 21 22 23 24 25 26 27
A (d) (d) (a) (a) (c) (e) (a) (b) (a)
Q 28 29 30 31 32 33 34 35 36
A (d) (a) (a) (b) (d) (c) (c) (c) (d)
Q 37 38 39 40 41 42 43 44 45
A (d) (b) (d) (d) (c) (a) (c) (c) (e)
Q 46 47 48 49 50 51 52 53 54
A (d) (d) (c) (b) (b) (b) (e) (c) (a)
Q 55 56 57 58 59 60 61 62 63
A (a) (a) (d) (e) (d) (d) (a) (b) (a)
Q 64 65 66 67 68 69 70 71 72
A (d) (c) (d) (b) (a) (b) (e) (d) (d)
Chapter
Tax regimes
There are three tax regimes:
Normal tax regime (NTR):
Incomes which are chargeable to tax under NTR are added together to obtain taxable income and then tax rate according to
the slab rate is applied to determine tax liability.
Separate block of income under NTR (SBI):
Incomes which are chargeable to tax under Separate Block of Income are taxable under Normal Tax Regime, however,
income is not added in taxable income and further, fix rates applicable for income covered under Separate Block of Income
to determine tax liability.
Minimum tax liability under NTR:
Applicable under sections 113, 148, 153 and 235.
Final tax regime (FTR):
In case of Incomes which are chargeable to tax under Final Tax Regime, tax is deductible at a fixed rate on income and
such tax deduction is treated as final discharge of tax liability.
Separate block of income (SBI) under FTR:
Incomes which are chargeable to tax under SBI are taxable under Final Tax Regime; however, income is not added in
taxable income and further, fixed rates applicable for income covered under Separate Block of Income to determine tax
liability.
Solution
Mr. Asif
Tax year 2016
Computation of taxable income
Particulars Pakistan India Bangladesh Singapore
Pakistan source income
Gross salary 1,065,000 800,000 800,000 555,000
Solution:
RESIDENT IN NON-
PAKISTAN RESIDENT
1. Interest on Foreign Bonds
(one-third is taxable on receipt basis) 50,000 -
(two-third is taxable on accrual basis) 100,000 -
2. Agriculture income in Bangladesh income accrued and received outside Pakistan 70,000 -
3. Income from property in UK received outside Pakistan:
Income accruing and arising outside Pakistan 500,000 -
4. Income earned from business in Turkey which is controlled through a permanent
establishment in Pakistan (Rs. 45,000 is received in Pakistan)
Rs. 45,000 is taxable on receipt basis 45,000 45,000
Balance is taxable on accrual basis 90,000 90,000
5. Dividend paid by a resident company but received outside Pakistan
income declared to be Pakistan source [Section 101(6)] 100,000 100,000
6. Remittance (not in the nature of income brought to Pakistan
No question of taxability arise
70,000 70,000
8. Profit on sale of an asset in Pakistan but received in London:
Income declared to be Pakistan source [Section 12(5)] 250,000 250,000
9. Pension from Pakistan Government but received in London:
Income declared to be Pakistan-source [Section 101(11)] 70,000 70,000
1,345,000 625,000
If an individual citizen of Pakistan (returning expatriate) is resident in the current tax year but was non-resident in the 4
preceding tax years, his foreign-source income shall be exempt current tax year and in the following tax year.
Salary earned outside Pakistan shall be exempt if a citizen of Pakistan leaves Pakistan during a tax year and remains
abroad during that tax year.
Foreign source salary of resident individuals [Section 102]
Any foreign-source salary received by a resident individual shall be exempt from tax if the individual has paid foreign income
tax on such salary or his employer has withheld from the salary and paid to the revenue authority of the foreign country in
which the employment was exercised.
A credit or exemption shall be allowed only if the foreign income tax is paid within 2 years after the end of the tax year in
which the foreign income was derived by the resident taxpayer otherwise in the absence of double tax treaty agreement the
same shall be taxable in Pakistan. [Section 103]
Q.10 A day in Pakistan only by reason of being in transit between two different countries
(a) Counts as whole day
(b) Is not counted
(c) Counts as half day
(d) None of the above
Q.11 Company incorporated outside Pakistan is resident if control and management of the affairs is situated:
(a) Wholly or partly in Pakistan
(b) Wholly in Pakistan
(c) Partly in Pakistan
(d) Any where
Q.12 AOP shall be resident if control and management of the affairs is situated:
(a) Wholly in Pakistan
(b) Partly in Pakistan
(c) Wholly or partly in Pakistan
(d) Anywhere
Q.13 Total income has been divided into:
(a) 1 head of income
(b) 3 heads of income
(c) 5 heads of income
(d) No heads
Q.14 Salary is Pakistan source of income if it is in Pakistan
(a) Received from any employment exercised outside Pakistan
(b) Received from any employment exercised in Pakistan
(c) Received from any business exercised in Pakistan
Q.15 Profit on debt is not Pakistan source income if
(a) it is paid by resident person
(b) it is paid by permanent establishment of non-resident
(c) it is paid by non-resident person.
Q.16 Pension paid by a non-resident person to a resident person is
(a) Pakistan source
(b) foreign source
(c) local source
Q.17 Foreign source of short term resident is not taxable if it not
(a) brought / paid in Pakistan
(b) paid / received in Pakistan
(c) brought / received in Pakistan
Q.18 Total tax liability is equal to tax under
(a) NTR plus FTR
(b) NTR plus minimum tax liability
(c) FTR plus minimum tax liability
Q.19 If income tax return is complete then it is called
(a) a provincial assessment order
(b) an assessment order
(c) a re-assessment order
66 Conceptual Approach to Taxes
Introduction and Geographical Source of Income Chapter-05
Q.20 Foreign source income of a short term resident is not taxable if he is not present in Pakistan
(a) not less than 4 years
(b) more than 3 years
(c) more than 5 years
Q.21 A credit or exemption on foreign salary income shall be allowed only if the foreign tax is paid within
(a) 3 years after the end of tax year
(b) 2 years after the end of tax year
(c) 4 years after the end of tax year
Q.22 Income tax return is the declaration of
(a) total income & taxable income
(b) total taxable income & tax liability
(c) total income & tax liability
Q.23 Where the fee is payable in respect of services utilized in a business carried on resident outside Pakistan through
permanent establishment is
(a) Pakistan sources income
(b) foreign source income
(c) both a & b
ANSWERS
Required: Suppose you are Tax Consultant and Mr. Aslam has sought your professional opinion in respect of the following
matters in the light of the Income Tax Ordinance, 2001:
(i) Being a non-resident whether foreign-source income and Pakistan-source income of Mr. Aslam are taxable
or exempt from tax? Discuss.
(ii) What types of Pakistan-source Income are taxable?
(iii) Under what regime the Pakistan-source income of Mr. Aslam will be treated?
(iv) What is the last date for submitting the statement in lieu of return in respect of his Pakistan-source income?
Q. No. 3(a) February 2014 Noorani Merchant and Co. is a tax consultancy firm. It has a list of clients who seek advices in
respect of various tax matters.
Required: Assume that you have been working as a Tax Advisor of Noorani Merchant and Co. and is given a task to
determine the residential status of the following clients for the tax year ended June 30, 2014 under the given three
scenarios. Also substantiate your answer with reasons in the light of the provision of the Income Tax Ordinance, 2001 and
the Income Tax Rules, 2002:
(i) Mr. Fahim resides in London and works as Chief Accountant in a British Company. Assume that he has come
to Pakistan for the first time on a special assignment from his company on March 1, 2014 and left Pakistan on
October 31, 2014.
(ii) Mr. Saleem is a Federal Government employee. Assume that he is posted to the United Arab Emirates for taking
special training on Petroleum Exploration Project from July1, 2013 to June 30, 2014.
Ms. Saima has got a job in St. Micheal Pharma, a reputable company of United State of America (USA). She went to USA
on December 28, 2013 to assume her responsibilities as a Managing Director of the company. Assume that in April, 2014
her company sent her to China on training. On May 31st 2014 on her way back to USA she stayed in Karachi for three days
due to cancellation of flights.
(b) There are various modes of charging Income Tax under the Income Tax Ordinance, 2001 commonly known as Tax
Regimes. Briefly describe each of the following modes of taxation:-
(iv) Smith, a Nigerian football coach, came to Pakistan on 28 February 2013. He left the country on 31 August 2013.
Q.3 (a) Spring 2013 State the provisions of the Income Tax ordinance, 2001 for determining the residential status of
an Association of persons.
Q.3 (a) Autumn 2012 State the provisions of the Income Tax Ordinance, 2001 with regards to the residential status of
individuals and companies.
Q.3 (b) Autumn 2012 Margaret, a German national was employed as a Technical Manager of Faiza Chemicals Limited, a
resident company, on 1 October 2010 for a term of two years. Under the terms of employment, she was allowed to deliver
lectures at various professional organizations. During tax year 2012, she conducted three workshop sessions, the details of
which are as follows:
- Workshop Session in Lahore: A fee of US$ 15,000 in equivalent Pak Rupees was received from a local event manager.
The fee was credited to her bank account maintained in Karachi.
- Workshop Session in Munich: A fee of US$ 25,000 was received in Germany in her Munich bank account.
- Workshop Session in Dubai: A fee of US$ 20,000 was remitted to her bank account in Karachi.
Required: Discuss the taxability of the amounts received by Margaret for conducting the workshop sessions during the
tax year 2012.
Q.4 (a) Autumn 2011 Briefly discuss residential status of the following persons for the tax year 2011 under the ITO, 2001.
(i) Mr. Shah has been working as an Information Analyst in the Ministry of Foreign Affairs. On 1 November 2010, he was
posted to Pakistan Embassy in Canada for three years.
(ii) Asif Learning Center is a partnership concern, providing IT training to professionals in Pakistan, UAE and Saudi
Arabia. Up to 31 July 2010, the management and control of its affairs was situated partly in Pakistan. However, with
effect from 1 August 2010, the entire management and control of the affairs of the partnership was shifted to Dubai.
(iii) Mr. Liaquat was sent to Pakistan on a special assignment by his UK-based company on 1 March 2011. He left
Pakistan on 09 September 2011.
(iv) Farooq Trading LLC was incorporated as a limited liability company in UAE. The management and control of its affairs
are situated wholly in Pakistan.
Q.2(b) March 2009: Briefly discuss residential status of following persons under the ITO, 2001 for the tax year 2009.
(i) Asif is an employee of Baluchistan Government, who has been sent to United Kingdom for an official assignment on
1.12.2007 for two years.
(ii) Messrs Akhtar Abbas and Co. is a partnership firm, doing business of financial consultancy in Pakistan as well as
United Arab Emirates (UAE). The management and control of its affairs is situated partly in UAE and partly in Pakistan.
Q.4(b) Spring (March) 2006: Mr. A, a Pakistani Citizen, returned to Pakistan in November 2004 after completing his
employment contract In United Arab Emirates (UAE). He worked till October 2004in UAE where there was no tax on
salaries. Mr. A is in Pakistan since then and has been employed by a local company. Explain the tax implication on Mr. A's
income, earned in UAE and Pakistan, for the tax year 2005.
Q.6(a) Sept 2003: Under what circumstances a resident individual is entitled to tax on his foreign source salary, and when is
the foreign tax treated as having been paid?
Q.2(ii) March 2000: State the basis of taxation regarding residents and non-resident.
Q.6 Sept 2000: Briefly describe the provisions related to the scope of total Income.
Q.9 May 1994: Which of the following appear to be correct in the given choices?
The income of a non-resident individual is taxed in Pakistan which is:
(a) Earned and received in Pakistan
(b) Earned and received abroad
(c) Earned outside Pakistan but received in Pakistan
(d) Earned in Pakistan but received abroad
Chapter
after such distribution, are in excess of 100% of its paid up capital, so much of its reserves as exceed 100% of
its paid up capital shall be treated as income of the said company:
Provided that for tax year 2015, cash dividends may be distributed before the due date mentioned in section
118(2), for filing of return for tax year 2015.
The above provisions shall not apply to
a. a public company which distributes profit equal to either 40% of its after tax profits or 50% of its paid
up capital, whichever is less, within six months of end of tax year;
b. a company qualifying for exemption U/C (132) Part I of the Second Schedule.
c. a company in which not less than 50% shares are held by the government.
In this section, reserve includes amounts set-aside out of revenue or other surpluses excluding capital
reserves, share premium reserves and reserves required to be created under any law, rules or regulations.
3. Tax on shipping of a resident [U/s 7A]
In the case of any resident person engaged in the business of shipping, a presumptive income tax shall be
charged in the following manner, namely:-
(a) ships and all floating crafts including tugs, dredgers, survey vessels and other specialized
craft purchased or bare-boat chartered and flying Pakistan flag shall pay tonnage tax of an
amount equivalent to one US $ per gross registered tonnage per annum; and
(b) ships, vessels and all floating crafts including tugs, dredgers, survey vessels and other
specialized craft not registered in Pakistan and hired under any charter other than bare-
boat charter shall pay tonnage tax of an amount equivalent to fifteen US cents per ton of
gross registered tonnage per chartered voyage provided that such tax shall not exceed one
US $ per ton of gross registered tonnage per annum:
Explanation.- For the purpose of this section, the expression equivalent amount means the rupee
equivalent of a US dollar according to the exchange rate prevalent on the first day of December in the case of
a company and the first day of September in other cases in the relevant assessment year.
th
The provisions of this section shall not be applicable after 30 June, 2020.
4. Tax on Profit on Debt [U/s 7B]
Subject to this Ordinance, a tax shall be imposed, at the rate specified as under, on every person (other
than a Company) who receives a POD from any person mentioned in clause (a) to (d) of section 151(1).
5. General provisions relating to taxes imposed under FTR / separate block of income [U/s 8]
Subject to this ordinance, where the tax imposed under Final Tax Regime / Separate Block of Income on the amount
in respect of which the tax is imposed and-
(a) Such amount shall not be chargeable to tax under any head of income in computing the taxable income of the
person who derives it for any tax year;
(b) No deduction shall be allowable for any expenditure incurred in deriving the amount;
(c) The amount shall not be reduced by any deductible allowance or the set off of any loss;
(d) The tax payable by a person under final tax regime / separate block of income shall not be reduced by any tax
credits allowed under this Ordinance; and
(e) The liability of a person under final tax regime / separate block of income shall be discharged to the extent that
the tax has been paid in accordance with the relevant section or the tax payable has been deducted at source.
6. Taxable Income (U/s 9)
The taxable income of a person for a tax year shall be the total income (other than exempt income) of the person for
the year (but not below zero) less Zakat, Workers Profit Participation Fund (WPPF), Workers Welfare Fund (WWF)
and deductible allowance for profit on debt (u/s 64A).
Example: If the total income of Mr. Ali is Rs.500,000 then you are required to compute the taxable income of Mr. Ali,
if he paid the following amounts:
Zakat Rs. 18,000, WWF Rs. 5,000, WPPF Rs. 8,000 and Profit on debt (u/s 64A) Rs. 20,000
Solution:
Rs.
Total of income as per question 500,000
Less: deductible allowances: (18,000 + 5,000 + 8,000 +20,000) = (51,000)
Taxable income 449,000
7. Total Income (U/s 10)
The total income of a person for a tax year shall be the sum of the person's income under the heads of income
(including exempt income) for the year.
8. Heads of Income (U/s 11)
(1) For the computation of tax and total income, all income shall be classified under the following heads, namely-
(a) Salary
(b) Property income
(c) Business income
(d) Capital Gains and
(e) Income from Other Sources.
(2) Where the total deductions allowed to a person for a tax year under a head of income exceed the total of the
amounts derived by the person, he sustained a loss equal to the excess amount.
(3) The income of a resident person shall be computed by taking into account amounts that are Pakistan-source
income and foreign-source income.
(4) The income of a non-resident person shall be computed by taking into account only amounts that are
Pakistan-source income.
9. Principle of taxation of individuals [U/s 86] Subject to this Ordinance, the taxable income of each individual shall
be determined separately.
9.1 Deceased individuals [U/s 87] The legal representative of a deceased individual shall be liable for
(a) any tax that the individual would have become liable for if the individual had not died; and
(b) any tax payable in respect of the income of the deceased's estate.
The liability under this Ordinance shall be first charge on the deceased estate and shall be limited on the legal
representative under this section to the extent to which the deceased's estate is capable of meeting the liability.
In this section, "legal representative" means a person who in law represents the estate of a deceased person, and
includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in
representative character the person on whom the estate devolves on the death of the party so suing or sued.
10. Tax liability of a Company and Association of Persons:
10.1 Principles of taxation of associations of persons [Section 92]
An AOP shall be liable to tax separately from the members of the association and where the AOP has paid tax the
amount received by a member of the association out of the income of the association shall be exempt from tax;
Provided that if at least one member of the AOP is a Company, the share of such company or companies shall be
excluded for the purpose of computing the total income of the AOPs & the Company or companies shall be taxed
separately at the rate applicable to the companies, according to their share.
Example
Sultan (Pvt.) Limited and NA International (sole proprietor) of Mr. Asad have a joint venture in the name of Nimco
consultants. It is not a registered with registrar of firms. The share in interest of company and Mr. Asad in the joint
venture is 65:35 respectively. The JV is providing the consultancy services to its clients. Mr. Asad withdraws salary of
Rs. 60,000 per month. Total Income of the Joint Venture is Rs 1,700,000. Carry forward of losses of preceding years
is Rs. 600,000. Tax already deducted is Rs. 85,000. Mr. Asad also provided the loan to the joint venture and received
interest of Rs. 320,000 during the year:
You are required to calculate the taxable income and tax liability of the joint venture, Sultan (Pvt.) and Mr.
Asad for the tax year 2016.
Solution
Computation of tax liability of Joint Venture Rs.
2. Where the taxable income exceeds Rs. 400,000 but 7% of the amount exceeding Rs. 400,000
does not exceed Rs.500,000
3. Where the taxable income exceeds Rs. 500,000 but Rs.7,000 + 10% of the amount exceeding Rs.
does not exceed Rs.750,000 500,000
4. Where the taxable income exceeds Rs. 750,000 but Rs. 32,000 + 15% of the amount exceeding
does not exceed Rs.1,500,000 Rs. 750,000
5. Where the taxable income exceeds Rs. 1,500,000 Rs. 144,500 + 20% of the amount exceeding
but does not exceed Rs.2,500,000 Rs. 1,500,000
6. Where the taxable income exceeds Rs. 2,500,000 Rs. 344,500 + 25% of the amount exceeding
but does not exceed Rs.4,000,000 Rs. 2,500,000
7. Where the taxable income exceeds Rs. 4,000,000 Rs. 719,500 + 30% of the amount exceeding
but does not exceed Rs.6,000,000 Rs. 4,000,000
8. Where the taxable income exceeds Rs. 6,000,000 Rs. 1,319,500 + 35% of the amount exceeding
Rs. 6,000,000
Provided that in the case of an AOPs that is a professional firm prohibited from incorporating by any law or the rules
of the body regulating their profession, the 35% rate of tax mentioned against serial number 8 of the Table shall be
32% for tax year 2016 and onwards.
SALARIED CASE i.e. where taxable salary exceeds 50% of taxable income
S. No. Taxable income Rate of Tax
(1) (2) (3)
1. Where taxable income does not exceed Rs. 400,000 0%
2. Where the taxable income exceeds Rs. 400,000 but 2% of the amount exceeding Rs. 400,000
does not exceed Rs. 500,000
3.. Where the taxable income exceeds Rs. 500,000 but Rs.2,000+ 5% of the amount exceeding Rs.
does not exceed Rs. 750,000 500,000
4. Where the taxable income exceeds Rs. 750,000 but Rs. 14,500 + 10% of the amount exceeding
does not exceed Rs. 1,400,000 Rs. 750,000
5. Where the taxable income exceeds Rs. 1,400,000 Rs. 79,500 + 12.5% of the amount exceeding
but does not exceed Rs. 1,500,000 Rs.1,400,000
6. Where the taxable income exceeds Rs. 1,500,000 Rs. 92,000 + 15% of the amount exceeding
but does not exceed Rs. 1,800,000 Rs. 1,500,000
7. Where the taxable income exceeds Rs. 1,800,000 Rs. 137,000 + 17.5% of the amount exceeding
but does not exceed Rs. 2,500,000 Rs. 1,800,000
8. Where the taxable income exceeds Rs. 2,500,000 Rs. 259,500 + 20% of the amount exceeding
but does not exceed Rs. 3,000,000 Rs. 2,500,000
9. Where the taxable income exceeds Rs. 3,000,000 Rs. 359,500 + 22.5% of the amount exceeding
but does not exceed Rs. 3,500,000 Rs. 3,000,000
10. Where the taxable income exceeds Rs. 3,500,000 Rs. 472,000 + 25% of the amount exceeding
but does not exceed Rs. 4,000,000 Rs. 3,500,000
11. Where the taxable income exceeds Rs. 4,000,000 Rs. 597,000 + 27.5% of the amount exceeding
but does not exceed Rs. 7,000,000 Rs. 4,000,000
12. Where the taxable income exceeds Rs.7,000,000 Rs. 1,422,000 + 30% of the amount exceeding
Rs. 7,000,000
(d) the transferor's / AOP cost in respect of the share or shares received as consideration for the disposal
shall be
(i) in the case of a consideration of one share, the transferor's / AOPs cost of the assets
transferred as determined under 2(b) above, less the amount of any liability that the company
has undertaken to discharge in respect of the assets; or
(ii) in the case of a consideration of more than one share, the amount determined under sub-clause
(i) divided by the number of shares received.
In determining whether the transferor's / AOP deductions for depreciation, initial allowance and amortization have
been set off against income under sub section 2(c) above, those deductions shall be taken into account last.
15.1 Disposal of asset between wholly-owned companies [U/s 97]
Where a resident company disposes of an asset to another resident company, no gain or loss shall be taken to arise
on the disposal if the following conditions are satisfied:-
(a) Both companies belong to a wholly-owned group of resident companies at the time of the disposal;
(b) The remaining (b), (c) and (d) clauses of this section are same as stated above in clauses (c), (d) and (f) of
sub section 2 of combined sections 96 and 97 respectively.
Where the above provisions applies
The same conditions to be satisfied as stated above in combined sections 96 and 97 from (a) to (d) of sub section 2
shall apply except the following additional note.
The transferor and transferee companies belong to a wholly-owned group if
(a) one company beneficially holds all the issued shares of the other company; or
(b) a third company beneficially holds all the issued shares in both companies.
15.2 Disposal of asset under a scheme of arrangement and reconstruction [U/s 97A]
(1) No gain or loss shall be taken to arise on disposal of asset from one company to another company by virtue of
operation of a Scheme of Arrangement and Reconstruction u/s 282L and 284 to 287 of the Companies
Ordinance, 1984 or section 48 of the Banking Companies Ordinance, 1962 if the following conditions are
satisfied,:
The clauses (a) to (c) of this sub section are same as stated above in clauses (c), (d) and (f) of sub section 2 of
combined sections 96 and 97 respectively and scheme is approved by the High Court, SBP or SECP on or
after 1.7.2007.
(2) No gain or loss shall be taken to arise on issue, cancellation, exchange or receipt of shares as a result of
scheme of arrangement and reconstruction as stated above.
(3) Where the above provisions applies:
The same conditions as stated above in combined sections 96 and 97 from (a) to (d) of sub section 2 shall
apply except the following additional note.
Where sub-section (2) of this section applies and the shares issued by virtue of the Scheme of arrangement
and reconstruction disposed of the cost of shares shall be the cost prior to the operation of the said scheme.
16. Change in control of an entity [U/s 98]
Where there is a change of 50% or more in the underlying ownership of an entity, any loss incurred for a tax year
before the change shall not be allowed as a deduction in a tax year after the change, unless the entity -
(a) continues to conduct the same business after the change as it conducted before the change until the loss has
been fully set off; and
(b) does not, until the loss has been fully set off, engage in any new business or investment after the change
where the principal purpose of the entity or the beneficial owners of the entity is to utilise the loss so as to
reduce the income tax payable on the income arising from the new business or investment.;
In this section. "entity" means a company or AOP to which section 92(1) applies;
"ownership interest" means a share in a company or the interest of a member in an AOP; and
"underlying ownership" in relation to an entity, means an ownership interest in the entity held, directly or indirectly
through an interposed entity or entities, by an individual or by a person not ultimately owned by individuals.
19. Agreements for avoidance of double taxation and prevention of fiscal evasion [U/s 107]
1. The Federal Government may enter into an agreement, bilateral or multilateral with the government or governments
of a foreign countries or tax jurisdictions for the avoidance of double taxation and the prevention of fiscal evasion
and exchange of information including automatic exchange of fiscal evasion and exchange of taxes in income
imposed under the Ordinance or any other law for the time being in force and under the corresponding laws in force
in that country, and may, by notification in the official Gazette, make such provisions as may be necessary for
implementing the agreement,-
2. Notwithstanding anything contained in any other law to the contrary, the Board shall have the powers to obtain and
collect information when solicited by another country under a tax treaty, a tax information exchange agreement, a
multilateral convention, an inter governmental agreement, a similar arrangement or mechanism.
3. Notwithstanding the provisions of the Freedom of Information Ordinance, 2002, any information received or supplied
and any commitment communication or correspondence made, under a tax treaty, a tax information exchange
agreement, a multilateral convention, a similar arrangement or mechanism, shall be confidential subject to section
216(3).
(a) relief from the tax payable under this Ordinance; (b) the determination of the Pakistan-source income of non-
resident persons;
(c) where all the operations of a business are not carried on within Pakistan, the determination of the income
attributable to operations carried on within and outside Pakistan, or the income chargeable to tax in Pakistan in
the hands of non-resident persons, including their agents, branches and permanent establishments in
Pakistan;
(d) the determination of the income to be attributed to any resident person having a special relationship with a
non-resident person; and
(e) the exchange of information for the prevention of fiscal evasion or avoidance of taxes on income chargeable
under this Ordinance and under the corresponding laws in force in that other country.
9. Which of the following incomes shall be included in the computation of taxable income under Income Tax Ordinance,
2001
(a) income covered under NTR
(b) income covered under FTR
(c) income covered under SBI under FTR
(d) all of above
10. Under Income Tax Ordinance, 2001, there are ____ heads of income.
(a) 2
(b) 3
(c) 5
(d) 10
11. A non-resident person shall pay the tax in respect of ______________.
(a) Pakistan source income
(b) foreign source income
(c) property income
(d) all of above
12. The total income for the tax year 2016 consists of _______.
(a) taxable income
(b) exempt income
(c) taxable and exempt income
(d) none of the above
13. Any income may be received by__________.
(a) taxpayer himself
(b) any person on his behalf
(c) his employer
(d) both a and b
14. Companies are chargeable to tax __________ its shareholders.
(a) separately from
(b) together with
(c) in respect of its
(d) none of above
15. The taxable income of a salaried taxpayer not exceeds Rs.______ is chargeable to tax @ 0%.
(a) 300,000
(b) 350,000
(c) 400,000
(d) 500,000
16. Where a full time teacher or researcher working in non-profit organization is having salary income as well as some
other taxable income, the benefit of reduction in tax liability shall be available on ___________ if his total taxable
income is less than Rs. 1,000,000.
(a) his total income
(b) his salary income only
(c) income other than salary
(d) all of above
ANSWERS
1 (b) 2 (c) 3 (b) 4 (b) 5 (c)
6 (d) 7 (d) 8 (d) 9 (a) 10 (c)
11 (a) 12 (c) 13 (d) 14 (a) 15 (c)
16 (b) 17 (c) 18 (a) 19 (d) 20 (c)
Q.NO. 2 (a) Autumn 2014 Briefly discuss the provisions of Income Tax Ordinance, 2001 in respect of the following
situations:
Farhan received Rs. 960,000 as his share of profit from AOP, during the tax year 2014. He also earns income from other
sources.
Q. No. 6 Autumn 2013 Ahmed is responsible for managing the property of his uncle who died on 5 February 2013. The
approximate worth of the property if Rs. 7 mission. In August 2013, a notice was received from income tax department in the
name of his uncle requiring details of his income for the tax year 2012 along with demand for payment of tax in respect of
previous year amounting to Rs. 8.5 million.
Required:
Advise Ahmed as regards the following:
(a) Extent of Ahmeds liability in respect of the income earned by his uncle before 5 February 2013.
(b) His obligations relating to the tax assessment proceedings pending/arising against his uncle.
Q. NO. 6(a) Autumn 2009 Mr. Zias father expired in March 2009. Being the only heir, he received all his fathers business
and assets. In August 2009, a notice was received from the income tax department in the name of his father to pay unpaid
tax liabilities along with penalty and additional tax. Mr. Zia is of the view that since his father expired, the notice is irrelevant.
Required: In the light of ITO, 2001, explain the correct legal position of Mr. Zia with regard to his fathers income tax
liabilities and the related income tax proceedings.
Q.3 Autumn 2001 In the light of provisions of Income tax Ordinance, 1979, who is liable to discharge the tax liability of a
deceased person, and to what extent?
Chapter
Example: Hafiz Bilal Rana is an employee of a company. He comes to office only 4 hours in a day. He received
Rs.18,000 salary from the company. Explain with reasons that he is considered as an employee of a company or
not.
Solution: Although he is a part time employee of a company, however the amount so received shall be treated as
salary income for the year.
Basic salary:
For the purposes of tax, basic salary means any consideration received or receivable as basic salary. However, for
the purposes of retirement benefits, basic salary includes dearness allowance.
2. Salary includes the following [U/s 12(2)(a), (b), (c) and (d)]
(a) Pay / wages or other remuneration, leave pay / leave encashment, overtime, bonus, commission and fee;
(b) Work condition supplements;
(c) Allowances i.e. cost of living, subsistence, rent, utilities, education, entertainment or travel allowance excluding
any allowance solely expended for office purpose;
(d) Any expenditure incurred by an employee but paid or reimbursed by the employer other than for office
purpose.
(e) Profits in lieu of salary, perquisites, gratuity, pension or annuity, or any supplement to a pension or annuity,
benefit on account of employee share scheme, tax on salary paid by the employer and
(f) In the case of other assets given for use only, rental value or depreciation charged by the employer is the
taxable benefit for the employee e.g. TV is provided by the employer only for the use of employee.
3. Salary chargeable to tax:
Taxability of salary: [U/s 73]
Any income taxed on receipt basis shall not be taxable again on accrual basis and vice versa. Similarly if any
expenditure is deductible on due basis then the same shall not be deducted when it is paid and vice versa.
Salary paid by Private Companies [U/s 110]
The Commissioner Inland Revenue instead of charging tax on salary income, on cash basis may opt the accrual
basis in case of an employee of a Private Company. This treatment shall be applied where the employee in order to
avoid a higher tax rate, could have entered into agreement with his employer for payment of salary in a subsequent
year when his other income may be on lower side.
Suppose if there is income from other sources in the current year along-with income from salary and both as part of
total income may result into higher rate of tax in the current year therefore the employee with the consent of employer
may defer his full or part salary to be offered for tax when he will not have any income from other sources that will
result into lower rate of tax in the subsequent tax year.
Treatment of arrear salary received: [U/s 12(7) and (8)]
Employee may avail this option in writing to the Commissioner Inland Revenue to be taxed on accrual basis instead
of cash basis. It is allowed when the following conditions are met:
The salary is paid to an employee in arrears;
After including the arrears salary in the current years income the rate of tax is increased.
The declaration shall be made by the due date for furnishing of employees return of income for the tax year in
which amount was received or by such later date as the Commissioner Inland Revenue may allow.
Example:
In tax year 2015 Mr. Amir was paid salary for 8 months i.e. Rs. 800,000. In tax year 2016 he was paid salary for 16
months (including salary of 4 months of tax year 2015) i.e. Rs.1,600,000. Compute tax payable by him in tax year
2016.
Solution:
Mr. Amir
Computation of taxable income and tax liability:
Option A by including the arrear salary in current year income
Solution: A person who receives Golden handshake has two options available to him. He may opt to include this
amount in his taxable income or he may opt to tax this amount as a separate block of income.
Mr. Arif
Tax year 2016
Computation of taxable income and tax liability: Rs.
Option 1 (included the golden handshake in the current year income)
Income from salary:
Salary 600,000
Golden handshake 900,000
Taxable income 1,500,000
Computation of tax liability:
Tax on Rs. 1,500,000 [79,500 + 12.5% x (1,500,000 1,400,000)] 92,000
Option 2 (offered on the basis of last three years average rate)
Income from salary:
Salary 600,000
Taxable income 600,000
Computation of tax liability:
Tax on Rs. 600,000 [2,000 + 5% x (600,000 500,000)] 7,000
Tax on golden handshake
[Rs. 900,000 x 12.08% as per note attached) 108,720
Tax liability 115,720
Rate for golden handshake = 145,000/1,200,000 x 100 = 12.08%
Lower tax is payable in option 1, hence same shall be opted by the tax payer.
4.2 Computation of tax on tax [u/s 12(3) & (4)]
Any tax liability of employee paid by employer on behalf of employee shall be added in the income of the employee
by such amount.
The grossed up amount may be calculated under the following cases.
Where normal rates are feasible:
Example: An employee of a company has received total salary of Rs. 800,000. As per appointment letter the
employer shall pay Rs. 22,500 as tax free salary to employee. Compute the tax liability for the tax year 2016.
SOLUTION
Taxable salary excluding tax paid by the employer 800,000
Tax paid by employer 22,500
Total taxable income 822,500
Important note: Tax on tax amount depends on the terms and conditions settled between employer and employee.
The salary income will be charged to tax on its gross value after deduction of exempt salary income or allowances
and perquisites. However, no expense or other deduction shall be allowed with respect to any expenditure incurred in
deriving salary income. Section 12(4) of the ordinance states that:
No deduction shall be allowed for any expenditure incurred by an employee in deriving amounts chargeable to
tax under the head Salary.
Marginal perquisites [Clause 53A of Part I of Second Schedule]
Some employers provide concessional benefits to their own facilities e.g. a Hospital may allow its employee free
medical treatment or concessional medical facility or a school allow its children of its employees to get free or
concessional fee and a railway, bus or air transport providing free or concessional transport facility to its employees.
Marginal perquisites are exempt except free or concessional passage provided by transporters including airlines to
its employees (including the members of their household and dependants). For this purpose, we have to take the
market value of facility provided to employees and add the same in the salary income of employee after deducting
any cost borne by the employee.
Notes:
1. Nothing is included in taxable income when conveyance is provided for business use only.
2. In cases of lease, FMV shall be used.
Conveyance allowance: Amount received as conveyance allowance (other than car) in cash shall be totally taxable
and shall be included in the salary income of the employee.
Important note: It is worthwhile to mention here that where the motor vehicle provided by employer has only been
used for the business purposes then there will be no treatment of the same in the hands of the employee.
Example: Following are the details of income of Hamid for the financial year ended June 30, 2016, who is employed
with a company as Senior Manager.
Salary income
Pay Rs. 60,000 per month
House rent allowance Rs. 27,000 per month
Utilities Rs. 8,000 per month
He was provided conveyance allowance of Rs. 50,000 for a year. No car is provided by the employer. Compute the
taxable income and tax liability of Hamid for the Tax year 2016.
Solution:
Salary 60,000 x 12 720,000
House Rent allowance 27,000 x 12 324,000
Utilities 8,000 x 12 96,000
Conveyance 50,000
Taxable Income 1,190,000
Note: There will be no treatment of salary of official driver @ Rs. 8,000 per month paid by the Company as it
was for the discharge of official performance.
(2) Treatment of House rent allowance:
Any amount provided as house rent allowance (other than accommodation provided by the employer) in cash,
the total amount shall be taxable and shall be included in the salary income of the employee.
Example: Following are the details of income of Mr. Afzal for the financial year ended June 30, 2016, who is
employed with a company as Senior Manager.
Salary income
Pay Rs. 60,000 per month
House rent allowance Rs. 27,000 per month
Utilities Rs. 8,000 per month
He was provided conveyance allowance of Rs. 50,000 for a year. No car is provided by the employer.
Compute the taxable income and tax liability of Mr. Afzal for the Tax year 2016.
Solution:
Salary 60,000 x 12 720,000
House Rent allowance 27,000 x 12 324,000
Utilities 8,000 x 12 96,000
Conveyance 50,000 50,000
Taxable Income 1,190,000
Tax Liability under normal rates:
[14,500 + 10% x (1,190,000 750,000)] 58,500
0%, less than the bench mark rate, equal to Interest computed at benchmark rate, less actual amount
benchmark rate. paid by employee on account of loan.
Higher than the benchmark rate OR Amount of loan is
Nothing shall be included.
Rs. 500,000 or less than Rs. 500,000.
The benchmark rate in tax year 2003 was 5% p.a. (with 1% increase in each following tax year and in 2012 it was
14% p.a. as defined in section 12(14). From tax year 2013 to onwards benchmark rate has been capped at 10%.
However, with effect from tax year 2011 such benefit shall not be taxable in cases where such benefit is extended
by the employer due to the waiver of interest by such employee on his accounts (e.g. provident fund etc) maintained
with the employer.
Example: Inaam is an employee in a group of companies. He derived following income during the income year July
1, 2015 to June 30, 2016.
Salary income per month Rs.
(i) Basic salary Rs. 20,000
(ii) House rent allowance Rs. 8,000
(iii) Utility allowance Rs. 1,000
He is provided with a 1,000CC car, which is partly used for companys business (Cost of car is Rs. 1,000,000). He
has also obtained loan from the employer. Calculate his taxable income in the following cases:
a) Amount of loan is Rs. 500,000 and interest charged by the employer is 7% p.a.
b) Amount of loan is Rs. 600,000 and interest charged by the employer is 0% p.a.
c) Amount of loan is Rs. 600,000 and interest charged by the employer is 6% p.a.
d) Amount of loan is Rs. 600,000 and interest charged by the employer is 11% p.a.
Solution:
Computation of taxable income Case (a) Case (b) Case (c) Case (d)
Rs. Rs. Rs. Rs.
Case a:
When the amount of loan is Rs. 500,000 or less, nothing shall be included in taxable income.
Case b:
Interest calculated at bench mark rate shall be included in taxable income i.e. 600,000 x 10%.
Case c:
Amount to be included in taxable income is calculated as follows:
Case d:
When interest rate is higher than benchmark rate, nothing shall be included in taxable income
Mr. Zahid
Tax year 2016
Computation of taxable income Case (a) Case (b) Case (c)
Rs. Rs. Rs.
Income from salary:
Taxable salary (given) 800,000 800,000 800,000
Add: 2% of loan of Rs.600,000 as income of the employee 12,000 12,000 -
Income from salary 812,000 812,000 800,000
Solution:
(a) Nothing shall be included in his salary income until disposal off option.
(b) The exercise of an option granted in prior year is chargeable to tax under the employee share scheme as the
difference between the FMV of the shares less consideration given by the employee for purchase of shares
and the cost of acquisition of right.
Disposal of right or option to acquire shares [U/s 14(5)]:
Where an employee disposes off a right or option to acquire shares under an employee share scheme, the amount
chargeable to tax to the employee under the head "Salary" for that year shall include the amount of any gain made on
the disposal computed as under:
Consideration received for the disposal of the right or option xxx
Less: Cost of right or option xxx
If balance is positive then add the same in salary income however if the answer is negative then the same shall be
ignored because deduction of expenses against salary are not allowable.
Shares issued without limitation or restriction [U/s 14(2)]
Where an employee is issued shares under an employee share scheme, the amount chargeable to tax to the
employee under the head "Salary" for that year shall include the fair market value of the shares at the date of
issue, as reduced by any consideration given by the employee for the shares including amount if any given for the
grant of a right or option to acquire the shares.
Shares issued subject to limitation or restriction [U/s 14(3)]
If shares issued to an employee under an employee share scheme are with restriction on the transfer of shares
(a) no amount shall be chargeable to tax to the employee under the head "Salary" until the earlier of the time the
employee has a free right to transfer the shares or disposes off the shares; and
(b) the amount chargeable to tax to the employee shall be the fair market value of the shares at the time the
employee has a free right to transfer the shares or disposes off the shares, as reduced by any consideration
given by the employee for the shares including amount if any given for the grant of a right or option to acquire
the shares.
Cost of shares [U/s 14(4)]
The cost of the shares to the employee shall be the sum of -
(a) the consideration, if any, given by the employee for the shares;
(b) the consideration, if any, given by the employee for the grant of any right or option to acquire the shares; and
(c) the amount chargeable to tax under the head "Salary".
Example: Mr. Kamran was issued shares under employee share scheme on July 01, 2015. Information regarding this
is given below:
- FMV of shares on date of issue Rs. 50,000
- FMV of shares on June 30, 2016 Rs. 60,000
- FMV of shares on January 01, 2016 Rs. 55,000
- Amount paid by him for shares Rs. 30,000
- Amount paid by him for right Rs. 1,000
He disposed of all the shares on June 30, 2016.
Required: Calculate the incomes chargeable to tax under the heads income from salary and capital gain in the
following cases:
(a) Shares were issued without any restriction on transfer
(b) Shares were issued with restriction that shares cannot be transferred before January 01, 2016
Solution: Case (a) Case (b)
Rs. Rs.
Income from salary
FMV of shares (Note 1) 50,000 55,000
Less: Amount paid for:
Shares 30,000 30,000
Right 1,000 1,000
31,000 31,000
Amount chargeable to tax under the head "Income from salary" 19,000 24,000
Capital gain
Higher of FMV or actual amount received against shares at disposal time (Note 2) 60,000 60,000
Less: cost of shares:
Amount paid for shares and right (calculated above) 31,000 31,000
Amount taxable under head salary (calculated above) 19,000 24,000
50,000 55,000
Capital gain 10,000 5,000
Note 1:
Case (a) As shares were issued without any restriction on transfer, FMV on issue date shall be taken into account.
Case (b) As shares were issued with restriction on transfer, FMV on the date the employee has free right to transfer
the shares shall be taken into account.
Note 2: In case of employee share scheme FMV at the time of disposal shall be taken into account and the same
shall not be compared with actual consideration received.
Retirement benefits
Retirement benefits available to taxpayer are as follows:
Gratuity (treated as pay)
Super-annuation Fund (treated as Profit in lieu of or in addition to salary)
Provident fund (treated as Profit in lieu of or in addition to salary)
Gratuity
Gratuity is a sum which is paid at the discontinuation of the employment to the employee computed by applying the
total number of years of service of the employee with the determined/agreed amount of salary. Gratuity conditional
exemptions are as under:
Clause 13 Part I, 2nd Schedule to the Income Tax Ordinance, 2001:
Any income representing any payment received by way of gratuity or commutation of pension by an employee on his
retirement or, in the event of his death, by his heirs as does not exceed-
(i) in the case of an employee of the Government, a Local Government, a statutory body or corporation
established by any law for the time being in force, the amount receivable in accordance with the rules and
conditions of the employee's services;
(ii) any amount receivable from any gratuity fund approved by the Commissioner in accordance with the rules in
Part III of the Sixth Schedule;
(iii) in the case of any other employee, the amount not exceeding Rs.200,000 receivable under any scheme
applicable to all employees of the employer and approved by the Board for the purposes of this sub-clause;
and
(iv) in the case of any employee to whom sub-clause (i), (ii) and (iii) do not apply, 50% of the amount receivable or
Rs.75,000, whichever is the less:
Provided that nothing in this sub-clause shall apply -
(a) to any payment which is not received in Pakistan;
(b) to any payment received from a company by a director of such company who is not a regular employee of
such company;
(c) to any payment received by an employee who is not a resident individual and to any gratuity received by an
employee who has already received any gratuity from the same or any other employer.
CBR vide its Circular No. 17 of 1959 and Circular No. 16 of 1967 provided the option to a taxpayer to be assessed
at the rates applicable for the current year or at the average rate of tax of his last three years income.
The following further instructions are also attached with this option:
1. Where average rate for last 3 years worked out at Nil, then no tax would be payable by the said taxpayer.
2. Where the employee was taxable in 3 preceding years but due to his absence from Pakistan, he was not
charged to tax, gratuity received by him will be taxed at the average rate of tax at which he would have been
liable if he was a resident person in 3 preceding years.
3. Gratuity income will be ignored at the time of computation of taxable income of a deceased person, however
the same may be added to the income of his legal heirs as income from other sources.
Example:
ABC Ltd. has paid gratuity amounting to Rs. 1,075,000 to Mr. A in addition to the taxable salary of Rs.2,500,000 in
the tax year 2016. The past 3 years assessed tax results of his assessment are as under:
Tax year Taxable income Tax Liability
2015 1,800,000 177,800
2014 2,400,000 435,600
2013 1,400,000 155,628
The ABC Ltd. maintains an unapproved gratuity Fund. Mr. A is interested to know the different options available to
him for taxation of gratuity.
Solution:
Option No. 1 Taxation under Normal Manner:
Particulars Rs.
Taxable Salary 2,500,000
Gratuity (Rs.1,075,000 75,000) (Lower of Rs.75,000 or 50% of Rs.1,075,000) 1,000,000
Taxable income 3,500,000
Tax on salary
Tax on Rs. 2,500,000 [137,000 + 17.5% x (2,500,000 - 1,800,000)] 259,500
Tax on (1,075,000 less Rs. 75,000) Rs. 1,000,000 x 769,028 / 5,600,000 N-1 137,326
Total tax 396,826
N-1 Determination of average rates of tax
Tax year Taxable income Tax liability (say)
2015 1,800,000 177,800
2014 2,400,000 435,600
2013 1,400,000 155,628
Total 5,600,000 769,028
Note: Tax under option 2 is lower than the option 1 hence it is more beneficial to opt for the said arrangements.
Pension
Pension received is exempt under clause 8, 9, 12, 13, 16 & 17 Part I Second Schedule to the Ordinance subject to
certain exceptions. Gratuity & commutation of pension both enjoys exemption under clause13 of Part I Second
Schedule to the Ordinance as discussed it the preceding Para. However, a taxpayer receiving pension has not been
allowed any option for taxation at average rate of last three years income. The most important feature of these
payments is that the most of pensions are exempt from levy of tax.
The various exemptions in addition to clause 13 are as under.
Annuities
Annuities or any supplement to annuity are taxable as salary even it is paid voluntarily without any contractual
obligation of the present or ex-employer. All the annuities are taxable in the normal manner as clause (20) of Part I of
2nd Schedule has been omitted from tax year 2016.
However the tax credit aspect on the annuities is discussed under section 63 of the Ordinance where the same has
been allowed on the contributed or premium paid on a contract of annuities. The said tax credit is discussed in detail
in the chapter of tax credits.
Superannuation fund
The income from the superannuation fund is taxable to the extent of employers contribution and the interest credited
thereon under the following Clause:
Clause 25 Part I, 2nd Schedule to the Income Tax Ordinance, 2001:
Any payment from an approved superannuation fund made on the death of a beneficiary or in lieu of or in
commutation of any annuity, or by way of refund of conditions on the death of a beneficiary.
The plain reading of the aforesaid provision of the ordinance clearly shows that taxation of superannuation Fund is
totally in the same manner as laid down for the gratuity under clause 13 Part I Second Schedule to the Ordinance.
Benevolent fund
Sum paid out of employee Benevolent Fund is taxable in the normal manner, however, clause 24 Part I Second
Schedule to the Ordinance deals with the exception to the aforesaid law in the following manner:
Any benevolent grant paid from the Benevolent Fund to the employees or members of their families in accordance
with the provisions of the Central Employee Benevolent Fund and Group Insurance Act, 1969.
Provident fund:
9. Introduction:
From salary of employee, a certain amount is deducted every month on account of provident fund. Employer also
contributes the same amount in the provident fund. At the time of retirement of employee, accumulated balance in the
provident fund consisting of employees contribution, employers contribution and interest on fund is paid to employee
for his benefit.
Types of Provident Funds:
There are three types of provident funds
Provident Fund formed under the Provident Fund Act, 1925.
Recognized Provident Fund under the Income Tax Ordinance, 2001.
Unrecognized Provident Fund under the Income Tax Ordinance, 2001.
9.1 Provident Fund Formed under Provident Fund Act, 1925
A fund formed under the provisions o the Provident Act, 1925 is also named as Statutory Fund. Such type of fund is
generally formed by the Federal Government, Semi Government Institutions and Local Authorities etc.
In this type of fund subscription or deposits of any class or classes of employees are received and held on their
individual accounts, and includes any contributions and any interest or increment accruing on such subscriptions,
deposits or contributions under the rules of the Fund. [The Provident Funds Act, 1925 Section 2(d)]
Important note: There is no treatment of employees contribution to any provident fund, as tax on the same has
already been paid by offering gross salary in his income tax return by the taxpayer.
Example: Aman Ali is an employee of Mano Limited and the amounts provided to her were as follows:
Basic salary 250,000 Dearness allowance 25,000
House rent allowance 80,000 Conveyance allowance 50,000
Employees contribution 30,000 Employers contribution 35,000
Accumulated balance 650,000 Interest credited @ 18%
Required: Compute taxable income of Aman Ali according to income tax rules under the following situations.
(a) If all contributions of Provident Fund are in Recognized Provident Fund.
(b) If all contributions of Provident Fund formed under Provident Fund Act, 1925.
(c) If all the contributions of Provident Fund are in Unrecognized Fund.
[Section 102]
Any foreign-source salary received by a
resident individual shall be exempt from tax
if the individual has paid foreign income tax
on such salary or his employer has withheld
from the salary and paid to the revenue
authority of the foreign country in which the
employment was exercised.
a. Resident Individual
[Section 103]
[Section 50]
2. Foreign source salary income:
c. Short term resident An individual shall be exempt in respect of
Salary income other than above. his foreign-source income which is not
brought / received in Pakistan if he is
[For all foreign source
resident only by reason of his employment
income]
and he is present in Pakistan for not
exceeding 3 years.
d. Returning expatriate
[Section 51]
[Citizen of Pakistan If an individual citizen of Pakistan (returning
coming back in expatriate) is resident in the current tax year
Pakistan] but was non-resident in the 4 preceding tax
years, his foreign-source income shall be
exempt in current tax year and in the
[For all foreign source
following tax year.
income]
e. Individual leaving
Pakistan during the year
and remains abroad during
that tax year Exemption for salary income [Section 51]
[Citizen of Pakistan
leaves Pakistan]
EXEMPTIONS OF TOTAL INCOME UNDER PART I OF SECOND SCHEDULE TO THE INCOME TAX ORDINANCE,
2001
(b) FTR
(c) income from business
(d) all of the above
Q.28 The Commissioner Inland Revenue is empowered to charge tax on the salary income of the employee of a private
limited Company on ______ basis where he has reason to believe that the salary income has not been deliberately
been deferred.
(a) cash
(b) accrual
(c) tax
(d) accounting
Q.29 A salaried person income is taxable @ 0%, if his / her annual income is equal or less than _______.
(a) 1,000,000
(b) 350,000
(c) 400,000
(d) 500,000
Q.30 Commission paid to a part time employee director is chargeable to tax under the head ______ of such director.
(a) salary income
(b) commission income
(c) property income
(d) all of above
Q.31 Any amount payable by employee to employer that has been waived of by the employer is _______ in the hands of
the employee.
(a) not taxable
(b) taxable
(c) exempt
(d) all of above
ANSWERS
1 (d) 2 (e) 3 (c) 4 (d) 5 (b)
6 (a) 7 (b) 8 (d) 9 (d) 10 (a)
11 (d) 12 (a) 13 (d) 14 (a) 15 (c)
16 (d) 17 (a) 18 (a) 19 (a) 20 (d)
21 (d) 22 (a) 23 (d) 24 (a) 25 (b)
26 (b) 27 (a) 28 (a) 29 (c) 30 (a)
31 (b)
Munir had received a salary of Rs. 350,000 per month for a period of six months upto December 2014. His
taxable income and tax liability during the preceding five tax years were as under:
Required: As a tax consultant, advise Munir about the amount of income tax payable by him for the tax year 2015,
under the Income Tax Ordinance, 2001.
Q.NO. 3(a) Autumn 2014 Zaman is working as the Chief Executive Officer in Yasir Limited (YL). Following are the details of
sale and purchase relating to his capital assets during the tax year 2014.
(a) Under an employee share scheme, 25,000 shares of YL were allotted to Zaman, on 1 December 2011 for Rs. 25 each.
According to the scheme, he was not allowed to sell/transfer the shares before completion of two years from the date of
transfer. The face value of each share is Rs. 10 per share. Fair market value of the shares was as follows:
Rs. 40 per share on 1 December 2011
Rs. 48 per share on 30 June 2012
Rs. 55 per share on 30 November 2013
Rs. 61 per share on 30 June 2014
Required: Compute the amount to be included in the taxable income of Zaman for the tax year 2014.
Q.NO. 3(b) Spring 2008 A company intends to launch an Employee Share Scheme for its employees and for the purpose of
educating its employees in this regard, the management wants to prepare a summary containing the taxability of the
following:
(i) Option granted to an employee.
(ii) Disposal of the option to acquire shares under the employee share scheme.
(iii) Shares issued to an employee under the option that are subject to restriction on transfer.
Explain the timing and valuation aspects in respect of the above, with reference to the ITO, 2001.
Q.NO. 1(a) Spring 2007 (a) Briefly explain the taxability or exemption of the following allowances or perquisites:
(i) Free passage provided by a transporter to its employees;
(ii) Leased motor vehicle provided to an employee, exclusively for his personal use. Running and maintenance cost and
drivers salary is also borne by the employer.
(iii) Medical allowance paid at10 percent of basic salary.
Q. NO. 7(a) Spring 2006 Mr. Ahmed is a senior executive of a company and has opted for an Employee Share Scheme,
announced by the company. As per the scheme, the shares are compulsorily retained in a Trust and time of free right to
transfer has not arrived. However, the shares have been issued and he enjoys all rights of ownership. During the retention
period, he has received dividends and bonus shares.
Comment on the chargeability of income tax on dividends and bonus shares received by him.
Q.NO.8 Autumn 2005 A nationalized bank after privatization has announced a Golden Hand Shake Scheme for its
employees under which lump sum payments are proposed to be made to employees who opt for the scheme.
Discuss the chargeability of above amounts in the hands of employees.
Q.9 April 1995 Indicate which of the following income is exempt whether fully or partly:
i. Casual receipts of non-recurring nature;
ii. Not chargeable to income from business, profession,
iii. Capital gains and salary
Chapter
Topic covered
Section
(For CAF-6 and ICMAP students)
15 & 16 Property income, rent, & rent chargeable to tax
15A Deductions allowed against income from Property
68 Fair market value of rent
15 & 39 Examples of property not taxable under this head of income
Rates of income tax on property income as per 1st schedule
16 Treatment of advances
66 Liability in case of co-owners
11, 50, 51 & 101 Geographical source of property income & their taxability
Property income no taxable / entitled to tax credit
MCQs with solutions
ICMAP & CA Mod C past papers theoretical questions
Land or building: These terms are also not defined in the ordinance; however, considering the generic meaning,
we can say that it may include followings:
Land Open Plots, playgrounds, gardens, Buses stand, cattle sheds etc.
Building The building includes open air theatres, swimming pools, stadiums, residential houses, building
let out for office use, or for storage or for use of a factory, music halls, theatre hall, inns, lecture
halls and other public auditorium used for cinema and stage shows.
3. Deductions in computing income chargeable under the head Income from Property [U/s 15A]
The following deductions or allowances shall be allowed in computing the income of a person chargeable to tax
under the head Income from Property for a tax year [U/s 15A (1)]:
(a) 1/5th repair allowance of rent chargeable to tax for the year, computed before any deduction allowed;
(b) any premium paid or payable in the year to insure the building against the risk of damage or destruction;
(c) any local rate, tax, charge, or cess in respect of the property or the rent from the property paid or payable by
the person to any local authority or government in the year, not being any tax payable under this Ordinance;
(d) any ground rent paid or payable in the year in respect of the property;
(e) any profit paid or payable in the year on any money borrowed including by way of mortgage, to acquire,
construct, renovate, extend, or reconstruct the property;
(f) share in rent and share towards appreciation in the value of property (excluding the return of capital, if any)
from the property paid or payable to the House Building Finance Corporation or a scheduled bank under a
scheme of investment in property in the year under that scheme;
(g) where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such
mortgage or charge;
(h) any administration and collection charges (wholly and exclusively to earn rent chargeable to tax) paid or
payable in the year not exceeding 6% of the rent chargeable to tax computed before any deduction;
(i) any expenditure paid or payable in the tax year for legal services acquired to defend the persons title to the
property or any suit connected with the property in a Court; and
(j) Treatment of unpaid rent:
Where there are reasonable grounds for believing that any unpaid rent in respect of the property is
irrecoverable, an allowance equal to the unpaid rent where
(i) the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to
compel the tenant to vacate the property and the defaulting tenant is not in occupation of any other
property of the person;
(ii) the person has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid
rent or has reasonable grounds to believe that legal proceedings would be useless; and
(iii) the unpaid rent has been included in the income of the person chargeable to tax under income from
property for the tax year in which the rent was due and tax has been duly paid on such income.
Partly of fully recovery against already allowed unpaid rent [U/s 15A (2)]
Where any unpaid rent allowed above as a deduction is wholly or partly recovered, the amount recovered shall be
chargeable to tax in the tax year in which it is recovered.
Non payment of already allowed expenditure within three years [U/s 15A (3)]
Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable to tax and the
person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of
the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under
income from property in the first tax year following the end of the three years.
Partial of full payment after disallowance of expenditure [U/s 15A (4)]
Where an unpaid liability is chargeable to tax as a result of the application of sub-section (3) and the person
subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in
the tax year in which the payment is made.
Limitations on allowable expenditures [U/s 15A (5) & (6)]
Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in
computing the income of the person chargeable to tax under any other head of income. [U/s 15A (5)]
The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the
same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to
tax under the head Income from Business. [U/s 15A (6)]
4. Examples of Income from Property not taxable under this head
(1) Lease income of a building that is let out together with plant and machinery e. g. a flour mill. [U/s 15(3) and
39(1)(f)]
(2) Rent from the sub lease (by tenant) of land or a building. [U/s 39(1)(e)]
Explanation: Any amount received or receivable as consideration for the use or occupation, or right to use or
occupy, of any land or building not owned by the taxpayer falls under the head income from Other Sources.
(3) Provisions of amenities, utilities or any other service connected with the renting of the building. (Quote
practical case) [U/s 15(3A) and 39(1)(fa)]
(4) Ground rent of land (Quote practical case) [U/s [39(1)(d)]; and
(5) Amount received as consideration for the provision, use or exploitation of property, including from the grant of
a right to explore for, or exploit natural resources. [U/s 39(1)(i)]
(6) Income from a building used as store house in the surrounding area of agri land. [U/s 41]
(7) 1/10th of excess from already deposited amount received by tenant on vacating the possession of a property.
[U/s 39(1)(k) & (2)]
Less: Expenses
Actual electricity bills paid 8,000
Taxable income from other sources 16,000
Total income covered under NTR 232,000
Example From the following information calculate the tax liability of Mr. Tayyab Zahid.
Annual rent 180,000
Property tax paid 20,000
Repair of property given on rent 50,000
Solution:
Solution: Rs.
Calculation of rent chargeable to tax:
Rent receivable (10,000 x 12) 120,000
Not adjustable ( 200,000 amount already charged to tax [Rs.100,000 x 3 / 10)] /10 17,000
Rent chargeable to tax 137,000
Important note: Practically when the tenant paid amount which is adjustable against rent then there is no treatment
required while computing the rent income because the same shall be automatically (transferred by an adjusting
accounting entry) to rent chargeable to tax on expiry of the period for which the adjustable advance was received.
7. Liability in case of co-owners [U/s 66]
In case of co-ownership in property and the share of each co-owner is determinable then share received by each co-
owner from property shall be included in his total income but this principle will not apply to business income i.e.
business of renting out of land or building.
Signing amount from the tenant is taxable under the head "income from property". Signing means the amount paid by
the tenant to the owner to enter in the tenancy agreement which is neither refundable nor it can be termed as deposit.
Example Mr. A and Mr. B are co-owners of a property. Their share in the property is equal. They received net income
from property of Rs. 400,000. Calculate the tax liability of both co-owners.
Solution: Mr. A Mr. B
Income from property:
Share of Mr. A (400,000 x 50% assumed after expenses) 200,000
Share of Mr. B (400,000 x 50% assumed after expenses) 200,000
200,000 200,000
Computation of Tax liability:
Tax payable by Mr. A and Mr. B:
Tax on Rs. 200,000 @ 0% - -
i.e. 0% upto Rs. 400,000
Example: Mr. X and Mr. Y are partners in XY Associates. Principal business of XY Associates is running a hotel
including renting out of rooms. Net income after deductions received (including room rents) during the tax year was
Rs. 500,000. Calculate the tax liability of firm and each partner assuming that share of each partner in profits of the
firm is equal. Mr. X and Mr. Y has no other source of income.
Solution:
In this case income is chargeable to tax under the head Income from business not under the head income from
property.
(Rupees)
[Section 50]
b. Short term resident
An individual shall be exempt in respect
of his foreign-source income which is not
[For all foreign source brought / received in Pakistan if he is
income] resident only by reason of his
employment and he is present in
Foreign source property income Pakistan for not exceeding 3 years.
Property income other than above
c. Returning expatriate [Section 51]
(a) 0%
(b) 5%
(c) 7%
(d) 33%
(e) none of the above
Q.10 Deduction for__________is allowed while computing income under the head property.
(a) 1/5th repair allowance
(b) Insurance premium for property damage
(c) Property tax for property
(d) All of the above
Q.11 If tax at source has been deducted or not from rent received even then the rent received shall taxable
under_________ for a company.
(a) FTR
(b) NTR
(c) Separate block of income
(d) None of above
Q.12 ____________of the forfeited deposit against sale of property is included in the rent chargeable to tax.
(a) 25%
(b) 50%
(c) 75%
(d) 100%
Q.13 The rent of the building let out together with the plant and machinery installed therein is taxable under ____________.
(a) Property income
(b) Business income
(c) Income from other sources
Q.14 Legal charges paid by the owner of property are allowed as deduction against property income under____________.
(a) NTR
(b) FTR
(c) Not allowed
(d) all of these
Q.15 In case where the property is hired by the employee and rent is payable by the employer then _________ shall be
included in the salary income of the employee.
(a) Actual rent
(b) Fair market value of rent
(c) none of these
Q.16 Where the employee or his / her spouse is the owner of the building and that building has been provided by the
employer against the entitlement of the rent free accommodation then it has ________________.
(a) One effect
(b) two effects
(c) no effect
Q.17 Obligation of the owner paid by the tenant included in the property income of the ___________ in the respective tax
year, where the same is as per terms of rent deed.
(a) Owner of the property
(b) Tenant
(c) None of these
Q.18 Property income received by subletting of property by the tenant is taxable under______________.
(a) Property income
(b) Income from other sources
(c) FTR
Q.19 If portion of the rent and utilities cannot be segregated from each other then expenses incurred for provision of utilities
shall
(a) Be deducted from rent
(b) not be deducted from rent
Q.20 Where the property income of a small company is more than Rs.1,000,000 then rate of tax is__________.
(a) 35%
(b) 25%
(c) 33%
Q.21 The amount received for utilities is taxable under the head _________________, only if separable.
(a) Income from property
(b) Income from other sources
(c) Income from business
Q.22 The repair charges and insurance premium paid shall be____________________ against rent chargeable to tax.
(a) allowed as deduction
(b) not allowed
(c) 1/10th is allowed
(d) none of the above
Q.23 The amount received for utilities is taxable under the head income from __________.
(a) salary
(b) property
(c) other sources
(d) business
th
Q.24 1/10 of any amount of advance received by the owner as advance ________ against rent is included in rent
chargeable to tax.
(a) adjustable
(b) not adjustable
(c) payable
(d) receivable
Q.25 Security received as an advance is ________ against rent.
(a) adjustable
(b) not adjustable
(c) payable
(d) receivable
Q.26 Amount received by tenant for vacating the possession, less amount already paid is chargeable to tax under the head
Income from ____________.
(a) salary
(b) property
(c) other sources
(d) business
Q.27 If the employee owned property after renting out to employer has been given to the employee for accommodation
then in such case the actual rent shall be taxable in the hands of employee without comparing it with the ________.
(a) FMV
(b) market value
(c) cost of asset
(d) none of the above
Q.28 Rent chargeable to tax includes ______________.
(a) amount forfeited under an agreement for sale of property
(b) accommodation allowance received from employer
(c) ground rent
(d) none of above
Q.29 Rent ________ is taxable against property income.
(a) received
(b) receivable
(c) payable
(d) both a and b
Q.30 Ground rent is chargeable to tax under the head income from _________.
(a) other sources
(b) salary
(c) property
(d) business
Q.31 Amount received from vacating possession is charged to tax in ten years in _______ proportion.
(a) equal
(b) unequal
(c) none of above
Q.32 Share of each person is taxable as ___ in case of property in co ownership.
(a) FTR
(b) NTR
(c) SBI under NTR
(d) all of above
Q.33 Rent chargeable to tax is _________ actual rent or FMR plus 1/10th of non adjustable advance.
(a) equal to
(b) higher of
(c) lower of
(d) none of above
Q.34 Any forfeited deposit received under a contract of sale of property by the owner of such property is taxable under the
head income from _______.
(a) property
(b) other sources
(c) salary
(d) business
Q.35 Income from any rented agricultural building derived will be treated as income from ______.
(a) property
(b) other sources
(c) salary
(d) none of above
ANSWERS
1 (c) 2 (a) 3 (c) 4 (a) 5 (b)
6 (d) 7 (b) 8 (b) 9 (d) 10 (d)
11 (b) 12 (d) 13 (c) 14 (a) 15 (c)
16 (b) 17 (a) 18 (b) 19 (a) 20 (b)
21 (b) 22 (a) 23 (c) 24 (b) 25 (b)
26 (c) 27 (a) 28 (a) 29 (d) 30 (a)
31 (a) 32 (b) 33 (b) 34 (a) 35 (d)
Q. No. 4 (b) Spring 2012 Yaqoot and Loha are joint owners of a bungalow which has been rented out for Rs. 70,000 per
month.
Required: Discuss the taxability of Yaqoot and Loha in respect of above income, in the light of Income Tax Ordinance, 2001.
Q.NO. 4(a) and (b) Spring 2009 Mr. Bukhari is a resident person and owns a property abroad. During the year, he received
rent amounting to Rs. 3 million from that property. The tax on rental income has been duly paid abroad and there is no tax
treaty between Pakistan and the country in which the property is situated.
(a) Explain the tax treatment of rental income received by Mr. Bukhari in Pakistan.
(b) Discuss the provisions of the Income tax Ordinance, 2001 regarding non-adjustable amount received from a tenant
by the owner of a building.
Q.NO. 1(a) Autumn 2006 Describe the term rent in the context of income from property.
(b) Autumn 2006 Through Finance Act, 2006 income from property has been subjected to final tax regime. However, the
provisions relating to taxability of income from property shall not apply to taxpayers who meet certain conditions. State these
conditions.
Q.NO. 1(c) Autumn 2006 Specify under which head of income, following amounts of rent would be chargeable to tax:
(i) Rent in respect of lease of a building together with plant and machinery.
(ii) Amount included in the rent of a building for the provision of amenities, utilities or any other service connected with
the renting of such building.
Q.3 Autumn 2002
(a) What is chargeable to tax under the head income from house property?
(b) Elaborate the terms house property and annual value.
(c) What is the rationale for allowing vacancy allowance?
(d) What are the rules prescribed for the allow-ability of unrealized rent?
NOW SOLVE FOLLOWING NUMERICAL QUESTIONS OF MODULE C / AFC PAST PAPER RELATED TO THIS TOPIC
Chapter
Topic covered
Section Rule (Part - I for CAF-6 and ICMAP students)
Part - I
2(9) & 18 Business & income from business
18 Profit on debt, lease amounts, dividend income from mutual funds
19 Speculation business
20 Deductions in computing income from business
10 Entertainment expenditure
11 Agriculture produce used as raw materials
26 Scientific research expenditure
27 Employee training facilities
28 Profit on debt, financial cost & lease payments
Special purpose vehicle
29 Bad debts
21 Deductions not allowed
Deductible allowance
60 Zakat
60A Workers welfare fund
60B Workers participation fund
11, 50, 51 & 101 Geographical source of business income & their taxability
(Part - II for CA Mod F and ICMAP students)
29A Provisions regarding consumers loan
30 Profit on non performing debts of a banking company
31 Transfer to Participatory reserve
Exemptions
Practice questions with solutions
MCQs with solutions
ICMAP & CA Mod C past papers theoretical questions
(d) the fair market value of any benefit or perquisite derived by a person due to any past, present, or prospective
business relationship; and
Explanation: The word benefit includes any benefit derived by way of waiver of profit on debt or the debt itself under
the State Bank of Pakistan, Banking Policy Department, Circular No.29 of 2002 or in any other scheme issued by
the State Bank of Pakistan.
(e) any management fee derived by a management company.
Profit on debt [U/s 18(2)]
Where the business of a person is to earn such profit then such profit shall be taxed under the head business and not
under the head "Income from Other Sources".
Lease amount [U/s 18(3)]
Where a lessor being as a scheduled bank or an investment bank or a development finance institution or a
modaraba or a leasing company has leased out any asset (in the ownership of lessor or not) to a lessee then
such amount received in connection to lease arrangement shall be treated as business income of the lessor.
Dividend income from Mutual Funds [U/s 18(3)]
Any amount received by a banking company or a non-banking finance company from distribution by a mutual
fund or a Private Equity and Venture Capital Fund out of its income from profit on debt shall be treated as business
income and not as income from other sources.
3. Speculation business [U/s 19]
Speculation Business is considered separate from Non Speculation Business. The profits and gains arising from the
speculation business for a tax year shall be included in the persons income chargeable to tax under the head
"income from business". However u/s 58 the loss arising from speculation business carried on by the person
shall be set off only against the income of the person from any other speculation business of the person
chargeable to tax for that year, hence the same is treated as separate and distinct from any other business carried on
by the person.
"Speculation business" means any business in which a contract for the purchase and sale of any commodity
(including stocks and shares) is made otherwise than by the actual delivery or transfer of the commodity but does
not include contracts to guard against future loss in price of goods manufactured for sale or actual delivery,
holding of stocks and shares or contract to guard against loss that may arise due to forward market or stock
exchange related to jobbing and arbitrage are not included in speculation business.
4. Deductions in computing income chargeable under the head income from business [U/s 20]
4.1. Expenditure incurred wholly and exclusively for business [U/s 20(1)]
A person shall be allowed deduction in respect of expenditures incurred wholly and exclusively for business that
are covered under the main profit and loss heads i.e. cost of sales, administrative and selling expenses.
4.2 Use of animals for business [U/s 20(1A)]
Where animals which have been used for the purposes of business or profession (other than as stock in trade) and
have died or become permanently useless, the difference between the actual cost of the animals and the
amount, if any, realized in respect of the carcasses of animals.
4.3 Special provisions regarding normal depreciation, initial allowance and amortization of intangible assets [U/s
20(2)]
Where the expenditure is incurred in acquiring a depreciable asset or an intangible with a useful life of more than one
year or is pre-commencement expenditure, the person must depreciate or amortize the expenditure in accordance
with sections 22, 23, 24 and 25.
4.4 Legal, financial and administrative expenditure on amalgamation [U/s 20(3)]
Expenditure incurred by an amalgamated company on legal and financial advisory services and other administrative
cost related to amalgamation shall be allowed as expenditure.
Example: Following information is related to Mr. Kaleem who carries on the business of Dairy farm.
Rs.
Sale of milk and other dairy products 740,000
Amount realized on sale of died cow 2,000
Cost of died cow 40,000
Other expenses 350,000
Note: 20% of other expenses are not related to the business.
Required: Compute taxable income of the taxpayer by taking tax depreciation at Rs.15,000.
Solution:
Mr Kaleem
Computation of taxable income: Rs. Rs.
Income from business:
Sales 740,000
Less: expenses
Cost of died cow 40,000
Less sale value of died cow (2,000)
38,000
Other expenses (350,000 x 80%) 280,000
Depreciation 15,000
333,000
Profit before tax 407,000
Note: 20% of the other expenses were not for the purpose of business, therefore, these expenses were not allowed.
Other deduction available in the Income tax Ordinance and Income Tax Rules
5. Entertainment expenditure [Rule 10]
Entertainment expenditure (including meals, refreshments and reasonable leisure facilities as per norms and customs
of the business in Pakistan) related directly to the business on satisfaction of the following conditions:
expenditure incurred outside Pakistan on entertainment or where such expenditure related to head office
expenditure;
expenditure incurred in Pakistan on entertainment of foreign customers and suppliers, customers and clients
at business premises;
expenditure incurred on entertainment at a meeting of shareholders, agents, directors or employees; or
expenditure incurred on entertainment at the opening of branches.
6. Agriculture produce used as raw materials [Rule 11]
This rule applies to a person who is a cultivator or receiver of agricultural produce as rent in kind and who
uses agricultural produce raised or received as raw material in a business the income from which is chargeable
to tax under the head "Income from Business" as under:
Taxable income = Total income LESS market value of the agricultural produce used in business as raw material
Only the market value of the agricultural produce is deducted and no further deduction shall be made in respect
of the any expenditure incurred by the taxpayer as cultivator or as a receiver of rent in kind. The market value shall
be computed as under:
6.1 Where the produce is ordinarily sold in the market
Where the product is ordinarily sold in the market either in the raw state or after application of any process required to
make to product fit to be taken to the market then the market value shall be determined on the date of use.
6.2 Where the produce is not ordinarily sold in the market
The aggregate of expenses on cultivation and the land revenue or rent paid for the area in which it is grown.
Example
Mr. B owns a floor mill. He also owned agricultural land from which wheat is being grown and used in the floor mill as
raw material. Profit and loss account of Mr. B for the year ended June 30, 2016 is as under
Rupees
Sale of floor 1,000,000
Less expenditure:
Wheat cultivation cost 600,000
Wheat conversion cost 100,000
Other expenses 50,000
250,000
Important note: Wheat used in floor mill, if purchased from open market, would have cost to Mr. B Rs. 725,000.
Required:
(a) Taxable income of Mr. B, if wheat is ordinarily sold in the market.
(b) Taxable income of Mr. B, if wheat is not ordinarily sold in the market.
Solution:
(a) Taxable income of Mr. B, if wheat is ordinarily sold in the market in raw state.
Rupees
Sale of floor 1,000,000
Less expenditure:
Market value of wheat 725,000
Wheat conversion cost for floor 100,000
Other expenses 50,000
Taxable income 125,000
(b) Taxable income of Mr. B, if wheat is not ordinarily sold in the market in raw state.
Rupees
Sale of floor 1,000,000
Less expenditure:
Wheat cultivation cost (including land rent) 600,000
Wheat conversion cost 100,000
Other expenses 50,000
Taxable income 250,000
(b) any amount incurred in the tax year to a modaraba or a participation term certificate holder for funds
borrowed and used for the business purposes;
(c) any amount incurred by a scheduled bank in the tax year on profit or loss sharing account or a deposit with the
bank as a distribution of profits;
(d) any amount incurred by HBFC, NDLC, SME bank in the tax year on profit and loss basis the share in profits
to the SBP on its investment in property, leasing operations and credit line respectively.
(e) any amount incurred by a person in the tax year on profit and loss basis to a banking company under a scheme
of musharika;
(f) any amount incurred by a person in the tax year to a certificate holder under a musharika as share in the profits
of the musharika; or
2. LEASE RENT:
Lease rental expenses for the year to a scheduled bank, financial institution, an approved modaraba, an approved
leasing company or a Special Purpose Vehicle on behalf of the Originator for use of an asset for business purposes;
3. FINANCIAL COST:
The financial cost of the securitization of receivables incurred by an Originator in the tax year from a Special
Purpose Vehicle being the difference between the amount received by the Originator and the amount of receivable
securitized from a Special Purpose Vehicle.
Where assets are transferred by an Originator on securitisation to a Special Purpose Vehicle, it shall be treated as a
financing transaction irrespective of the method of accounting adopted by the Originator.
Example: Following information is related to Mr Bilal who carries on the business of trading clothes.
(a) Sales Rs. 740,000,
(b) Cost of sales Rs. 550,000,
(c) Administrative expenses Rs. 110,000
Notes:
Administrative and selling expenses include:
(a) Accounting depreciation Rs. 10,000,
(b) Interest on loan (for business purpose) Rs. 20,000,
(c) Interest on loan (for personal purpose) Rs. 5,000
Required: Compute taxable income of the taxpayer if the tax depreciation Rs.15,000.
Solution:
Mr Bilal
Computation of taxable income: Rs.
Income from business:
Sales 740,000
Cost of sales (550,000)
Gross profit 190,000
Less: Administrative expenses (110,000)
Add: accounting depreciation 10,000
Add: Interest on loan for personal use 5,000
Less: Tax depreciation (15,000)
Taxable income 80,000
Irrespective of the method of accounting adopted by the originator, where as a result of securitization any assets are
transferred by him to a SPV it shall be treated as a financing transaction. [S 28(2)]
10. Bad debts [U/s 29(1) and (2)]
A person shall be allowed a deduction for bad debts, in a tax year if the bad debts which were previously included
in incomes or in respect of money lent by a financial institution have now been written off and reasonable
grounds exist that they cannot be recovered.
The amount of allowed deduction for a tax year shall not exceed the amount of the debt written off in the accounts of
the person in the tax year.
Solution:
Taxable profit: Rs.
Profit before tax 1,000,000
Add: deductions not admissible:
Tax paid or deducted at source 40,000
Payment of salaries without deduction of tax 425,000
Donation to unapproved institution 20,000 485,000
Taxable profit 1,485,000
Example: The following payments of expenses made otherwise through crossed Cheque.
Nature of payment Rs.
Rent of one month paid to an AOP for Karachi rented office 50,000
Air tickets purchased 100,000
Payment of monthly wages of Mr. B 14,000
Bill paid for repair of car 22,000
Electricity bill paid 115,000
Telephone bill paid 48,000
Paid professional tax 30,000
Paid audit fee 60,000
Paid tax consultant 19,000
Compute the addition u/s 21(1) of the Income Tax Ordinance, 2001
Solution:
Calculation of addition u/s 21(1) Rs.
N-1 Condition of payment through cross cheques is not applicable on the said transactions.
N-2 Although single transaction exceeding Rs.10,000 but as the total under single head of account is not more
than Rs.50,000 therefore on the said transactions the provisions of section 21 are not applicable.
N-3 Wages less than Rs.15,000 per month are not required to be paid through banking channel.
N-4 These expenses are required to be paid through banking channel.
N-5 It has been assumed that other months payment against rent was made through banking channels.
Important notes on section 21
11.1 Tax, Charge or levy paid to the government [U/s 21(a)]
Although any cess (charge on the profit), rate or tax paid or payable in Pakistan or a foreign country that is
levied or assessed as percentage on the business profits is not admissible. However Workers Welfare Fund
and Workers Profit Participation Fund are payable on profit but the same are specifically allowed as deductible
allowances u/s 60A and 60B.
11.2 Penalty or Fine [U/s 21(g)]
Any fine or penalty for the violation of any law, rule or regulation is not admissible. However certain payments are
allowable as tax expenses which are not for the violation of any law, rule or regulation e.g.
1. Compensation for late repayment of loan instalment
2. Demurrage to custom authorities
3. Compensation / interest for breach of a contract in the ordinary course of business
Example: Profit before tax of Beta (Pvt.) Ltd. is Rs.1,000,000. Following items have been included in the
computation of profit.
(a) Income tax paid Rs. 40,000
A person shall be entitled to a deductible allowance for the amount of any Workers Participation Fund paid by the
person in tax year under Companies Profit (Workers Participation) Act, 1968.
In view of the above, any sum paid for Workers Profit Participation Fund is admissible deductible allowance. It is
important to place on record that under clause (4)(d) of the Schedule to the Companies Profit (Workers Participation)
Act, 1968, any amount of undistributed workers profit participation fund will be paid as Workers Welfare Fund to the
Tax Authorities.
Pakistan source & Foreign source Income from business
[Section 50]
An individual shall be
exempt in respect of his
Foreign source business income:
b. Short term resident foreign-source income which
Income from business other than above is not brought / received in
[For all foreign source Pakistan if he is resident
income] only by reason of his
employment and he is
present in Pakistan for not
exceeding 3 years.
[Section 51]
c. Returning expatriate If an individual citizen of
Pakistan (returning
expatriate) is resident in the
[Citizen of Pakistan current tax year but was
coming back in non-resident in the 4
Pakistan] preceding tax years, his
foreign-source income shall
[For all foreign source
be exempt in current tax
income]
year and in the following tax
year.
Non-resident individual Not taxable [Section 11(6)]
Example: A company has received amount as Participatory redeemable capital Rs.10,000,000 in the tax year 2016.
You are required to compute the amount that should be allowed as expense against business income of the
Company u/s 31 under the following situations
A. If the amount transferred during the tax year 2016 to Participatory reserve is 5% of the amount received.
B. If the amount transferred to Participatory reserve is 3% of the amount received.
C. If the amount transferred to Participatory reserve is 8% of the amount received.
D. If the accumulated balance in Participatory reserve is 10%.
F. If the accumulated balance in Participatory reserve is 14%.
G. If the amount transferred during the tax year 2016 to Participatory reserve is 5% of the amount received
however the amount was used other than to redeem capital.
Solution: Under case A, B, C and D the company shall be allowed expense equal to 5% of Participatory reserve of
the respective years. However in case of E and F the company shall not be allowed any expense as it exceeds from
maximum limit of 10% and used for any purpose other than for redemption of redeemable capital.
17. EXEMPTIONS FROM TOTAL INCOME [PART I OF SECOND SCHEDULE TO THE INCOME TAX ORDINANCE,
2001]
REDUCTION IN TAX RATES [PART II OF SECOND SCHEDULE TO THE INCOME TAX ORDINANCE, 2001]
REDUCTION IN TAX LIABILITY [PART III OF SECOND SCHEDULE TO THE ITO, 2001]
(d) factory
Q.29 Which of the following expenses is not admissible?
(a) provision for doubtful debts
(b) bad debts
(c) penalty
(d) both a and c
Q.30 Depreciation is allowed as per ___________.
(a) accounts
(b) tax
(c) estimates
(d) not allowed
Q.31 Which of the following donations are allowed as straight deduction?
(a) donation to unapproved institution
(b) donation to institution under section 61
(c) donation to institution specified in clause 61
(d) none of above
Q.32 In an AOP the members are allowed only to receive ___________.
(a) salary
(b) commission
(c) profit on debt
(d) none of above
Q.33 Depreciation is allowed as per _____ schedule of the Income Tax Ordinance, 2001
(a) 1st
(b) 2nd
(c) 3rd
(d) 4th
Q.34 Expenses other than utility, postage and freight charges must be paid through cross cheques where any of them
exceeds Rs.______.
(a) 8,000
(b) 10,000
(c) 5,000
(d) 6,000
Q.35 Any expenditure is admissible if the same is wholly and exclusively __________.
(a) for business
(b) for personal use
(c) for personal expenses of members in case of AOP or company
(d) all of above
Q.36 Where the bad debts are recovered from the amount not allowed earlier then the same would be ___________.
(a) included in taxable income
(b) ignored
(c) reversed from accounting profit
(d) all of above
Q.37 Any amount received by a banking company or a non-Banking finance company out of profit on debt is taxable under
income from _________.
(a) salary
(b) property
(c) business
(d) other sources
Q.38 Expenses on entertainment of foreign customers and suppliers are ________.
(a) admissible
(b) not admissible
(c) both a and b
(d) none of above
Q.39 Any expenditure (unless otherwise stated) under a single account head exceeding Rs.50,000 is admissible if the
payment is made only through ___________.
(a) cash
(b) cross cheque
(c) bearer cheque
(d) all of above
Q.40 For tax purposes, business does not include ___.
(a) employment
(b) trading
(c) manufacturing
(d) service providing
Q.41 Income from speculation business is kept separate from _____ business incomes.
(a) non-speculation business
(b) other speculation business
(c) trading business
(d) business of service providing
Q.42 Arbitrage is a _________________.
(a) speculation business
(b) non-speculation business
(c) illegal business
(d) none of above
Q.43 Salary paid to sleeping partner of AOP is __________.
(a) admissible
(b) not admissible
(c) none of above
Q.44 Any amalgamated company is allowed a deduction against ________ in respect of all expenses incurred by it.
(a) business income
(b) salary income
(c) property income
(d) all of above
Q.45 The financial cost of securitization incurred by the ___ is allowed as an admissible deduction.
(a) APV
(b) SPV
(c) bank
(d) financial institution
Q.46 Which of the following is allowed as deductible allowance against business income?
(a) WWF
(b) WPPF
(c) Zakat under Zakat and Usher Ordinance
(d) all of above
142 Conceptual Approach to Taxes
Income From Business Chapter-09
ANSWERS
1 (c) 2 (d) 3 (b) 4 (b) 5 (b)
6 (a) 7 (a) 8 (d) 9 (b) 10 (c)
11 (a) 12 (b) 13 (d) 14 (c) 15 (c)
16 (d) 17 (c) 18 (b) 19 (d) 20 (e)
21 (a) 22 (a) 23 (c) 24 (c) 25 (a)
26 (b) 27 (c) 28 (b) 29 (d) 30 (b)
31 (c) 32 (d) 33 (c) 34 (b) 35 (a)
36 (c) 37 (c) 38 (a) 39 (b) 40 (a)
41 (a) 42 (b) 43 (b) 44 (a) 45 (b)
46 (d) 47 (d) 48 (b) 49 (b) 50 (b)
51 (a)
Q. No. 5 (a) Spring 2012 Tamba Pakistan (Pvt.) Limited is engaged in the manufacture of pharmaceutical products. Its
board of directors has approved a 3-year loan to one of its major shareholders.
Required: Explain the tax implications of the above transaction on the company as well as the shareholder.
Q.3 Spring 2011 Carrot Ltd (CL) is engaged in the manufacture, import and sale of electronic appliances for the past twenty
years. When reviewing the companys tax provisions, you noticed the following amounts appearing in the tax calculation for
the year ended June 30, 20X2.
(i) Profit on debt of Rs. 500,000 paid on a working capital loan obtained from a foreign bank. CL did not deduct
withholding tax while paying profit on debt considering the bank does not have a Permanent Establishment in
Pakistan.
(ii) Expenditure of Rs. 450,000 on promotion of a product which is expected to generate revenue for twelve years.
(iii) Bad debt in respect of a staff loan, Rs. 25,000.
(iv) Reimbursement of expenses of Rs. 300,000 to CL by the parent company. This amount was incurred by CL in 20X1
on marketing a new product imported from Dubai.
(v) Initial allowance of Rs. 4,000,000 on a used equipment acquired locally from MSD Limited.
(vi) Financial charges amounting to Rs. 100,000 and depreciation amounting to Rs. 300,000 on a vehicle acquired on
finance lease from Radish Leasing. Lease rentals paid during the year amounted to Rs. 400,000.
Required: Under the provisions of ITO, 2001 discuss the admissibility of the above amounts for tax purposes.
Q.NO. 4(a) Spring 2008 Discuss the taxability of the following under the Income Tax Ordinance, 2001:
(i) Bad debts
(ii) Non-adjustable rent
(iii) Speculation business
Q.NO. 2 (a) Autumn 2007 What do you understand by the concept apportionment of expenditures as explained in the
Income Tax Ordinance, 2001?
Q.NO. 3 (a) Spring 2006 Explain with reasons, as to whether or not the following expenses are admissible business
expenditures:
(i) Penalty paid by a banking company on contravention of State Bank of Pakistans regulations.
(ii) Freight charges to forwarding agent amounting to Rs 60,000 paid in cash.
(iii) Payment of salary to employee from which tax was not deducted by the employer. However, the employee paid the
tax himself.
(iv) Tax deducted u/s 153 from payments received by a resident person on account of services rendered.
Q. NO. 3 (b) Autumn 2006 One of your clients, Japan and Company, a partnership having three partners, has sent you its
financial statements for the year ended June 30, 2006. Following items are appearing under the head Other income:
(i) Accounting profit on disposal of fixed assets.
(ii) Reversal of provision for doubtful debts related to year ended 30-06-2004
(iii) Dividend received from a listed company.
(iv) Profit on debt.
You are required to explain with reasons as to how the above items will be treated in the computation of taxable income.
Q.NO. 3 (c) Spring 2006 Explain the provisions of section 29 with regard to the recovery of bad debts in subsequent years.
Q.NO. 4 (b) Autumn 2006 Describe conditions mentioned in ITO, 2001 under which a loan will be classified as a consumer
loan.
Q.NO. 5 (a) Autumn 2006 Any income arising from any asset transferred by a person to his spouse is to be treated as
income of the transferor. Describe the circumstances under which this rule shall not be applicable.
Q.NO. 3 Spring 2005 Describe any five types of expenses that are not allowed to deducted under the head income from
business.
Q.NO. 7 Spring 2005 Discuss under what circumstances an expenditure incurred by a person are required to be
apportioned for the purpose of claiming a deduction under the Income Tax Ordinance, 2001?
Q.NO. 4 Autumn 2004 Describe the expenses which are allowable as a deduction on account of employees training &
facilities?
Q.NO 5 Autumn 2004 Discuss the conditions required to be fulfilled for claiming a deduction on account of bad-debts?
Q.5 Spring 2002 Explain whether the following are admissible as business expenditure under the Income Tax Ordinance
1979:
(a) Repayment of principal amount of lease rentals of plant & machinery.
(b) Sales tax paid on the purchase of raw material to be used in the production of exempt supply.
(c) Dividend
(d) Provision in respect of doubtful debts.
(e) Penalty levied u/s 108 of the Income Tax Ordinance, 1979 for failure to file statement u/s 139.
Q.5 Autumn 2002 Dreamland (Pvt) Ltd. has requested you to advice as regards the important aspects of law for
disallowance of expenses incurred in cash [u/s 24ff] and excess perquisites[u/s 24(i)]. Please write an advisory letter in
this regard explaining the law with suitable examples.
Q.2 Autumn 2001 Discuss briefly the legal position with respect to the admissibility or otherwise of the following as business
expenditure under the Income Tax Ordinance, 1979:
(a) Amount paid as income tax.
(b) Capital expenditure incurred on scientific research in Pakistan.
(c) Share of profit paid to a bank under a scheme of musharika.
(d) Interest paid by a firm to a partner of the firm.
(e) Salary paid otherwise through a crossed bank cheque etc. not exceeding Rs. 5,000..
Q. NO. 4 March 2000 Enumerate 12 in-admissible deductions fort computing income from business or profession contained
in section 21 of the Income Tax Ordinance.
Q. NO. 3 March 1999 Mr. B is MD of a public company. He is master of science in petroleum engineering with a little
background of accounting and tax. He has been informed that the assessing officer may question the method of accounting
of the company in the context of determination of business income. Whilst section 20 of the Income Tax Ordinance specifies
admissible deductions, section 21 of the Ordinance stipulate certain deductions which are not admissible under the law.
MD is not clear about certain things stated above and has asked you, as chief accountant of explain him the following in a
write up:
(a) What types of income are chargeable under the head business income?
(b) What are the six inadmissible deductions u/s 21 of the ordinance for computing business income.
How many types of method of accounting exist and under what circumstances assessing officer may not accept the tax
payers method of accounting.
Q. NO. 2 Nov 1996 Which income shall be chargeable under the head income from business and what deductions are
admissible while computing such income?
Q. NO. 4 Nov 1996 Answer the following statements, considering the keys given therein:
I) Income from business or profession is computed u/s: (a) 19 (b) 18 (c) 22
Q. NO. 9 May 1994 Which of the following appear to be correct in the given choices?
i) Rental income earned by a taxpayer engaged in the business of letting out shops in a large shopping plaza is taxed
as:
(a) Income from business or professions
(b) Property income
(c) Income from other sources
(d) Capital gains
ii) The profit on sale of building used for the purposes of taxpayers business is taxed as:
(a) Capital gains (b) Business income
(c) Exempt from tax (d) Taxed at reduced rate
Q. NO. 9 Nov 1994 Answer the following statement considering the keys given therein:
i) Income from business or profession is computed under: (a) Section 19 (b) Section 18 (c) Section 27
Chapter
Topic covered
Section Rule
(For CAF-6 and ICMAP Students)
PART I (FOR CAF-6 & ICMAP STUDENTS)
22 12 & 224 Depreciable asset
23 12 & 224 Initial allowance
23A 12 & 224 First year allowance
23B Accelerated depreciation to alternate energy projects [Part-II of Third Schedule]
24 Intangibles
25 Pre-commencement expenditure
Disposal of assets
Assets of leasing companies
75 Disposal & acquisition of assets
76 Cost of assets under various situations
77 Consideration received under various situations
PART II (FOR CA MOD F & ICMAP STUDENTS)
78 Non-arm's length transactions
79 Non-recognition rules
MCQs with solutions
ICMAP & CA Mod C past papers theoretical questions
CALCULATION OF DEPRECIATION:
Depreciation shall be allowed only on depreciable assets. Rules regarding calculation of depreciation are as follows:
5. Where an asset not used for the whole of the year:
The depreciation on such asset shall be charged for the whole year e.g. assets used partly on seasonal basis in
sugar industry. [U/s 22(1)]
6. Where the useful life of an asset is one year:
No depreciation allowance shall be allowed however renewal or replacement cost shall be allowed as revenue
expenditure. [U/s 22(15)]
7. Rates of depreciation:
Depreciation shall be computed by applying the following rates against the written down value of the asset at the
beginning of the year [U/s 22(2)]:
4. In case of mineral oil concerns the income of which is liable to be computed with the rules in
Part I of the Fifth Schedule.
Below ground installations 100%
Offshore platforms and production installations. 20%
5. A ramp build to provide access to persons with disabilities not exceeding Rs.250,000 each. 100%
7.1 Written down value at the beginning of the year [U/s 22(5)]
The above mentioned rates are applied on the written down value (WDV) of the asset at the beginning of the year,
which is determined as below:
(a) In case of asset acquired during the year:
Cost xxx
Less: Initial allowance (if asset is eligible depreciable asset) (xxx)
WDV at the beginning of the year xxx
(b) In any other case:
Cost xxx
Less: Initial allowance allowed in previous years (xxx)
Less: Depreciation allowed in previous years (xxx)
WDV at the beginning of the year xx
7.2 Asset partly used for business:
Where an asset is partly used for business and partly for some other purpose then:
(a) Depreciation shall be allowed in proportion to the use of asset in the business [U/s 22(3),
(b) However, WDV shall be calculated in the normal way [U/s 22(6)].
Following example will demonstrate this situation:
Example - 1: A person acquired machinery in year 1 for Rs. 500,000 for business purpose. In year 2 he used that
machinery for business purpose for six months and for remaining six months he used that for some other purpose
while in year 3 he used that machinery wholly for business use.
Required: Calculate (a) depreciation allowed and (b) closing WDV for three years.
Solution: (a)
Year 3 Year 2 Year 1
Rs. Rs. Rs.
Cost 500,000
Less: initial allowance @ 25% 125,000
WDV at the beginning of the year (A) 270,937 318,750 375,000
Example 2: In tax year 2015, Jazz Limited purchased a new plant and building for Rs.1,200,000 and Rs. 500,000
respectively. Calculate initial allowance if any, tax depreciation and closing WDV.
Solution:
Plant Building Total
(Rupees)
"intangible" means any patent, invention, design or model, secret formula or process, copyright, trade mark, scientific
or technical knowledge, computer software, motion picture film, export quotas, franchise, licence, intellectual property,
or other like property or right, contractual rights and any expenditure that provides an advantage or benefit for a period
of more than one year (other than expenditure incurred to acquire a depreciable asset or unimproved land).
The above definition reveals that it also includes any expenditure that provides an advantage or benefit for a period of
more than one year. Therefore, amortization of any cost which has useful life of a period exceeding on year is
allowed.
Intangible eligible for amortization
A person shall be allowed an amortisation deduction in a tax year for the cost of the person's intangibles;
that are wholly or partly used by the person in the tax year in deriving income from business
chargeable to tax and
that has a normal useful life exceeding one year.
The term cost of intangible in this section means any intangible, means any expenditure incurred
in acquiring or creating the intangible, including any expenditure incurred in improving or renewing
the intangible;
Limitation on amortization and method to compute amortization:
No deduction shall be allowed where a deduction has been allowed under another section of this
Ordinance for the entire cost of the intangible.
The total deductions allowed to a person under this section in the current tax year and all previous
tax years shall not exceed the cost of the intangible.
Formula to compute amortization deduction is as under:
Cost of intangible / Normal useful life of the intangible in whole years
Where an intangible asset useful life is more than ten years or not ascertainable:
An intangible with a normal useful life of more than ten years or that does not have an ascertainable
useful life shall be treated as if it had a normal useful life of ten years.
Where an asset not used for the whole of the year:
Where an intangible is used in a tax year partly in deriving income from business chargeable to tax
and partly for another use, the deduction allowed for that year shall be restricted to the fair
proportional part of the amount that would be allowed if the intangible were wholly used to derive
income from business chargeable to tax.
Where an intangible is not used partly only to derive income from business chargeable to tax, the
amortization shall be computed according to the following formula, namely-
Amount of amortization x Number of days in the tax year the intangible is used in deriving
income from business chargeable to tax / Number of days in the tax year
Amortization in case of disposal:
Where, in any tax year, a person disposes of an intangible, no amortization deduction shall be
allowed under this section for that year;
Gain / loss on disposal of intangibles:
if the consideration received by the person exceeds the WDV of the intangible at the time of
disposal, the excess shall be income of the person chargeable to tax in that year under the
head "Income from Business"; or
if the consideration received is less than the WDV of the intangible at the time of disposal,
the difference shall be allowed as a deduction in computing the person's income chargeable
under the head "Income from Business" in that year.
WDV in case of disposal of and intangible asset:
The WDV of an intangible at the time of disposal shall be the cost of the intangible reduced by
the total deductions allowed to the person in respect of the intangible or, where the intangible is
not wholly used to derive income chargeable to tax, the amount that would be allowed if the
intangible were wholly so used; and
The consideration received on disposal of an intangible shall be determined in accordance with
section 77. An intangible that is available for use on a day (including a non-working day) is
treated as used on that day.
Chart presentation of depreciation under section 22 and intangibles under section 24:
1. To whom available A person shall be allowed deduction for the any above related expenditure.
3. Limitation on pre- The total deductions allowed under this section in the current and all previous
commencement tax years shall not exceed the amount of the expenditure.
expenditure
No deduction shall be allowed for any pre-commencement expenditure where a
deduction has been allowed under another section of this Ordinance for the entire
amount of the pre-commencement expenditure.
EXCEPTION TO THE RULE COST INCURRED AND CONSIDERATION RECEIVED / SPECIAL POINTS ON DISPOSAL OF
DEPRECIABLE AND NON DEPRECIABLE ASSETS:
In case of disposal of the asset, following rules shall apply:
a. Total deduction (normal and initial allowance) allowed to a person during the period of ownership of a depreciable
asset shall not exceed the cost of the asset [U/s 22(7)].
b. No depreciation shall be allowed in the year of disposal [U/s 22(8)].
c. Gain / loss on disposal of depreciable asset;
If the consideration received against the disposal of depreciable asset is more than its WDV, then excess
shall be chargeable to tax under the head income from business [U/s 22(8a)].
If consideration received against the disposal of a depreciable asset is less than WDV, then the difference
shall be deducted from income chargeable to tax under the head income from business [U/s 22(8b)].
d. Where an asset was partly used for business and partly for some other purpose, then WDV at the time of
disposal shall be increased by depreciation not allowed on account of non business use [U/s 22(9)]. (See example
4)
e. If the cost of passenger transport vehicle not plying for hire is more than Rs. 2.5 million, then it shall be
considered equal to Rs.2.5 million and in this case disposal consideration shall also be reduced as per following
formula [U/s 22(10)]: (See example 5)
(Amount received on disposal of the vehicle x 2.5 million) / Actual cost of vehicle
Note: If the passenger transport vehicle in plying for hire then there is no limitation on cost of transport vehicle under
the aforesaid section.
f. The cost and consideration received in respect of a depreciable asset received as already discussed shall be
determined u/s 75 to 79 of the Income Tax Ordinance, 2001 [U/s 22(11)].
g. In case of disposal of immovable property, where consideration received exceeds the cost of asset then
consideration received shall be treated as the cost of asset [U/s 22(13)]. (See example 6)
h. Where a person exports an asset after using in Pakistan, then consideration received shall be treated as equal to
the cost of asset [U/s 22(14)]. (See example 7)
Example - 4: Consider the situation of example 1. What would be the treatment if asset is sold in year 4 for Rs. 500,000.
Solution: Rs.
Important Note: It is worthwhile to mention here that although section 22(8)(a) states that the profit on disposal of
depreciable asset is equal to the difference between sale price and written down value of depreciable asset, however
the same shall be read with the limitations imposed under this section by sub section 13(d) and 14 on various assets
disposal.
Example - 5: A person acquired a passenger transport vehicle for Rs. 3,000,000 for business purpose. This vehicle was
then sold for Rs.1,800,000 in year 2. Calculate gain on sale of vehicle in year 2.
Example 7: From following information compute gain on sale of asset which has been exported after using in Pakistan:
Cost Rs.100,000, WDV Rs.40,000, Consideration received Rs.160,000.
Solution: In this case cost shall be equal to the consideration received:
Rs.
Consideration received (equal to cost of asset for tax) 100,000
Less: WDV 40,000
Profit on disposal (equal to accumulated depreciation) 60,000
Important note: From the second year to onwards the lessor is entitled to claim full amount of depreciation as the lease
rentals exceeds from the total depreciation from third year to onwards.
Example: Distinguish between disposal and acquisition of asset under the following situations.
(a) Application of a business asset to personal use.
(b) Application of a personal asset to business use.
(c) Mr. Adnan sold a part of his business building for Rs. 1,000,000.
(d) There in no demand of Product-A produced by M/s Azeem and Co. Therefore proprietor discarded the
machinery which was used in production of Product-A.
(e) Factory building of AB and Co. was destroyed by earthquake.
(f) Mr. Amir exchanged his business vehicle for machinery.
Solution:
(a) Application of business asset to personal use is treated as disposal of asset.
(b) Application of a personal asset to business use is treated as acquisition of asset.
(c) Disposal of a part of asset is treated as disposal of asset.
(d) When an asset is discarded, it is treated as disposal of asset.
(e) When an asset is destroyed / lost, it is also treated as disposal of asset.
(f) In this case, there is a disposal of vehicle and acquisition of machinery.
COST OF ASSETS UNDER VARIOUS SITUATIONS [U/S 76]
The Board may prescribe rules for determination of cost for any asset, however except otherwise provided in the Income
Tax Ordinance, 2001 the cost of an asset shall be determined as under.
1. Cost of an asset purchased:
The cost of an asset purchased by a person shall be the sum of the following amounts:-
The total consideration given for the asset, including the FMV of any consideration in kind determined at the
time the asset is acquired;
any incidental expenditure incurred in acquiring and disposing of the asset; and
any expenditure incurred by the person to alter or improve the asset.
but shall not include any expenditure above that has been fully allowed as a deduction under this Ordinance.
Example: Determine the cost of asset from following information.
Rs.
Cash paid for purchase of asset 50,000
FMV of motorcycle given for purchase of asset 30,000
Legal expenses incurred on purchase of asset 10,000
Repair expenses (fully allowed as deduction) 5,000
Solution:
Rs.
Cash paid for purchase of asset 50,000
FMV of motorcycle given for purchase of asset 30,000
Legal expenses incurred on purchase of asset 10,000
Total 90,000
Note: As repair expenses have already allowed therefore the same shall not be added in the cost of asset.
2. Cost where personal asset applied for business use The cost of an asset treated as acquired shall be the FMV
of the personal asset determined at the date it is applied to business use.
Example: Rs.
Cost of personal asset purchased 100,000
Book value of asset as on June 30, 2016 85,000
You are required to compute the cost of asset if the same asset put to use for business purposes as on June 30,
2015 under the following situations:
A. If the fair market value of the personal asset as on June 30, 2016 is Rs.100,000.
B. If the fair market value of the personal asset as on June 30, 2016 is Rs.80,000.
C. If the fair market value of the personal asset as on June 30, 2016 is Rs.150,000.
Solution: In all the above cases the fair market value as on June 30, 2016 shall be taken as cost of asset irrespective
of its cost or book value for business purposes.
3. Cost of an asset produced or constructed
The cost of an asset produced or constructed by a person shall be the total cost incurred by the person in producing
or constructing the asset plus any expenditure in acquiring and disposing, alter or improving the asset incurred by the
person.
Example: Determine the cost of plant manufactured by an AOP for its own use from the following information.
Rs.
Salary of engineer (fully engaged in manufacture of plant) 50,000
Raw material purchased for manufacture of plant 550,000
Wages to labour (40% for manufacture of plant) 100,000
Solution:
Rs.
Salary of engineer (fully engaged in manufacture of plant) 50,000
Raw material purchased for manufacture of plant 550,000
Wages to labour (40% portion related to manufacture of plant) 40,000
Total 640,000
4. Cost of an asset acquired through foreign currency
Where an asset has been acquired by a person with a loan denominated in a foreign currency and before full and
final repayment of the loan, there is an increase or decrease in the liability of the person under the loan as expressed
in Rupees, the amount by which the liability is increased or reduced shall be added to or deducted from the cost of
the asset, as the case may be:
Explanation: Difference, if any, on account of foreign currency fluctuation, shall be taken into account in the year of
occurrence for the purposes of depreciation.
Example: On July 1, 2015, Mr. Zahid acquired a machine with loan in foreign currency ($50,000) equivalent to
Rs.4,000,000. On June 30, 2016, exchange rate was ($1 = RS. 85). Calculate the amount of tax depreciation and
initial allowance for tax year 2016.
Solution: In this case, change in value of loan shall not be considered for depreciation.
Cost of asset 4,000,000
Initial allowance [4,000,000 x 25%] 1,000,000
WDV for depreciation u/s 22 3,000,000
Depreciation for the year [3,000,000 x 15%] 450,000
Important note: Although the plain reading of the section states that any increase and decrease in exchange rate
before the final settlement of loan shall either be added or deducted from the cost of asset but the position is not so
as only that difference in exchange rate shall be recognized that will arise on actual repayment or availing further
foreign currency loan. The mere change in exchange rate without any repayment or acquiring loan will have no effect
on the cost of asset.
Explanation: Difference, if any on account of foreign currency fluctuation, shall be taken into account in the year of
occurrence for the purposes of depreciation.
The above position may be examined from the FBR Circular 3 of 2009 dated 17-07-2009 & CBRs Circular No.3 of
1991 dated March 09, 1991 that is also approved by the ATIR vide ITA No.1448/HQ 1989-90 dated 15Th November,
1990.
It is worthwhile to mention here that the above circular is still saved by virtue of provisions of section 239(10) of the
ITO, 2001.
5. Cost of an asset acquired under hedging agreement
In determining whether the liability of a person has increased or decreased as above the consideration shall be taken
of the person's position under any hedging agreement relating to the loan.
Example: On July 01, 2014, Mr. Zahid acquired a machine with loan in foreign currency ($50,000) equivalent to
Rs.4,000,000. This loan is covered under hedging agreement and he shall not be liable to pay any increase in the
amount of loan due to change in exchange rate. On June 30, 2015, exchange rate was ($1 = RS. 85). Calculate the
amount of tax depreciation and initial allowance for tax year 2015.
Solution: In this case, change in value of loan shall not be considered for depreciation purpose.
Initial allowance [4,000,000) x 25%] 1,000,000
Depreciation for the year [(4,000,000 1,000,000) x 15%] 450,000
6. Cost of an asset sold in parts
Where a part of an asset is disposed of by a person, the cost of the asset shall be apportioned between the part of
the asset retained and the part disposed of in accordance with their respective FMVs determined at the time the
person acquired the asset.
Example: On July 01, 2015, Mr. Zahid acquired a building for Rs. 500,000. In May, 2015 he disposed of 1/4th of
building for Rs. 300,000. On the date of acquisition, fair value of part sold was Rs. 200,000 and fair value of
remaining part was Rs.400,000. Determine gain / loss on disposal and cost of building retained.
Solution Rs.
Consideration paid for purchase of asset 700,000
Less: Exempt Government grant 420,000
Cost of asset 280,000
Example: A leasing Company has lease out its plant and machinery on the following terms and conditions;
Rs.
Lease rentals for five years (Principal plus mark-up price) 6,000,000
Cost of plant and machinery to leasing Company 4,000,000
You are required to compute the disposal consideration of lease asset under the following situations:
(a) If the principal amount in total lease rental is Rs. 3,500,000 and its residual value is Rs. 200,000.
(b) If the principal amount in total lease rental is Rs. 3,800,000 and its residual value is Rs. 100,000.
(c) If the principal amount in total lease rental is Rs. 4,000,000 and its residual value is Rs. 200,000
Solution:
In case A and B as the principal amount plus residual amount is less than the cost of asset to the lessor therefore the
disposal consideration shall be taken as Rs. 4,000,000 that is not less than the cost of asset to the lessor. However in
case of C no adjustment shall be made in the disposal consideration as the same is more than the cost of asset to the
lessor.
14. Disposal consideration in respect combined sale of two or more assets
Where two or more assets are disposed of by a person in a single transaction and the consideration received for
each asset is not specified, the total consideration received by the person shall be apportioned among the assets
disposed of in proportion to their respective FMVs determined at the time of the transaction.
Example: In tax year 2016 Mr. Khan disposed of his two business cars for a sum of Rs. 1,200,000. WDV of car-1 is
Rs. 300,000 and car-2 is Rs.400,000. Fair Value on the date of this transaction was as follows:
Car-1 700,000, Car-2 300,000
Required: Compute gain on sale of these two cars.
Solution:
Rs. Rs.
Car-1 Car-2
Consideration received (apportioned on the basis of
fair values) i.e. 70% : 30% 840,000 360,000
Less: WDV 300,000 400,000
Gain / (loss) on disposal 540,000 (40,000)
Important note: The tax department shall accept the value that will be higher from FMV and disposal consideration
received of respective asset. As the in the said example the consideration received is higher the same has been
taken into account however where the fair value will be higher than the same shall be taken into account.
15. Determination of consideration received by board
Notwithstanding anything contained in this section, the Board may prescribe rules for determination of consideration
received for any asset.
Example: Mr. Jamshed sold his factory building to his relative Mr. Amir for Rs. 500,000 i.e. transaction was non-
arms length transaction. However, the fair value of building was Rs. 1,200,000. Compute gain / loss on disposal if
WDV of building is Rs. 600,000.
Solution:
Rs.
Consideration received equal to FMV of building both for buyer and seller
irrespective of sale proceeds) 1,200,000
Less: WDV 600,000
Gain on disposal 600,000
a. Mr. Adnan gave his business car to his wife under an agreement to live apart.
b. Business car of Mr. Ikram was completely destroyed in an accident in current tax year and he received claim
from insurance company.
c. Mr. Adnan gave his business car to his wife under an agreement to live apart. His wife is a non-resident in tax
year 2015.
d. A company disposed of its assets to its shareholders on liquidation of the company.
e. An AOP disposed of its assets to its members on dissolution of the AOP in accordance with their interest in the
capital of the association, all the members are non-resident.
f. Mr. Amir gave his factory to his brother as gift. His brother is a non-resident.
Solution:
a. this case no loss or gain shall be recognized.
b. this case gain or loss shall be recognized which is equal to insurance claim received less WDV of the car.
c. this case gain or loss shall be recognized as car was given to non-resident person.
d. gain or loss shall be recognized.
e. n or loss shall be recognized as the members are non-resident.
f. n or loss shall be recognized as the brother is non-resident.
MASTER QUESTION
Briefly explain the tax treatment in respect of each of the following independent situations:
a) Aiza (Pvt.) Ltd has re-valued its Building in accordance with International Accounting Standards and
consequently charged depreciation on the re-valued amount.
b) Aiza (Pvt.) Ltd during the year has opened an overseas office in France and has claimed initial allowance and
depreciation on eligible depreciable assets purchased by the office.
c) Uzair Limited has charged impairment in respect of one of its depreciable assets. The Commissioner is of the
view that impairment expense will not be allowed as an expense.
d) Uzair Limited has discontinued a major product line of its business and envisages selling off the machinery
related to this product line over a period of one to two years to get the right price. Uzair Ltd wants to claim
depreciation on the idle machinery until disposed of.
e) Ms. Sana sells a number of personal vehicles in a tax year and makes a significant amount of profit in the
process. She is of the view that the said income is exempt from tax.
f) XYZ Ltd has recorded a gain on revaluation of its foreign currency balances at the year end. The gain
comprises of both realized and unrealized amount.
g) On July 2014, Ms. Sana purchased a vehicle not plying for hire amounting to Rs. 4,210,000 to be used solely
for the purpose of her business. While preparing the tax return she has claimed initial allowance and
depreciation as per the prescribed rates given in the Income Tax Ordinance, 2001 for the full year on
Rs.4,210,000.
h) In August 01, 2014 Mr. Azhar purchased accounting software amounting to Rs. 5 million for his business. The
software has a useful life of 13 years. Mr. Azhar has charged full year amortization on straight line basis over
the useful life of the software.
i) Entertainment expense payable amounting to Rs. 210,000 has been debited to profit & loss account of ABC
Ltd. The company has not deducted any tax on the said expense.
j) ABC (Pvt.) Ltd has charged depreciation according to the rates admissible under the tax law amounting to Rs.
125,000 on machinery taken on a finance lease from a scheduled bank in August 2009. Lease rentals paid
during the tax year 2015 amounted to Rs. 220,000. The leased machinery was transferred to owned assets
on maturity on 30 April 2015. On maturity the accounting WDV of the assets was Rs. 500,000, market value
was Rs. 800,000 whereas residual value of the asset was Rs. 50,000.
Solution:
a) Deduction for depreciation is associated with tax written down values of assets calculated with reference to
specific provisions. Accounting revaluation of assets has no bearing on tax written down value of assets.
Consequently, depreciation will be allowed on tax written down values of building without taking into account
the effect of revaluation. [Ref:S22(5)]
b) Initial allowance is only available on assets used in Pakistan. Accordingly, the company will not be entitled to
deduction on account of initial allowance on assets purchased by the branch for use in business outside
Pakistan. The company will however be allowed to claim normal depreciation on all depreciable assets. [Ref:
S 23 (1) and S 22]
c) The contention of the Commissioner is correct. Charge for impairment of fixed assets is not a tax deductible
expense. As the impairment charge will be ignored for tax purpose, the written down value of assets will not
be reduced by the charge and depreciation will be calculated as if no impairment has taken place.
d) One of the criteria for an asset to qualify as depreciable asset is that it should be used partly or wholly for
deriving business income. As the product line has been discontinued and the machinery is no more in use,
therefore, it ceases to qualify as a depreciable asset. Accordingly, no deduction will be allowed for
depreciation. [Ref: S 22 and S75(3A)]
e) Income from sale of personal motor vehicles is not taxable under the head Capital Gains. If the vehicles are
bought and sold with the motive of trade, the resultant gain will constitute business income. However, vehicle
intended for personal use are excluded from the definition of capital assets. [Ref: S 37(5) (d)]
f) Unrealized gain on revaluation of foreign currency balances is notional income in nature and is not liable to
tax. Foreign exchange gains will be included in the taxable income for the tax year in which realized.
g) Full year depreciation should be charged on restricted value of Rs. 2,500,000. As vehicle is not an eligible
depreciable asset, therefore, initial allowance cannot be claimed.
h) Amortization should be allowed for 91 days over the useful life of 10 years only. (S. 24(4), 24(6))
i) Tax is required to be deducted at the time of payment. Since the expense is still payable, therefore, company
has rightly claimed the said expense.
j) In case of assets taken on finance lease, lease rentals are an admissible deduction instead of depreciation.
Further, as the asset was transferred during the tax year 2015, therefore, full year depreciation will be allowed
on the residual value of the asset. No initial allowance will be allowed as the asset was already in use. [(S. 22,
S.28(1)(B),S23)].
Q.10. Initial allowance on eligible depreciable assets (plant and machinery) is allowed at the rate of _________of asset.
(a) 40% of cost
(b) 40% of FMV
(c) 50% of WDV
(d) 25% of Cost
Q.11. In case of assets with a useful life of one year, depreciation is ___________allowed:
(a) Not
(b) on full year basis
(c) Proportionate basis
(d) All of these
Q.12. The initial allowance for depreciation is allowable for ___________.
(a) Depreciable assets
(b) Eligible depreciable assets
(c) Intangibles
(d) All of these
Q.13. Depreciation u/s 22 on assets partly for personal and partly for business use is allowable on basis
(a) Monthly
(b) Half yearly
(c) Quarterly
(d) Annual
(e) proportionate
Q.14. Where an intangible is not used for the business for the whole year, then amortization deduction would be on
______basis.
(a) Half of the charge
(b) Full year charge
(c) Proportionate
(d) None of these
Q.15. A person shall be allowed a deduction of amortization of pre-commencement expenditure on straight line basis
at_______.
(a) 10%
(b) 20%
(c) 25%
(d) 50%
Q.16. Amortization in any case cannot be___________ to / from total cost of intangible.
(a) Equal
(b) Less
(c) Higher
(d) None of these
Q.17. A deduction for amortization is allowed only when the intangible has a useful life of _________.
(a) Less than one year
(b) Equal to one year
(c) Higher than one year
(d) Indefinite period
Q.18. In case of export of an asset, disposal consideration would be treated as the __________________.
(a) Cost of asset
(b) FMV at the time of export
(c) Consideration received
(d) None of these
Q.19. The cost of passenger transport vehicles plying for hire for Tax year 2011 for depreciation purposes would be equal
to ____.
(a) Actual cost
(b) Rs. 2,500,000
(c) Higher of actual cost and 2,500,000
(d) Lower of 2,500,000
Q.20. Initial allowance for depreciation on passenger transport vehicles not plying for hire is _______________.
(a) Allowed in the first year
(b) Allowed in last year
(c) Not allowed
(d) none of these
Q.21. In case of intangibles not used for the whole year, amortization allowed would be ___________.
(a) or the full year
(b) Not to charged
(c) Charged on number of days basis
(d) none of the above
Q.22. Any gain or loss on disposal of intangible shall be treated as income or deduction under income from ___________.
(a) Business income
(b) Other sources
(c) Capital gains
(d) None of these
Q.23. When an asset is sold, exchanged, transferred or distributed or cancelled, redeemed, relinquished, destroyed, lost,
expired or surrendered, it shall be treated as ___________________.
(a) Acquisition of asset
(b) disposal of an asset
(c) none of the above
Q.24. The application of a business asset to personal use shall be treated as _______________________.
(a) Acquisition of asset
(b) disposal of an asset
(c) none of the above
Q.25. The cost of an asset purchased by a person shall be_____________________.
(a) Total consideration given
(b) incidental expenditure in acquiring and disposing
(c) any expenditure to alter or improve the asset
(d) all of these
(e) none of the above
Q.26. Where an asset has been acquired with a foreign currency loan the cost of an asset shall be fluctuated due to
__________________.
(a) increase in exchange rate without payment of loan
(b) decrease in exchange rate without payment of loan
(c) No effect unless loan is repaid
Q.27. Where the person disposing of the asset under non-arms length transaction, the consideration shall be treated as
having received equal to _______________________.
(a) Actual consideration received
(b) Fair Market Value
(c) none of the above.
Q.28. Depreciation shall be computed on Building (all types) against the written down value at the beginning of the year at
the rate of _______________.
(a) 10%
(b) 15%
(c) 30%
(d) 100%
(e) 20%
Q.29. Depreciation shall be computed on Furniture (Including fitting) and machinery and plant, Motor vehicles (all types),
ships, technical or professional books against the written down value at the beginning of the year at the rate of
_______________.
(a) 10%
(b) 15%
(c) 30%
(d) 100%
(e) 20%
Q.30. Depreciation shall be computed on computer hardware including printer, monitor and allied items, machinery and
equipments used in manufacture of IT products, aircrafts and aero engines, Aerial photographic apparatus against the
written down value at the beginning of the year at the rate of _______________.
(a) 10%
(b) 15%
(c) 30%
(d) 100%
(e) 20%
Q.31 Initial allowance on building is allowed at ____% of cost of building.
(a) 50
(b) 40
(c) 15
(d) 25
Q.32 Expenditures for acquiring land is included in _____.
(a) cost of land
(b) WDV of land
(c) depreciation of land
(d) all of above
Q.33 Depreciation in respect of asset acquired on lease is _________.
(a) admissible
(b) inadmissible
(c) equal to tax depreciation
(d) none of above
Q.34 Full year depreciation is charged in the year of _____.
(a) disposal
(b) destruction
(c) acquisition
(d) all of above
Q.35 Amount of depreciation allowed to ________ is restricted to the lease rental income derived during the year in
respect of leased assets.
(a) leasing companies
(b) individuals
(c) AOP
(d) all of above
Q.36 The cost of asset is allowed as expense where the asset with a useful life is ___ one year.
(a) less than or equal to
(b) more than
Conceptual Approach to Taxes 165
Assets and Depreciation Chapter-10
Q.46 The rate of depreciation for a ramp build to provide access to persons with disabilities not exceeding Rs.250,000
each is _____%.
(a) 50
(b) 70
(c) 80
(d) 100
Q.47 The normal useful life of an intangible asset is restricted upto ___ years from the date of purchase, where the life of
the intangible is either more than 10 years or not determinable.
(a) 20
(b) 10
(c) 5
(d) 2
Q.48 While considering non arms length transaction it ____ is considered as consideration received.
(a) WDV
(b) FMV
(c) cost
(d) all of above
Q.49 Where the consideration received is against assets sold in bulk, it would be apportioned on the basis of _________of
respective assets.
(a) WDV
(b) FMV at the date of disposal
(c) cost
(d) all of above
Q.50 _____ of an asset includes transfer of an asset between spouses under an agreement to live apart.
(a) acquisition
(b) destruction
(c) disposal
(d) none of above
Q.51 Tax depreciation is also known as _________ depreciation.
(a) statutory
(b) accounting
(c) actual
(d) all of above
ANSWERS
1 (a) 2 (d) 3 (b) 4 (c) 5 (c)
6 (d) 7 (a) 8 (a) 9 (a) 10 (d)
11 (a) 12 (b) 13 (e) 14 (c) 15 (b)
16 (c) 17 (c) 18 (a) 19 (a) 20 (c)
21 (c) 22 (a) 23 (b) 24 (b) 25 (d)
26 (c) 27 (b) 28 (a) 29 (b) 30 (c)
31 (c) 32 (a) 33 (b) 34 (c) 35 (a)
36 (a) 37 (b) 38 (a) 39 (a) 40 (a)
41 (d) 42 (c) 43 (a) 44 (b) 45 (c)
46 (d) 47 (b) 48 (b) 49 (b) 50 (c)
51 (a)
Required: Being a Tax consultant briefly state Ms. Sara regarding conditions where no gain or loss will be accounted for on
disposal of all the assets to Sigma as per section 95 of the income tax ordinance, 2001
Q. No. 2 (a) (i) Spring 2013 Define the term depreciable asset in accordance with the provisions of section
22(15) of the Income Tax Ordinance, 2001.
Q. No. 2 (a) (ii) Spring 2013 Considering the depreciable asset is used in a tax year partly for deriving
income from business chargeable to tax and partly for another use, describe the extent to which the deduction
may be admissible on account of depreciation.
Q. NO. 3(a) SUMMER-2008 What is treatment of a depreciable asset under section 22 of the Income Tax Ordinance, 2001 if
it is disposed of in a tax year?
Q. NO. 3 (d) SUMMER 2007 Describe in detail:
(i) Disposal and acquisition of assets u/s 75 of the Income Tax Ordinance, 2001.
(ii) Business and personal assets u/s 75(7) of Income Tax Ordinance, 2001.
Q. NO. 6(a) WINTER-2006 Briefly state assets eligible for initial depreciation allowance u/s 23(5) of the Income Tax
Ordinance, 2001.
Q. NO. 4(b) WINTER 2005 Explain the terms b. Non-arms length transactions
Q. NO. 2 WINTER-2004 What do you understand by the following terms as described in Income Tax Ordinance, 2001?
1- Disposal of Assets 2- Initial allowance u/s 23 3- Eligible depreciable assets 4- Business assets and personal assets
Q. NO. 2 WINTER-2003 Describe amortization of intangibles as an allowable expense under section 24 of the Income Tax
Ordinance, 2001.
NOW SOLVE FOLLOWING NUMERICAL QUESTIONS OF MODULE C / AFC PAST PAPER RELATED TO THIS TOPIC
Chapter
Topic covered
Section Rule (For CAF-6 and ICMAP students)
32 Method of accounting
Change in method of accounting
33 Cash basis of accounting
34 Accrual basis of accounting
Trading liability not paid & its recovery
35 Stock in trade
Computation of cost
36 Long term contracts
174 Records
28 to 31 Books of accounts prescribed
32 General form of Books of accounts, documents & records
33 Books of account, documents & record to be kept at specific place
MCQs with solutions
ICMAP & CA Mod C past papers theoretical questions
Important note: The effect of NRV less than the cost has not been considered as it is abnormal loss and the same
will be charged to profit and loss account.
5. Computation of cost [u/s 35(5) and (6)]
Cash basis of accounting (Has two options for cost of stock in trade):
A person accounting for Income from Business on a cash basis may compute cost of stock on either prime cost
method or absorption cost method, and
Accrual basis of accounting (has only one method for cost of stock in trade:
a person accounting for business income on accrual basis shall compute the cost of stock on absorption cost
method.
For stock in trade not readily identifiable:
Where particular items of stock in trade are not readily identifiable, a person may account for stock on
first in first out method or weighted average cost method
Once chosen a stock valuation method may be changed with the written permission of the CIR on such
conditions as imposed by the CIR.
Definitions
Absorption-cost method means the generally accepted accounting principle under which the cost of
an item of stock-in-trade is the sum of direct material costs, direct labour costs, and factory overhead
costs;
Average-cost method means the generally accepted accounting principle under which the valuation of
stock-in-trade is based on a weighted average cost of units on hand;
Direct labour costs means labour costs directly related to the manufacture or production of stock-in-
trade;
Direct material costs means the cost of materials that become an integral part of the stock-in-trade
manufactured or produced, or which are consumed in the manufacturing or production process;
Factory overhead costs means the total costs of manufacturing or producing stock-in-trade, other than
direct labour and direct material costs;
First-in-first-out method means the generally accepted accounting principle under which the valuation
of stock-in-trade is based on the assumption that stock is sold in the order of its acquisition;
Prime-cost method means the generally accepted accounting principle under which the cost of stock-
in-trade is the sum of direct material costs, direct labour costs, and variable factory overhead costs;
Stock-in-trade means anything produced, manufactured, purchased, or otherwise acquired for
manufacture, sale or exchange, and any materials or supplies to be consumed in the production or
manufacturing process, but does not include stocks or shares; and
Variable factory overhead costs means those factory overhead costs which vary directly with changes
in volume of stock-in-trade manufactured or produced.
Solution:
Income chargeable to tax in tax year 2016:
Percentage of completion:
(Cost incurred to date / Total contract cost x 100)
843,750 / 3,375,000 x 100 25%
Income chargeable to tax:
Total price of contract x percentage of completion (Rs. 4,500,000 x 25%) 1,125,000
Less total contract cost x percentage of completion (Rs. 3,375,000 x 25%) 843,750
Gross profit for the year 281,250
7. Records [u/s 174]
Except where allowed by the CIR, every taxpayer shall maintain in Pakistan such accounts, documents and records
as may be prescribed.
The CIR may disallow or reduce a taxpayer's claim for a deduction if the taxpayer is unable, without reasonable
cause, to provide a receipt, or other record or evidence of the transaction in support of the claim for
expenditure.
The accounts and documents required to be maintained shall be kept for six years after the end of the tax year to
which they relate;
Provided where any proceeding is pending before any authority or court the taxpayer shall maintain the
record till final decision of the proceedings.
The CIR may require any person to install and use an Electronic Tax Register of such type and description as may be
prescribed for the purpose of storing and accessing information regarding any transaction that has a bearing on the
tax liability of such person.
In this section deduction means any amount debited to trading account, manufacturing account, receipts and
expenses account or profit and loss account.
8. Prescribed books of account [RULE 28 to Rule 31]
Application through Rule 28
These rules apply for records to be kept by the taxpayer u/s 174.
The purpose of these rules is to prescribe the minimum level of books of accounts, documents and records to
be maintained by taxpayers;
A taxpayer accounting for income chargeable under the head "Income from Business" may maintain additional
records, add further columns or particulars in the forms or may keep such records in the manner that suits to the
taxpayer's business.
In this chapter:
"Legal practitioner" includes an advocate, pleader, tax practitioner and advisor or consultant on income tax,
sales tax, customs, central excise or salt tax laws.
"Medical practitioner" includes a doctor, surgeon, physician, dentist, psychiatrist, physiotherapist, tabib,
homeopath, vaid, veterinarian and any person practicing medicine under any other name.
Books of account, documents and records to be maintained [Rule 29]
Every taxpayer deriving income chargeable under the head "Income from business" shall maintain proper books of
account, documents and records with respect to -
all sums of money received and expended by the taxpayer and the matters in respect of which the receipt and
expenditure take place;
all sales and purchases of goods and all services provided and obtained by the taxpayer;
all assets and liabilities of the taxpayer; and
in case of a taxpayer engaged in assembly, production, processing, manufacturing, mining or like activities, all
items of cost relating to the utilization of materials, labour and other inputs.
If a taxpayer uses fiscal electronic cash register or computerized accounting software, it may issue cash-
memo/invoice/receipt generated by the electronic cash register or computer.
Duplicate copies and electronic or computer records of the cash-memo / invoice / receipt / patient-slip to be issued,
shall be retained by the taxpayer and form part of the records to be maintained.
The books of account, documents and records to be maintained for 5 years after the end of the tax year to which they
relate.
The following are the various Rules regarding books of account to be maintained by various taxpayers.
Daily record of receipts, sales, payments, purchases and expenses; a single entry in respect of daily receipts, sales,
purchases and different heads of expenses will suffice; and
Vouchers of purchases and expenses.
4. Manufacturers having turnover more than Rs.2.5 million [Rule 30(4)]
Serially numbered and dated cash-memo / invoice / receipt for each transaction of sale or receipt containing the
following:
taxpayer's name or the name of his business, address, NTN and sales tax registration number, if any;
the description, quantity and, value of goods sold;
where a single transaction exceeds Rs. 10,000 with the name and address of the customer;
Cash book and / or bank book;
Sales day book and sales ledger (where applicable);
Purchases day book and purchase ledger (where applicable);
General ledger;
Vouchers of purchases and expenses and where a single transaction exceeds Rs. 10,000 with the name and address
of the payee; and
Stock register of stock-in-trade (major raw materials and finished goods) supported by gate in-ward and outward
records and quarterly inventory of all items of stock-in-trade including work-in-process showing description, quantity
and value.
5. Electronic tax register (ETR) [Rule 30A]
A person required to use an ETR shall -
Install the ETR within 7 days of its authentication by CIR holding jurisdiction over such case and obtain a register
identification number (RIN) for permanent affixture on the ETR;
Use the ETR to record only his own sales and ensure that each sale is made through it and print the receipt of each
safe containing the information in accordance with sub-rules(3) and (4) of rule 29 and rule 30, and to deliver the
original receipt to the purchaser;
In case of non-availability for use of the ETR, the safes may be recorded with the use of a substitute ETR, duly
authenticated by the CIR;
Prepare a daily and a monthly Accounting report containing the information as prescribed in these rules;
Ensure that the ETR operates correctly with particular regard to correct programming of the names of goods and
services and the correct allocation of their tax rates;
Promptly report any malfunctioning of the ETR to the person responsible for its servicing;
On demand by an authorized person, produce the ETR for inspection;
Ensure the inspection of the ETR before the authorized service management after 6 months;
Keep copies of ETR reports for a period of 5 years and produce the same for inspection by the CIR whenever
required to do so;
Safely keep the ETR ledger in the ETR casing and produce it whenever required by the CIR to do so; and
Ensure the inspection before further use of an ETR which has been or is suspected to have been interfered or
tempered with.
6. Non business taxpayers [Rule 31]
(d) Ground rent, rent from the sub-lease of Lease agreement and
land or building, income from the lease Lease termination agreement.
of any building together with plant or
machinery and consideration for
vacating the possession of a building or
part thereof:
Annuity or Pension Evidence of amount received.
(e) Prize money on bond, winning from a Evidence of income and tax deducted thereon, like
raffle, lottery or cross word puzzle certificate in the prescribed form.
ANSWERS
1 (b) 2 (c) 3 (c) 4 (b) 5 (c)
6 (e) 7 (a) 8 (d) 9 (d) 10 (c)
11 (b) 12 (d) 13 (d) 14 (a) 15 (a)
16 (b) 17 (b) 18 (a) 19 (a) 20 (d)
21 (c) 22 (c) 23 (b) 24 (a) 25 (b)
26 (a)
Q. NO. 1(c) February 2013 (i) You have been appointed as Tax Adviser of Mr. Lodhi who has various residential and
commercial properties in the various parts of the city, He has rented out his properties to different tenants. Advise
Mr. Lodhi about the list of records which shall be issued and maintained by every taxpayer deriving income from
property.
Q. NO. 3 (b) SUMMER 2011 List down the minimum books of account, documents and records of taxpayers with business
income upto Rs. 200,000 under Rule 30 of the Income Tax Rules, 2002:
Q. NO. 3 (a) SUMMER 2009 What records are required to be maintained under Rule 29 of the Income Tax Rules, 2002 to
determine income from business?
Q. NO. 2 (b) SUMMER 2007 Define the following terms as per the provisions of Section 35 of the Income Tax Ordinance,
2001:
- Prime-cost-method
- Stock-in-trade
Q. NO. 2(a) SUMMER 2006 How are following defined under the Income Tax Ordinance, 2001?
(i) Cash-basis accounting
(ii) Accrual basis accounting
Q.NO. 3(b) Spring 2006 What is the basis of stock-in-trade computation under the Income Tax Ordinance, 2001 when the
taxpayer follows the cash basis of accounting?
Q.NO. 4(a) Autumn 2006 A company may account for income chargeable to tax under the head income from business on
cash basis or on accrual basis. Briefly discuss the rules relating to accrual of income and expenditure as explained in the
ITO, 2001.
Q. NO. 3 (a) WINTER 2005 Explain the following terms as defined in Income Tax Ordinance, 2001.
(i) Absorption cost method
(ii) Factory overhead costs
(iii) Prime cost method
(iv) Stock-in-trade
Q.NO. 3(a) Autumn 2003 Describe the method of accounting to be adopted by a person deriving business income from a
Long Term Contract?
Chapter
12 CAPITAL GAINS
Topic covered
Section
Rule (For CAF-6 AND ICMAP students)
37 Capital assets
Procedure to determine capital gain
37A 13F & 13H Gains on sale of securities
100B
Special provision relating to capital gain tax on securities [with Eight Schedule]
Loss u/s 37 & 37A
11, 50, 51 &
Geographical source of capital gains & their taxability
101
Capital gain exempt from tax
Treatment of bonus shares
Disposal
MCQs with solutions
Practice questions with solutions
ICMAP & CA past papers theoretical questions
2.5 Where the capital asset becomes the property of the person under a gift, bequest, will, by succession,
inheritance, devolution, distribution of assets on dissolution of an AOP, or distribution of assets on
liquidation of a company the fair market value of the asset on the date of its transfer or acquisition shall
be treated to be the cost of the asset at the time of its disposal. [U/s 37(4A)] (Example B attached)
However no gain or loss shall be recognized at the original dates when the capital asset becomes the property
of the person under a gift, bequest and will etc. [U/s 79]
Example A Following information has been provided by Mr Ali:
Rs.
Consideration received on sale of share of a private company 96,000
Purchase price of the shares 20,000
Expenses incurred on purchase of shares 2,000
Expenses incurred on sale of shares 3000
Required: Compute income chargeable to tax under the head capital gains assuming:
(a) Holding period of the shares is 8 months.
(b) Holding period of the shares is 15 months.
Solution: (a)
Rs.
Consideration received 96,000
Less: Cost of shares:
Purchase price 20,000
Expenses on purchase 2,000
Expenses on disposal 3,000
25,000
Gain on disposal of shares (totally chargeable to tax as sold within one year) 71,000
Example B Mr Amir purchased 10,000 shares of a private limited company in tax year 2010 for Rs. 100,000.
In tax year 2016 he transferred 5,000 shares to his wife under an agreement to live apart. Further he has
gifted to his son 2,000 shares and sold remaining shares for Rs.60,000. Compute taxable income of Mr. Amir
under the head capital gain for tax year 2016.
Solution:
M R. AMIR
TAX YEAR 2016 Rs.
Capital gains:
3,000 shares sold for Rs. 60,000 60,000
Less: cost of 3,000 shares sold (100,000 x 3,000 / 10,000) (30,000)
Total capital gain 30,000
Taxable capital gain 3/4th of Rs.30,000 22,500
Note: No gain or loss has been recognised on disposal of 5,000 shares to his wife under an agreement to live
apart and gift of 2,000 shares to his son.
Example C Following information is related to Mr. K. (All amounts are in rupees)
Assuming he has no other taxable income, compute tax payable by Mr. K. for tax year 2016.
Solution:
Mr. K
Computation of taxable income and tax liability: Rs.
Shares of private company:
Consideration on disposal (higher of FMV or actual amount) 60,000
Purchase price (50,000)
10,000
House 1:
Consideration on disposal (higher of FMV or actual amount) 1,500,000
Purchase price (1,000,000)
500,000
House 2:
(Holding period is more than 2 years, hence nothing is taxable in case of house 2 ______-_____
Income taxable under NTR 510,000
Less: chargeable to tax under SBI 500,000
10,000
Tax liability (Income is below taxable limit), hence tax liability is zero -
Tax liability under SBI (500,000 x 5%) 25,000
Total tax liability 25,000
No: Yes:
Although gain shall not taxable under If chargeable to tax
capital gains but may be taxable as
business income or income from
other sources.
No: Yes:
The same may be exempt from tax If it is an asset mentioned under
under 2nd Schedule section 38(5)
Yes: No:
No loss will be recognized only gain will be Gain and loss both will be recognized
chargeable to tax by taking 25% exemption by taking 25% exemption on capital
on capital gain where applicable. gain where applicable.
Securities held for a period upto a maximum of one hundred eighty two days (182) and for a period upto a
maximum of three sixty five days (365) shall be taken as held for six months and one year respectively.
Capital gain arising on the disposal of any security shall be computed on the basis of First in First out
(FIFO) inventory accounting method. However, FIFO method shall not apply in respect of sale of shares
purchased on the same trading day. In that case gain or loss shall be computed by applying the average
method.
TAXATION OF GAIN ON DEBT SECURITIES FOR COMPANIES (Part I of first Schedule Proviso to Division
VII)
Capital gain arising from disposal of securities shall be treated as a separate block of income. For rate
purposes this income is split into two categories, namely, debt securities and all other securities.
Tax on gain on disposal of debt securities shall be 32% for companies and for small companies 25% for the tax
year 2016.
Special provision relating to capital gain tax [U/S 100B read with Eight Schedule]
Capital gains on disposal of listed securities and tax thereon, subject to section 37A, shall be computed, determined,
collected and deposited in accordance with the rules laid down in the Eighth Schedule.
The above provisions shall not apply on the following:-
(a) mutual fund, a modaraba;
(b) Banking company, a non-banking finance company and an insurance company subject to tax under the Fourth
Schedule;
(c) a company, in respect to debt securities only; and
(d) Any other person or class of persons notified by the Board.
EIGHT SCHEDULE
RULES FOR THE COMPUTATION OF CAPITAL GAINS ON LISTED SECURITIES
1. Manner and basis of computation of capital gains and tax thereon
(1) Capital gains on disposal of listed securities, subject to tax under section 37A, and to which section 100B
apply, shall be computed and determined under this Schedule and tax thereon shall be collected and
deposited on behalf of taxpayers by NCCPL in the manner prescribed.
(2) For the purpose of sub-rule (1), NCCPL shall develop and automated system.
(3) Central Depository Company of Pakistan Limited shall furnish information as required by CCPL for discharging
obligations under this Schedule.
(4) NCCPL shall issue and annual certificate to the taxpayer on the prescribed form in respect of capital gains
subject to tax under this Schedule for a financial year:
(5) Provided that on the request of a taxpayer of if required by the commissioner, NCCPL shall issue a certificate
for a shorter period within a financial year.
(6) Every taxpayer shall file the certificated referred to in sub-rule (4) along with the return of income and such
certificate shall be conclusive evidence in respect of the income under this Schedule.
(6) NCCPL shall furnish to the Board within the Board within thirty days of the end of each quarter, a statement of
capital gains and tax computed thereon in that quarter in the prescribed manner and format.
(7) Capital gains computed under this Schedule shall be chargeable to tax at the rate applicable in Division VII of
part 1 of the First Schedule.
(8) The provisions of section 4B shall apply to the taxpayers under this schedule and taxed at the rates specified
in Division IIA of Part 1 of the First Schedule.
2. Sources of Investment
(1) Where a person has made any investment in the listed securities, enquires as to the nature and source of the
amount invested shall not be made for any investment made prior to the introduction of the Schedule, provided
that-
(a) a statement of investment s is filed with the Commissioner along with the return of income and wealth
statement for tax year 2012 within the due date as provided in section 118 of this Ordinance and in the
manners prescribed; and
(b) that the amount remains invested for a period of forty- five days upto 30th of June 2012, in the manner
as may be prescribed.
(2) Where a person has made any investment in the shares of a public company traded at a registered stock
exchange in Pakistan from the date of coining into force of this Schedule till June 30, 2014, enquiries as to the
nature and sources of amount invested shall not be made provided that
(a) the amount remains invested for a period of one hundred and twenty days in the manner as may be
prescribed;
(b) tax on capital gains, if any, has duly been discharged in the manner laid down in this Schedule; and
(c) a statement of investments is filed with the Commissioner along with the return of income and wealth
statement for the relevant tax year within the due date as provided in section 118 of this Ordinance and
in the manner prescribed.
(3) For the purpose of this rule, amount of investment shall be calculated in the prescribed manner, excluding
market value of net open sale position in futures and derivatives, if such sale is in a security that constitutes
the said investment.
3. Certain provisions of this Ordinance not to apply
The respective provisions for collection and recovery of tax, advance tax and deduction of tax at source laid down in
the Parts IV and V of Chapter X shall not apply on the income from capital gains subject to tax under this Schedule
and these provisions shall apply in the manner as laid down in the rules made under this Ordinance, except where
the recovery of tax is referred by NCCPL to the Board in terms of rule 6(3).
4. Payment of tax collected by NCCPL to the Board
The amount collected by NCCPL on behalf of the Board as computed in the manner laid down under this Schedule
shall be deposited in a separate bank account with National Bank of Pakistan and the said amount shall be paid to
the Board along with interest accrued thereon on yearly basis by July 31st next following the financial year in which
the amount was collected.
5. Persons to whom this Schedule shall not apply
If a person intends not to opt for determination and payment of tax as laid down in this Schedule, he shall file an
irrevocable option to NCCPL after obtaining prior approval of the Commissioner in the manner prescribed. In such
case the provisions of rule 2 shall not apply.
6. Responsibility and obligation of NCCPL
(1) Pakistan Revenue Automation Limited (PRAL), a company incorporated under the of Companies Ordinance,
1984 or any other company or firm approved by the Board and any authority appointed under section 209 of
this Ordinance, not below the level of an Additional Commissioner Inland Revenue, shall conduct regular
system and procedural audits of NCCPL on quarterly basis to verify the implementation of this Schedule and
rules made under this Ordinance.
(2) NCCPL shall implement the recommendations, if any, of the audit report under sub-rule (1), as approved by
the Commissioner, and make adjustments for short or excessive deductions. However, no penal action shall
be taken against NCCPL on account of any error, omission or mistake that has occurred from application of
the system as audited under sub-rule (1).
(3) NCCPL shall be empowered to refer a particular case for recovery of tax to the Board in case NCCPL is
unable to recover the amount of tax.
7. Transitional Provisions
In respect of tax year 2012, for the period commencing from coming into force of this Schedule till June 30, 2012, the
certificate issued by NCCPL under rule 1(4) shall be the basis of capital gains and tax thereon for that period.
Example: Mr. Adnan sold some shares in tax year 2016. Detail of gain or loss on sale is given below:
Gain / (loss)
Rs.
(a) Shares of Alpha Chemicals (Pvt.) Ltd. 100,000
(Holding period is 15 months)
(b) Shares of Beta Industries Ltd. (Unlisted public Company) (60,000)
(Holding period is 6 months)
(c) Shares of Omega Limited (Listed Company) 10,000
(Holding period 9 months)
(d) Shares of Delta Limited (Listed Company) 20,000
(Holding period 18 months)
Required: Compute taxable income and tax liability for tax year 2016.
Solution:
Mr. Adnan
Computation of taxable income and tax liability: Rs.
Capital gain:
Gain on shares of Alpha Chemicals (Pvt.) Ltd.
(Holding period is more than 1 year) (100,000 x 75%) 75,000
Loss on shares of Beta Industries Ltd. (Unlisted Public Company)
(In case of loss, holding period has no effect) (60,000)
Taxable income 15,000
Computation of tax liability:
Tax on taxable income (Below taxable limit) Nil
Tax on income under separate block of income:
Tax on gain on shares of Omega Limited (10,000 x 15%) 1,500
Tax on gain on shares of Delta Limited (20,000 x 12.5%) 2,500
Total tax liability 4,000
4. Loss U/S 37:
Capital losses shall be set off against the capital gains only during the same tax year and where such loss is not so
set off then the balance loss shall be carried forward for adjustment against capital gain up to six succeeding tax
years. If capital gain is exempt from tax then loss from such asset shall have no treatment under capital gain. [U/s38
(1) and (2)]
Example: From the following information, compute the amount of capital loss to be carried forward, if any
Taxable capital gain 40,000
Capital loss 80,000
Note: Out of given capital loss Rs. 20,000 relates to capital asset that is exempt from tax.
Solution:
Total capital loss 80,000
Less: capital loss of exempt capital asset 20,000
60,000
Less: Taxable capital gain 40,000
Capital loss to be carried forward 20,000
No loss shall be recognized on disposal of the assets mentioned below: [U/s 38(5)]
(i) A painting, sculpture, drawing or other work of art;
(ii) Jewellery;
(iii) A rare manuscript, folio or book;
(iv) A postage stamp or first day cover;
(v) A coin;
(vi) A Medallion; and
(vii) An antique.
Example: From following information compute taxable income and tax liability of Mr. A.
Rs.
Gain on sale of painting 40,000
Loss on sale of jewellery 20,000
Loss on sale of shares of an industrial undertaking in EPZ 10,000
Solution:
Capital gain chargeable to tax is Rs. 40,000.
Loss on sale of Jewellery is not recognised.
Loss on sale of shares of industrial undertaking in Export Processing Zone (EPZ) shall also not be recognized as gain
on such shares is exempt from tax.
Cross Trade
Where coordinated reshuffle of securities between two related accounts of the same investor or between two related
brokerage houses is undertaken and securities accumulating unrealized losses are sold to related accounts to
artificially realize capital losses in one account without actually selling the securities to an outsider.
Tax Swap sale
Where the investor having realized loss on a particular security does not repurchase the same security but
chooses another similar security in the same sector, thus, not only minimizing or eliminating altogether liability
on account of tax on capital gain, but also maintaining the portfolio broadly at the same risk return profile.
There shall be no tax if the securities are held for more than one year;
This section shall not apply to a banking company or an insurance company;
The holding period shall reckon from the date of acquisition to the date of disposal;
Gain under this section shall be treated as a separate block of income.
Example: Compute tax payable by Mr. Jamil for the tax year 2016 from following information:
Rs.
1. Gain on sale of shares of Omega Limited (Listed Company) 20,000
(Holding period is less than 12 months)
2. Gain on sale of shares of Apex Limited (Listed Company) 20,000
(Holding period is equal to 12 months)
3. Gain on sale of shares of Zelda Limited (Listed Company) 20,000
(Holding period is equal to 48 months)
4. Loss on sale of shares of Delta Limited (Listed Company) 20,000
(Holding period is more than 12 months but less than 24 months)
Solution: Taxpayer has the option to adjust the loss on sale of security against gain on sale of any security
chargeable to tax during the year. The gain on sale of shares of Zelda Limited is not chargeable to tax because of its
holding period. However capital loss on sale of Delta Ltd. shall be firstly adjusted against the gain of Apex Ltd and
finally the gain of Omega Ltd. shall be charged tax at 15%.
Explanation of section 37A
No: Yes:
It may be chargeable to tax under It is chargeable to tax under separate
section 37 as given above block of income
Q.30 Holding period of security and other capital assets _______ on the taxability of capital gain on their disposal.
(a) have no effect
(b) have effect
(c) none of above
Q.31 Rates for taxability of capital gains under section 37A for AOP and individuals are____.
(a) different
(b) equal
(c) none of above
Q.32 Capital gain is _______ where transfer of assets between spouses under an agreement to live apart, under a gift,
bequest or will, by succession, inheritance or devolution and distribution of assets on dissolution of an AOP or on
liquidation of a company.
(a) taxable
(b) exempt
(c) not recognized
(d) none of above
Q.33 The unadjusted capital loss under section 37 can only be carried forward upto the period of ___ years immediately
after the year of occurrence for adjustment against income from capital gain only.
(a) seven
(b) three
(c) six
(d) ten
Q.34 Loss on securities chargeable to tax can be carried forward to subsequent ___ tax years.
(a) seven
(b) three
(c) six
(d) none of the above
Q.35 When a capital asset is disposed of within one year, _____ of gain is taxable.
(a) 100%
(b) 75%
(c) 25%
(d) 0%
Q.36 Provisions of section 37A are not applicable to _________.
(a) an insurance company
(b) a banking company
(c) both a and b
(d) none of above
Q.37 An option to buy a __________ is a derivative.
(a) treasury bond
(b) shares
(c) debentures
(d) all of above
Q.38 Capital loss under section 37 may not be adjusted against the capital gain under section ______.
(a) 37
(b) 38
(c) 37A
(d) all of above
Q.39 _______ received as gift shall be chargeable to tax.
(a) medallion
(b) old coin
(c) painting
(d) none of above
ANSWERS
1 (c) 2 (d) 3 (c) 4 (c) 5 (c)
6 (c) 7 (b) 8 (d) 9 (a) 10 (a)
11 (b) 12 (b) 13 (a) 14 (a) 15 (a)
16 (b) 17 (b) 18 (a) 19 (a) 20 (c)
21 (a) 22 (d) 23 (a) 24 (b) 25 (b)
Stamps:
Consideration received 500,000
Less: Cost 275,000
225,000
75% taxable (C) 168,750
Taxable capital gain (A+B+C) 228,750
Capital gain on shares of XYZ Limited (Separate Block of Income):
Consideration received 40,000
Higher of: Actual or fair market value (30,000 or 40,000)
Less: cost (10 x 2,000) 20,000
(Assumed that fair market value on date of transfer is Rs.10 per share)
20,000
Q # 3 Mr. Shahbaz a resident individual earned Rs 650,000 from the sale of assets as shown below:
PURCHASE SALE GAIN / (LOSS)
DATE PRICE (Rs) DATE PRICE (Rs) Rs
Shares of Listed Company 10-12-14 350,000 31-7-15 200,000 (150,000)
Shares of Unlisted Company 15-7-14 500,000 30-11-15 900,000 400,000
Jewellery 15-5-14 750,000 20-12-15 1,400,000 650,000
Sculpture 01-7-13 400,000 31-01-16 300,000 (100,000)
Shares of private company 01-01-14 1,300,000 15-02-16 1,200,000 (100,000)
Shares of Listed Company 31-12-14 250,000 30-6-16 200,000 (50,000)
Required: Discuss the treatment and implications of each of above transaction under the ITO, 2001.
Solution
Capital assets u/s 37A Rs.
Loss on shares of listed companies (150,000 + 50,000) (200,000)
Loss (200,000)
Capital loss u/s 37A can neither be adjusted against gain realized u/s 37 nor can it be carried forward.
Capital assets u/s 37
Gain on shares of unlisted company (400,000 x 75%) 300,000
(Holding period is more than one year)
Gain on jewellery (650,000 x 75%) 487,500
(Holding period is more than one year)
Loss on sculpture (Loss of this capital asset is not recognized) -
Loss on shares of private company (100,000)
Total gain u/s 37 687,500
Q # 4 Explain the following with reference to Income Tax Ordinance, 2001.
(i) Capital assets (ii) Valuation of Capital assets (iii) Capital gains (iv) Adjustment of capital loss against capital gains.
Solution
(i) Capital assets
There are two categories of capital assets: 1. Capital assets other than specified in section 37A, 2. Capital assets
specified in section 37A.
(a) Capital assets other than specified in section 37A.
Capital asset has been defined as property of any kind, connected with business or not, but does not include:
(i) Stock in trade, consumable stores or raw materials held for business
(ii) Depreciable asset or amortizable asset (i.e. fixed assets and intangibles for business use)
(iii) Immovable property
(iv) Movable property held for personal use of the person or any dependent family member excluding
capital assets mentioned in section 38(5)
(b) Capital assets specified in section 37A.
A separate section 37A has been introduced by the Finance Act 2010 to cater the disposal transactions of the
following securities:
(i) Shares of a public company;
(b) 15 February 2016 Bilal discarded a machine which he had imported from China for Rs. 1,000,000 on 1 January
2016 to start the business. However, the machine was badly damaged during the shipment, rendering it unfit for
use. The shipping company paid him Rs. 850,000 as damages. The scrap value of the machine on the date it was
discarded was estimated to be Rs. 200,000. The documentation charges incurred in connection with the claim for
damages were Rs. 25,000
(c) On June 15, 2016 Imran sold his personal car for Rs. 1,500,000. The car has been originally purchased for Rs.
1,200,000 on September 13, 2013.
Solution:
(a) Sale of dinning table set
Although there is gain on sale of dinning table of Rs. 30,000. However any movable property for personal use,
except for painting, sculpture, drawing, jewellery, rare manuscript, folio, book, postage stamps, first day cover, coin,
medallion or an antique, is not chargeable to tax.
(b) Disposal of machine
Since Bilal was not entitled to claim depreciation on this machine, the machine falls within the definition of a capital
asset. [S.37(5)(b)] Discarding an asset is also treated as a disposal of the asset. [S.75(3A)] The capital gain is
determined as:
Rs.
Consideration received 15 February 2016
Damages from the shipping company 850,000
Scrap value of the machine 200,000
1,050,000
Cost of the machine on 1 January 2016
Purchase price of the machine 1,000,000
Documentation charges incurred 25,000
(1,025,000)
Capital gain 25,000
Since the disposal was made within one year of acquiring the asset, the full amount of capital gain is taxable. [S.37
(3)]
Q.NO. 6(a) Spring 2010 Explain the term Capital Assets as referred to in the Income tax Ordinance, 2001.
Q.NO. 6(a) Spring 2007 Under the Income tax Ordinance, 2001, a deduction for capital loss is allowed when consideration
received on disposal of a capital asset is less than its cost. What are the exceptions to this rule?
Q.NO. 4(b) Spring 2005 Discuss which assets are not considered capital assets for the purpose of determining income
under the head Capital Gains.
Q. NO. 4(b) April 2005 Discuss which assets are not considered capital assets for the purpose of determining income under
the head capital gains.
Q. NO. 2(i) March 2000 state the basis of taxation regarding capital gains.
Q. NO. 4(a) March 1999 Explain the procedure for computation of capital gain.
Q. NO. 4(b) April 1998 Explain the basis of chargeability under the head capital gains.
NOW SOLVE FOLLOWING NUMERICAL QUESTIONS OF MODULE C / AFC PAST PAPER RELATED TO THIS TOPIC
Chapter
(n) Any amount received by the person as consideration for vacating the possession of a building or part thereof.
It shall be taxable as follows: [U/s 39(1) and (2)]
Amount received for vacating the possession
Less: any amount paid on acquiring the possession
Taxable under the head other sources = Additional amount received 10
(o) Any amount received by a person from Approved Income Payment Plan or Approved Annuity Plan under
Voluntary Pension System Rules, 2005.
2. Loan, advance, share deposit money or gift to be treated as income from other sources [U/s 39(3) and (4)]
Amount of loan, advance, share deposit money or gift received by a person in a tax year from another person
(excluding receipt from a company or financial institution) otherwise than by a crossed cheque, shall be treated
as income from other sources for the tax year in which it was received.
This section shall not apply on the following cases:
(i) Where amount is received through banking channel from a person who holds a NTN; or
(ii) Advance against sale of goods or supply of services.
Example: Which of the following incomes are covered under the head income from other sources
(a) Dividend received by an individual.
(b) Salary received from employer.
(c) Profit on debt received by banking company.
(d) Rent against plot received as ground rent.
(e) Rent of building received from tenant.
(f) Rent from sub-lease of a property by tenant.
(g) Income from hire of factory (inclusive of plant and machinery).
(h) Amount received against sale of shares of a private limited company.
(i) Income from utilities connected with the rented premises.
(j) Received prize on prize bond.
(k) Amount of any unexplained income, investment or expenditure treated u/s 111.
(l) Any amount of loan received from friend through cash.
(m) Additional payment for delayed refund of income tax
Solution: Income from other sources: (a), (d), (f), (g), (i), (k), (l) and (m) Income from salary: (b) Income from
property: (e) Income from business: (c) Capital gain: (h) Final Tax Regime: (j)
3. Profit on debt of previous year or years received in current year [U/s 39(4A and (4B)]
(a) Where any profit on debt derived from investment in National Saving Deposit Certificates and Defence
Savings Certificate, by a person related to previous year or years in the current year that has resulted to
taxable at a higher rate of tax as compared to the year to which the profit on debt relates,
(b) The person may elect, by notice in writing to the Commissioner Inland Revenue that such profit is to be taxed
at the rate applicable to the year or years to which the profit on debt relates.
(c) An option shall be filed by the person at the date of filing of return for the tax year in the year of receipt or by
such later date as allowed by the Commissioner Inland Revenue.
Example: Mr. Zia received Profit on debt Rs. 600,000 in 2016 including profit on debt of Rs.100,000 related to tax
year 2015.
Required: Calculate the amount of tax under the Income Tax Ordinance, 2001 by assuming that the tax rate in tax
year 2015 was 8% and in tax year 2016 it is 10%.
Solution:
Option A (Total income charged to tax at tax rate of 2016)
2016
Rs.
Income from other sources 600,000
Tax on Rs. 600,000 @ 10% 60,000
Tax liability = Rs. 60,000
Option B
2015 2016
Rs. Rs.
Income from other sources 500,000 100,000
Tax on income
2016: tax rate is 10% 50,000
2015: tax rate is 8% 8,000
Tax liability (50,000 + 8,000) = Rs. 58,000
Note: As tax liability under option B is less hence, the same is opted by the taxpayer.
Non application of section 39 U/S 39(5):
This section shall not apply to any income received by a person in a tax year that is chargeable to tax under any other
head of income or subject to tax under section 5 as dividends, u/s 6 tax on certain payments to non-residents and
under section 7 tax on shipping and air transport income of a non-resident.
4. Income from other sources [U/s 40]
Where a persons income is chargeable to tax under the head income from other sources, he shall be allowed to
deduct expenditure incurred on deriving such income. These expenditures are as under:
A deduction shall be allowed for any expenditure (except capital expenditure) paid by the person to the
extent to which the expenditure is paid in deriving income from other sources.
Zakat paid under the Zakat and Ushr Ordinance on profit on debt.
Deduction for depreciation of plant, machinery or building in case of lease income from letting out such building
together with plant and machinery.
An initial allowance for any plant or machinery.
5. Deductions not allowable [U/s 40(4), (5) and (6)]
No deduction shall be allowed to a person under this section to the extent that the expenditure is deductible in
computing the income of the person under another head of income.
The inadmissible expenses u/s 21 shall also be used under this head in the same manner as they apply in
determining the deductions allowed in computing the income under the head income from business.
Expenditure is of a capital nature if it has a normal useful life of more than one year
Example: Mr. Imran let out his building together with plant and machinery to Mr. Amir. He provided you the following
information for the calculation of taxable income and tax liability:
a. Rent received Rs. 600,000
b. Repair and maintenance of building Rs. 35,000
c. Insurance (already claimed under the head business income) Rs. 60,000
d. Salary to collect the rent (one month salary to employee to collect the rent paid in cash) Rs. 50,000
He also received Rs. 15,000 as additional payment on delayed refund from income tax department.
Solution:
Mr. Imran (Resident)
Tax year 2016
Computation of taxable income and tax liability:
Income from other sources: Rs.
Rent of building with plant and machinery 600,000
Less: Admissible deductions:
Repair and maintenance of building 35,000
Insurance (see note 1 below) -
Salary to collect rent (see note 2 below) -
35,000
565,000
Additional payment on delayed refund 15,000
Taxable income 580,000
Computation of tax liability:
Tax [Rs. 7,000 + 10% on (Rs.580,000 500,000)] 15,000
Note 1 The insurance has already been claimed under the head business income so the same now shall not be allowed
under the head income from other sources.
Note 2 Salary to collect rent is inadmissible as salary more than Rs.15,000 per month should be paid through crossed
cheque.
Example: Mr. Hasnat Nadeem, an individual, furnishes the following particulars of his income for the year ended
30.06.2016.
Rs.
(a) Dividends from a company listed on stock exchange (gross amount) 15,000
(b) Interest on fixed deposit account (net amount after tax deduction) 45,000
(c) Taxable salary 135,000
(d) Prize on prize bond (gross amount before tax deduction) 20,000
(e) Income as shareholder from bonus issue (assumed market value) 100,000
Calculate total income of Hasnat Nadeem for the tax year 2016 and tax thereon.
Solution:
Mr. Hasnat Nadeem (Resident)
Tax year 2016
Computation of taxable income and tax liability:
Income from salary: Rs.
CLAUSE PARTICULARS
72 Interest to non-residents for approved projects
74 Interest on income of HUBCO
75 Interest income of foreign agencies
78 Interest on foreign currency accounts
79 Interest on rupee account of non-resident Pakistanis
80 Income from private foreign currency accounts and COI
90 Interest on approved foreign loans
CLAUSE PARTICULARS
11B Inter-corporate dividend within the group
11C Inter-corporate profit on debt within the group
The declared cost of any investment or valuable article or the declared amount of expenditure of a
person is less than reasonable amount of such items, the Commissioner Inland Revenue may include
the difference in the person's income chargeable to tax under the head "Income from Other Sources" in the
tax year to which such amount relates.
3. Non application of provisions
The aforesaid provisions do not apply to any amount of foreign exchange remitted from outside Pakistan
through normal banking channels that is en-cashed into rupees by a scheduled bank and a certificate from
such bank is produced to that effect.
4. The Board may make rules u/s 237 for the purposes of this section.
Example
Following is the computation of taxable income provided by Mr. A.
Rs.
Sales 400,000
Cost of sales 200,000
Gross profit 200,000
Other profit and loss expenses 100,000
Taxable income from business 100,000
Following further information is available:
Sales include Rs. 10,000 received from a person. There was no invoice against this amount and no
explanation was provided by Mr. Ali about this amount.
Sales value is understated by Rs. 100,000 in computation of taxable income.
He purchased a car for personal use and declared the value of this car in his wealth statement to be
Rs.200,000. The reasonable value of car determined by the Commissioner is Rs. 500,000.
Required: Compute correct taxable income and tax liability of the taxpayer for the tax year 2016.
Solution:
Mr. Ali
Computation of taxable income tax liability: Rs.
( A) IN THE CASE OF OPEN the value determined by the development authority or government agency on the
PLOT basis of the auction price in respect of similar plots in the area where the plot in
question is situated or in case where such value is not determined, the value fixed
by the District Revenue Officer or provincial authority authorized in this behalf for
the purposes of stamp duty;
( B)
IN THE CASE OF the value equal to the average sale price of the sales recorded in the revenue record
AGRICULTUR AL LAND of the estate in which the land is situated for the relevant period or time; or
( C) IN THE CASE OF
CONSTRUCTED
value shall be determined at higher of FMV or the value fixed by the District Revenue
IMMOVABLE PROPERTY
Officer.
The valuation of motor cars & jeeps U/R 228(2) & (3) for the purposes of section 111 & 61 shall be taken to be-
M OTOR CARS & JEEPS (i) Imported new motor cars or jeeps: CIF value to donor (i.e. Cost, Insurance &
U/R 228(2) Freight) + Duties and charges till their registration.
(ii) Locally newly purchased motor cars or jeeps: Price paid by the donor +
Duties & charges till their registration.
(iii) Import of used motor cars or jeeps: Value at the import price adopted by the
Custom Authorities + Charges & duties till their registration.
(iv) Value adopted in the first year shall be reduced by 10% of the said value (i.e. on
straight line basis) for each successive year up to a maximum of 5 years.
(v) Used motor cars or jeeps locally purchased shall be valued as:
If motor cars or jeeps are up to 5 years old, value shall be original cost as
reduced by 10% for every year following the year in which it was imported or
purchased.
If motor cars or jeeps are more than 5 years old, value shall be higher of
purchase price paid by the donor for the used car or 50% of the original
value.
M OTOR CARS & JEEPS In no case shall the value be determined at an amount less than 50% of the value
U/R 228(3) determined in accordance with (i), (ii) & (iii) or the purchase price, whichever is higher.
2. I TEMS MANUFACTURED IN P AKISTAN Purchase price + Duties & charges paid by the donor
4. MOTOR CARS & JEEPS As given above U/R 228(2) & (3).
ANSWERS
1 (a) 2 (c) 3 (b) 4 (d) 5 (d)
6 (c) 7 (a) 8 (d) 9 (c) 10 (d)
11 (c) 12 (c) 13 (d) 14 (d) 15 (b)
16 (c) 17 (a) 18 (d) 19 (b) 20 (a)
21 (c) 22 (c) 23 (a) 24 (c) 25 (a)
26 (a)
Chapter
14 LOSSES
SR. HEAD OF R ULES FOR SET OFF RULES FOR CARRY FORWARD
I NCOME
1. I NCOME FROM a. There can be no loss under this head as a As there can be no loss under this head
SAL ARY person deriving salary income is not allowed hence the question of carry forward is not
to deduct expenses incurred in deriving applicable.
salary income [u/s 12(4)].
5( A) C APITAL GAINS Capital loss cannot be set off against any other Unadjusted capital loss can be carry forward
EXCEPT 5( B), head of income except against capital gain. for adjustment only against gain under same
5( C) & 5( D) AS head, upto six (6) succeeding tax years
UNDER following the year in which loss incurred.
5( B) C APITAL GAINS The loss on disposal of securities may be set off Unadjusted loss under this head cannot be
ON only against any other security chargeable to tax carried forward.
SECURITIES U / S under this section.
37A
5( C) C APITAL GAINS Loss on disposal of immoveable property cannot Loss under this head cannot be carried
IMMOVEABLE be set off. forward.
PROPERTY U / S
37(1A)
5( D) C APITAL GAINS Loss on disposal of moveable personal assets As loss under this section shall not be
ON shall not be recognised under the said section. recognized therefore the question of carry
PERSONAL forward does not arise.
MOVEABLE
ASSETS
SPECIFIED U/ S
38(5)
6. I NCOME FROM Loss can be set off against any other head of Loss under this head cannot be carried
OTHER income chargeable to tax under NTR except forward to succeeding tax years for
SOURCES salary and property incomes. adjustment.
7. FOREIGN Foreign loss can be set off only against the Unadjusted foreign loss can be carry forward
LOSSES income under the same head of income only. for adjustment only against profit under same
head, upto six (6) succeeding tax years
following the year in which loss incurred.
1 Firstly compute income chargeable to tax under (normal tax regime) each head of income even where there is more
than one source under the same head of income.
2 Secondly current year losses under normal tax regime (as stated above in first chart) shall be set off against current
years income but the loss under the head business income under normal tax regime shall be set off last i.e. after set
off of other heads of income (as stated above in first chart).
3 Thirdly set off the previous years business losses (excluding tax depreciation brought forward) against current
years business income (excluding tax depreciation for the year) under normal tax regime, if any.
4 Finally set off the current year depreciation and previous years unabsorbed depreciation, amortization and initial
allowance against current years business income under normal tax regime, if any.
Important aspects:
1. The aforesaid Rules regarding set-off and carry forwarded of losses apply only to such incomes which are
taxable under Normal Tax Regime (NTR). Any income that falls under Final tax regime (FTR) or separate
block of income cannot be used for adjustment of losses under NTR.
2. The law does not permit any deduction while computing income under FTR or Separate block of income.
Hence, there cannot be loss under these streams of taxation.
3. Losses can be set-off only as provided above. Any loss that cannot be set off under the rules (e.g. loss on
disposal of personal assets, etc.) cannot be carried forward. [u/s 56(2)]
4. Where a person sustains losses under different heads of income, including Income from Business the
business loss shall be set off last, i.e. after setting off all other losses. [u/s 56(3)]
5. The depreciation allowance admissible under the Third Schedule shall be charged upto that portion only
which can be absorbed by the incomes. The general rules relating to set-off and carry forward of losses shall
not apply to unabsorbed depreciation. Amount of such depreciation shall not be taken as a normal business
loss rather, shall be treated separately.
6. If an income from a source is permanently exempt from tax, the loss, if any, from such sources cannot be set-
off or carried forward.
7. The Finance Act, 2003 has omitted the following sub section (2) of section 55;
Where a persons income from business is exempt from tax under this Ordinance as a
result of a tax concession, any loss sustained in the period of the exemption shall not
be set off against the persons income chargeable to tax after the exemption expires.
After the above omission the business loss sustained during the exempt period has, therefore, been made
adjustable against income of the postexemption period of industrial undertakings. The limitation period for
carry forward of loss for six (6) years as contained in section 57 would continue to be applicable.
Depreciation:
Where the business loss includes depreciation and amortization that has not been set off against income, the amount not set
off shall be allowed as deductions in the following tax years until completely set off.
1. Set off of losses (Section 56)
Except speculation loss and capital loss (including loss on securities u/s 37A) where a person sustains a loss for any
tax year under any other heads of income the person shall be entitled to set off the loss against the taxable income
under any other head of income except salary and property incomes for the year.
Where a person sustains a loss under a head of income for a tax year that cannot be set off the person shall not be
permitted to carry forward such loss to the next tax year.
Where, in a tax year, a person sustains a business loss and a loss under another head of income, the loss under the
head "Income from Business shall be set off last.
2. Set-off of losses of companies operating hotels [Section (56A)]
Where a company registered in Pakistan or Azad Jammu and Kashmir (A J and K), operating hotels in Pakistan or A
J and K, sustains a business loss in Pakistan or A J and K for any tax year shall be entitled to have the amount of the
loss to set off against the company's income in Pakistan or A J and K.
Example: A company is operating one hotel in Pakistan and two in Azad Jammu and Kashmir. The turnover and
profit and losses of respective hotels as per tax are as under:
Hotel (Pakistan) Hotel 1 (AJandK) Hotel 2(AJandK)
Turnover 2,000,000 800,000 500,000
Taxable income 400,000 - 100,000
Loss as per tax - 200,000 -
Required: Compute the tax liability of the company.
Solution:
Computation of income:
If a business loss sustained by a person for a tax year is not wholly set off then the amount of loss not set off shall be
carried forward to the following tax year and shall be carried forward for not more than six immediately succeeding tax
years.
Where a person has a business loss carried forward for more than one tax year, the loss of the earliest tax year shall
be set off first.
Where the business loss includes depreciation and amortization, that has not been set off against income, the
amount not set off shall be allowed as deductions in the following tax year until completely set off.
Example: Mr. Hanif has provided you the following information and asked you to compute his tax liability for tax year
2016.
Rs.
Income from non-speculation business 1 360,000
Loss from non-speculation business 2 (50,000)
Loss from speculation business 3 (50,000)
Solution:
Mr. Hanif
Computation of taxable income and tax liability: Rs.
Example: P and L account for the year 1 of Ali Enterprises (industrial undertaking in Export Processing Zone) is
given below:
Rs.
Sales 300,000
Cost of sales 160,000
Gross profit 140,000
Administrative and selling expenses 160,000
Loss (20,000)
Note: Accounting depreciation 10,000
Tax depreciation 20,000
Solution:
Zia Enterprises
Computation of taxable income and tax liability: Year 1
Rs.
Accounting loss (20,000)
Add: accounting depreciation 10,000
Business loss (10,000)
Unabsorbed depreciation (20,000)
Both business loss assessed in the current year Rs. 10,000 and unabsorbed depreciation Rs. 20,000 shall be carried
forward for unlimited time for an industrial undertaking in Export Processing Zone.
4. Set-off of business loss consequent to amalgamation [Section (57A)]
Both the amalgamating and amalgamated companies can set off and carry forward their losses (excluding brought
forward and capital loss) against each other for a period of 6 years if, the amalgamated company continues the
business of amalgamating company for 5 years from the date of amalgamation and the scheme is approved by State
Bank of Pakistan, Securities and Exchange Commission of Pakistan or any court.
In case of amalgamation of banking company, non-banking company, non-banking finance company, modaraba or
insurance company, the accumulated loss (excluding speculation losses) of an amalgamating company or companies
shall be set off or carried forward against business income of the amalgamated company or vice versa for 6 years
provided the scheme is approved by State Bank of Pakistan, Securities and Exchange Commission of Pakistan or
any court.
The meaning of the amalgamation has been extended to include the companies engaged in providing services other
than trading companies.
Example: A Ltd. (amalgamating company) and B Ltd. (amalgamated company) amalgamated in tax year 2011. Detail
of losses of B Ltd. in tax year 2016 is given below:
Rs.
Brought forward losses before tax year 2011 10,000
Capital loss for tax year 2011 2,000
Un- adjusted business loss for tax year 2011 100,000
There was no loss in tax year 2012 to 2015. Following is the information relating amalgamated company for tax year
2015.
Income before setting of losses 400,000
Required: Compute the tax payable by the amalgamated company, rate of tax for companies is 32%.
Solution:
Rs.
Income before setting off of losses 400,000
Less:
Un-adjusted business loss of B Ltd. of tax year 2011 100,000
Taxable income 300,000
Important Note: This example has been solved after taking clause 19 of Part-II of Second Schedule to the Income Tax
Ordinance, 2001. Hence if both the companies are small companies then benefit for the next two years may be availed
under clause 19 that is of 25% rate of tax.
5. Carry forward of speculation business and capital losses [Section 58 and 59]
Where a person sustains a speculation business loss for a tax year carried on by the person, the loss shall be set off
only against the income of the person from any other speculation business of the person chargeable to tax for that
year.
Where a person sustains a capital loss for a tax year, the loss shall be set off only against the income of the person
from any other capital gain of the person chargeable to tax for that year.
Example: In the light of the following facts for tax year 2016, work out total income of Mr. Tanveer Butt after making
inter-head adjustment of losses and incomes:
Rs.
1. Income from business 300,000
2. Loss from speculation business (200,000)
3. Loss from Capital Gains (70,000)
4. Income from Salary 100,000
5. Loss from 'Income from Other Sources' (50,000)
Solution: Rs.
Income from business 300,000
Loss from ' Income from other sources' (50,000)
Taxable Income for the year (without salary income) 250,000
Add salary income (separately added as no loss can
be adjusted against salary income) 100,000
Total taxable income 350,000
Notes:
N-1 Loss on 'Income from capital gains' cannot be set off other than Income from Capital Gains' so it will be carried
forward up to six succeeding tax years.
N-2 Loss on 'Income from Speculation Business' cannot be set off other than Income from Speculation Business
so it will also be carried forward up to six succeeding tax years .
6. Limitations on set off and carry forward of losses [Section 59(A)]
An AOP can set off and carry forward its losses according to the general provisions regarding set off and carry
forward of losses. As the share received by a member out of the incomes of AOP is exempt from tax, the member is
not allowed to set off and carry forward his respective share in losses of the association of person.
7. Foreign losses [Section 104]
Where a resident person sustains a foreign loss (i.e. loss from a foreign-source income) he may set it off
against his income under the same head of income. If the foreign loss is not fully set-off then the loss shall be
carried forward maximum upto six (6) tax years immediately succeeding the tax year during which the loss
occurred.
Important notes
(a) All foreign losses can be set-off and carried forward upto six (6) tax years.
(b) The foreign losses are adjusted against the same head of income. For this purpose, the speculation business
is treated as a separate head of income.
(c) Where more than one tax years losses are simultaneously carried forward, the loss of earliest year shall be
set-off first.
Example: Mr. Zahid suffered loss of Rs. 50,000 (converted in Pakistani currency) in business in Dubai in tax year
2015. His taxable income from his Dubai Business in tax year 2016 was Rs. 600,000.
Required: Compute tax payable by Mr. Zahid for tax year 2016.
Solution:
Mr. Zahid
Tax year 2016
Computation of taxable income and tax liability:
Rs.
Income from business:
Income from foreign business 600,000
Less: brought forward loss (50,000)
Example: ABC holding company is having 100% of shares of its subsidiary XYZ Limited. The turnover and profit and
losses of holding and subsidiary as per tax are as under:
ABC Ltd XYZ Ltd
Turnover 5,000,000 2,000,000
Taxable income 1,000,000 -
Loss as per tax - 600,000
Required: Compute the tax liability of the company.
Solution:
Computation of income: Rs.
Taxable income of holding company 1,000,000
Less: Loss of subsidiary (600,000)
Total taxable income 400,000
(5) If there has been any disposal of shares by the Holding Company during the aforesaid period of 5 years to
bring the ownership of the Holding Company to less than 55% or 75%, as the case may be, the Holding
Company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set
off of losses surrendered by the subsidiary company.
(6) Loss claiming company shall, with the approval of the Board of Directors, transfer cash to the loss
surrendering company equal to the amount of tax payable on the profits to be set off against the acquired loss
at the applicable tax rate. The transfer of cash would not be taken as a taxable event in the case of either of
the two companies.
(7) The transfer of shares between companies and the shareholders, in one direction would not be taken as a
taxable event provided the transfer is to acquire share capital for formation of the group and approval of the
Securities and Exchange Commission of Pakistan or State Bank of Pakistan, as the case may be, has been
obtained in this effect. Sale and purchase from third party would be taken as taxable event.
Example: TS (Pvt.) Ltd., a fast growing IT solution provider, a wholly owned subsidiary of a listed company,
commenced its operations in 2011. The details of tax losses incurred by the subsidiary company are as follows:
Accounting year Tax year Losses as per return Assessed losses
Rs. Rs.
June 30, 2012 2012 5,750,000 4,500,000
June 30, 2013 2013 4,800,000 3,782,500
June 30, 2014 2014 4,200,000 3,500,100
June 30, 2015 2015 3,711,800 3,050,000
June 30, 2016 2016 2,750,800 2,200,000
One of the directors is of the view that the holding company can set off the losses of its subsidiary. As a Tax
Consultant, you are required to advise on the following:
(i) What are the pre-requisites for claiming the losses of the subsidiary?
(ii) How much amount can the holding company claim against the subsidiarys losses?
Solution:
(i) For solution of this part see the material given u/s 59B above.
(ii) After fulfillment of all the conditions as stated above the loss of the current year 2016 Rs. 2,200,00 may be
adjusted against the profit of the Holding Company for the tax year 2015 or against the profit of another
subsidiary of the holding company. The brought forward losses are not allowed to adjust against the Holding
Company profit however the Subsidiary Company shall carry forward the preceding years losses in normal
way.
1. The entity continues to conduct the same business until the loss has been fully set off; and
2. The entity does not engage in any new business or investment after the change until the loss has been
fully set off.
From the above it is evident that an entity may set-off it losses incurred prior to the change in underlying
ownership, if it continues to conduct the same business and does not engage in any new business or
investment.
Underlying Ownership means ownership interest in the entity held, directly or indirectly through an
interposed entity or entities, by an individual or by a person not ultimately owned by individuals [u/s
98(2)].
Ownership Interest means a share in a company or the interest of a member in an Association of Persons
[u/s 98(2)].
N-1 Loss on 'Income from Speculation Business' cannot be set off other than Income from Income from Speculation
Business so it will be carried forward up to six years
N-2 Exempt capital gain cannot be used to set off of losses.
N-3 Dividend is taxable @ 12.5% under FTR therefore any other loss cannot be set off against the same.
N-4 Loss under the head income from other sources cannot be set off against income from salary.
Q.NO.3 Fraz Attari, an individual, suffered a loss of Rs. 150,000 during the tax year 2016 from sale of a capital asset (shares
of a public company). For the same year his income from business is Rs. 195,000. He made inter-head adjustment and
computed total income at Rs. 45,000. Is he allowed to do so under the law?
Solution:
Any loss u/s 37A on a 'Security chargeable to tax' can only be set off against income on another security chargeable to tax
so the treatment done is not correct.
Q.NO. 4 Following are the particulars submitted by Mr. N for the tax year 2016. Calculate taxable income for the year.
Rs.
Income from Business 150,000
Loss from other sources (-)50,000
B/f assessed loss for assessment year 2008 (-)70,000
B/f assessed loss for assessment year 2010 (-)60,000
Solution: Rs.
Income from business 150,000
Loss from other sources (50,000)
100,000
Brought forward assessed loss for assessment year 2010 (60,000)
Taxable Income for the year 40,000
N-1 Loss of assessment year 2008 cannot be set off as it has passed more than six years.
Q.NO. 5 Mr. Afzaal, an individual, sustained a loss of Rs.250,000 from speculation business during the tax year 2016. This
could not be set-off against any profits of speculation business during the relevant year. The Commissioner Inland Revenue
accepted the loss while making an assessment. Can C carry forward this loss and what is the time limitation for carry
forward?
Solution:
1. Speculation loss can be carried forward for future speculation incomes.
2. It can be carried forward for next six succeeding tax years.
Q.NO. 6 Bilal Rana, an individual, furnishes the following information relevant for the year 2016.
Profit Loss
Rs. Rs.
Salary income (computed) 240,000
Income from property:
House A 150,000
House B 170,000
House C 210,000
Income from business or profession
Business A 80,000
Business B 100,000
Business C (speculation) 110,000
Business D (speculation) 230,000
Capital gain
Sale of shares of ABC (Pvt.) Limited 100,000
Sale of shares of XYZ (Pvt.) Limited 120,000
Loss from other sources 120,000
Required: Determine the net income of Bilal Rana for the tax year 2016.
Solution:
Rs. Rs.
Salary income (without set off of any loss against salary income) 240,000
Loss under the head Income from Property (150,000 170,000 210,000) (230,000)
Q.9 The business loss and unabsorbed depreciation can be set off or carry forward if the amalgamated company (other
than banking and non banking companies) continues to carry the business of the amalgamating company at least for
the period of_____________.
(a) 6 years
(b) 5 years
(c) 4 years
(d) None of above
Q.10 Any unabsorbed depreciation allowance under the Income Tax Ordinance, 2001 shall be carried forward up to the
period of_________.
(a) 6 years
(b) 7 years
(c) 10 years
(d) Indefinite period
Q.11 Foreign loss sustained by a resident person shall___________.
(a) Be set off against any head of income
(b) Be set off against business income only which is earned in Pakistan
(c) Be set off against his foreign source income and to be carried forward under the same head of income
(d) Not be set off
Q.12 Foreign losses can be carried forward up to the period of________.
(a) 10 years
(b) 6 years
(c) Cannot be carried forward
(d) None of the above
Q.13 Loss sustained by a permanently exempt business during the exemption period can_________.
(a) Not be set off or carried forward
(b) Be carried forward upto the period of 6 years after the end of exemption period
(c) Be carried forward upto the period of 6 years including the exemption period
(d) None of the above
Q.14 A subsidiary companys loss can_____________.
(a) Be set off and carry forward upto the period of 6 years
(b) Not be carry forward
(c) Be set off and carry forward for an indefinite period
(d) None of the above
Q.15 The holding company can claim the loss surrendered by a subsidiary if_____________.
(a) It holds at least 75% of share capital of a subsidiary when one company in the group is public company listed
on registered stock exchange
(b) It holds at least 55% of share capital of a subsidiary company when none of the companies in the group is a
listed company
(c) Both a and b
(d) None of the above
Q.16 The holding company or its subsidiary can set off the surrendered loss of a subsidiary if___________.
(a) There is a continued ownership for 5 years of share capital
(b) There is a continued ownership for 6 years of share capital
(c) There is a continued ownership of 3 years of the share capital
(d) None of the above
Q.17 Surrendered loss from a subsidiary shall be claimed by the holding company or its subsidiary if_____________.
(a) There is no change in the business of a subsidiary company
(b) It continues the same business during the period of 3 years from the year in which the loss is claimed
(c) Both a and b
(d) None of the above
Q.18 Where the loss is reverted back to the subsidiary company after the expiry of the prescribed time for set off by the
holding company the subsidiary may____________.
(a) Set off and carry forward the loss up to 3 years from the date it is reverted back
(b) Set off and carry forward the loss up to 6 years from the date it is reverted back
(c) Both a and b
(d) None of the above
Q.19 There can be no loss under the following heads of incomes______________.
(a) salary
(b) property
(c) business income under NTR
(d) income from other sources
Q.20 Loss on disposal of personal assets of a taxpayer ____ be set off and carried forward against any head of income.
(a) can
(b) cannot
(c) none of above
Q.21 Unabsorbed assessed business losses of preceding years shall be set off _____ the adjustment of brought forward
unabsorbed assessed depreciation allowance.
(a) after
(b) before
(c) at the same time of
(d) all of above
Q.22 Group relief is not available to company engaged in the business of _______.
(a) trading
(b) manufacturing
(c) providing of services
(d) none of above
Q.23 In case of adjustment of assessed business losses the loss of the earliest year shall be set off _________.
(a) first
(b) last
(c) none of above
Q.24 The losses of speculation business can only be carried forward against income from the _____ head.
(a) any
(b) same
(c) other
(d) all of above
Q.25 Capital losses cannot be carried forward against income of ____ head.
(a) any
(b) same
(c) other
(d) all of above
Q.26 The loss of the amalgamating company other than _____________ can be adjusted against the income of the
amalgamated company.
(a) brought forward losses
(b) capital losses
(c) business losses
(d) both a and b
Q.27 Where the current year loss of the amalgamating company cannot be set off against the income of the amalgamated
company then the same will be carried forward for ___ years.
(a) 5
(b) 6
(c) 7
(d) 8
Q.28 The members of an AOP are ________ to set off and carry forward their share of loss received by them from the
AOP.
(a) not allowed
(b) allowed
(c) both a or c
(d) none of above
Q.29 There is no time limit for carry forward of ________________.
(a) business loss
(b) unabsorbed depreciation
(c) unabsorbed amortization
(d) both b and c.
Q.30 The share of losses representing the retired or deceased partner ____ be set off by the AOP.
(a) can
(b) cannot
(c) none of above
Q.31 Losses of inherited business can be set off and carried forward by any taxpayer (excluding ______).
(a) minor
(b) deceased person
(c) salaried person
(d) all of above
ANSWERS
1 (b) 2 (c) 3 (a) 4 (a) 5 (a)
6 (d) 7 (d) 8 (d) 9 (b) 10 (d)
11 (c) 12 (b) 13 (a) 14 (a) 15 (d)
16 (a) 17 (c) 18 (a) 19 (a) 20 (b)
21 (b) 22 (a) 23 (a) 24 (b) 25 (c)
26 (d) 27 (b) 28 (a) 29 (d) 30 (b)
31 (a)
Q. No. 2 (b) August 2012 M/s Ahsan Bilal and Company deals in speculation and non-speculation business. The
company is allowed to set off and carry forward its losses arising out of its speculation business under section
58 of the Income Tax Ordinance, 2001. The following information has been extracted from the books of accounts of the
company for the year ended June 30, 2012:
(Rupees)
Income from speculation business 550,000
Income from non-speculation business 820,000
Carried forward losses for the last three tax years from speculation business 800,000
In the light of section 58 of the Income Tax Ordinance, 2001 answer the following:
(i) Can the company set off its losses arising out of its speculation business? Briefly state the provision.
(ii) What would be the treatment of unadjusted losses arising out of speculation business under said section?
(iii) How long losses arising out of speculation business can be carried forward?
(iv) M/s Ahsan Bilal and Company has a loss carried forward for the last three years. Which year loss will be set
off first under the above section?
Q. NO.3 (a) WINTER 2008 What do you understand from the concept of loss carried forward under the Income tax
Ordinance, 2001 with regard to each of the following heads of income?
(i) Income from business. (ii) Speculation business losses. (iii) Capital losses.
Q. NO. 2 (d) SUMMER 2008 What a foreign loss is as described in the Income tax Ordinance, 2001? How these foreign
losses are treated under the Income Tax Ordinance, 2001?
Q.NO 4(a) Spring 2007 Explain speculation business and rules of set off and carry forward of losses out of speculation
business
(b) What do you understand by the term speculation business as referred to in the Income tax Ordinance, 2001? Briefly
discuss the rules relating to set off and carry forward of losses arising out of speculation business.
Q. NO 6 (b) WINTER 2006 (Briefly state) Set off losses other than the speculation business losses and capital losses u/s 56
of the Income tax Ordinance, 2001.
Q. NO. 4 (a) SUMMER 2006 Describe the speculation business and mention the businesses which are not included in
speculation business under the Income tax Ordinance, 2001.
Q. NO. 8 (a) WINTER 2004 Explain the provisions of Carry forward of capital losses under the Income tax Ordinance, 2001.
Q. NO. 4 (a) SUMMER 2004 Explain the provisions for Carry forward of speculation business losses under Income tax
Ordinance, 2001.
NOW SOLVE FOLLOWING NUMERICAL QUESTIONS OF ICMAP PAST PAPER RELATED TO THIS TOPIC
Q. NO. 6(b) Spring 2014 Explain the term Foreign losses. State the provisions relating to set off and carry forward of
foreign losses, under the Income Tax Ordinance, 2001.
Q. 3 (b) Autumn 2011 Under the Income tax Ordinance, 2001 the loss surrendered by a subsidiary company may be
claimed by the holding company for set off against its business income in that tax year and following two tax years, subject
to certain conditions.
Required: List the conditions which are necessary for claiming the subsidiarys losses.
Q.NO. 6(b) Spring 2009 Discuss the provisions of the Income tax Ordinance, 2001 regarding set off and carry forward of
losses under the heads Income from Business and Capital Gains.
Q.NO. 1(b) Spring 2007 Explain the principles of taxation and filing of return relating to members of association of person
where the association is:
1. a professional firm
2. other than a professional firm.
Also discuss the rules relating to set off and carry forward of associations losses.
Q.NO. 6 Spring 2005 The time limit for claiming group relief by a holding company in respect of loss surrendered by a
subsidiary company.
Briefly discuss the time limit for claiming group relief by a holding company in respect of loss surrendered by a subsidiary
company? What conditions need to be fulfilled in this regard?
Q.NO. 8 Autumn 2004 Describe the provisions relating to set-off and carry forward of foreign losses under the Income tax
Ordinance, 2001?
Q.NO. 3(b) Autumn 2003 Briefly explain the law relating to set-off and carry forward of losses?
Q.6 Autumn 2002 Please write a brief note about the adjustment of loss incurred under any head of income in the current
year.
Q. NO. 6 May 1997 write short notes on set off and carry forward of business losses.
NOW SOLVE FOLLOWING NUMERICAL QUESTIONS OF MODULE C / AFC PAST PAPER RELATED TO THIS TOPIC
Q. NO. 3(B) SPRING 2013
Q. NO. 7(B) SPRING 2006
Chapter
15 TAX CREDITS
(3) Reduction in tax liability in case of flying and submarine allowance Clause (1) Part-III 2nd Schedule
(4) Reduction in tax liability in case of total allowances received by pilots of Clause (1AA) Part-III 2nd
Pakistani airlines Schedule
(5) Reduction in tax liability in case of senior citizens Clause 1A Part-III 2nd Schedule
(6) Reduction in tax liability in case of full time teacher or researcher Clause 2 Part-III 2nd Schedule
(7) Reduction in tax liability on Yield or profit on Behbood and Pensioners Clause (5) Part III 2nd Schedule
Certificates / Accounts
(8) Tax credit for tax already paid or deducted at source Under various sections
Example: Miss Samina has provided you following information for computation of taxable income and tax liability:
Pakistan source income:
(a) Income from business Rs. 537,500,
(b) Income from other sources Rs. 100,000
Foreign source income:
Income from business 212,500
Note: Income tax paid on foreign source income is Rs. 10,000.
Solution:
Miss Samina
Computation of taxable income and tax thereon Rs. Rs.
Income from business (Pakistan source) 537,500
Income from other sources 100,000
Income from business (Foreign source) 212,500
Taxable income 850,000
Example: Mr Qaisers business income for the tax year 2014 is Rs. 450,000 and he made donation of Rs.10,000.
Compute tax liability of Mr Qaiser if donation was made to:
(a) An unapproved institution
(b) Approved institution that falls in section 61
(c) Institution specified u/c 61 Part I Second Schedule.
Solution:
(a) Mr. Qaiser
Computation of taxable income and tax liability: Rs.
Income 450,000
Computation of tax liability:
Tax on Rs. 450,000 [7% x (450,000 400,000)] 3,500
No tax credit shall be allowed as donation was made to unapproved institution.
(b) Mr. Qaiser
Computation of taxable income and tax liability: Rs.
Income 450,000
Computation of tax liability:
Tax on Rs. 450,000 [7% x (450,000 400,000)] 3,500
Less: Tax credit on donation:
Tax credit shall be allowed on lower of:
- Actual amount of donation i.e. Rs. 10,000
- 30% of taxable income i.e. Rs. 135,000
Tax credit (10,000 x 3,500 / 450,000) 77
Tax liability 3,423
a) The employees shall be registered with the Employees Old Age Benefits Institution (EOBI) or Employees
Social Security Institutions (ESSI) of the Provincial Governments during the tax year.
b) The said tax credit is allowed up to maximum of 10% of the tax payable.
c) The manufacturing unit shall be managed by a company formed for operating the said manufacturing unit
and should be registered under the Companies Ordinance, 1984 and have registered office in Pakistan.
d) The manufacturing unit is not established by the splitting up or reconstruction or reconstitution of an
existing undertaking or transfer of plant and machinery of an existing undertaking before 1st July 2015.
Where at any subsequent stage it is discovered that the tax credit allowed under this section was availed
without fulfillment of any one of the above conditions, the Commissioner shall re-compute the tax payable by
the taxpayer on the basis of tax credit wrongly allowed under this section and shall be recovered under the relevant
provisions of the Ordinance.
Example: ABC (Pvt.) Ltd. a newly formed Company on July 01, 2015 has taxable business income for the tax year
2016 is Rs. 1,000,000. If the tax payable by the Company is Rs. 320,000 then compute tax credit under section 64B
by assuming that the Company has met all the preconditions as required under the said section and having 160
employees.
Solution:
ABC (Pvt.) Ltd.
Computation of taxable income and tax liability: Rs.
Tax payable 320,000
Less: Tax credit:
3% of tax payable (For 150 employees) 9,600
Balance tax payable 310,400
9. Tax credit for exempt share from association of persons:
For individuals (Section 88)
Share of profit from an AOP derived by an individual is exempt from tax and does not form part of total / taxable
income. However, where the individual has any income chargeable to tax as total / taxable income, other than the
share from an AOP, then such share of profit is included in the total / taxable income for rate purposes, i.e.
First, the income tax payable in calculated on taxable income inclusive of exempt share from AOP. Thereafter,
proportionate income tax payable in calculated on the income chargeable to tax, other than the share of profit from
AOP.
Technically this is not a tax credit (rebate in income tax payable) but for the sake of simplicity this is termed as a tax
credit. Accordingly exempt share of profits from the AOP is not treated as exempt income and included in the taxable
income; and
A tax credit is allowed on such exempt share of profits from the AOP calculated like other tax credits by applying the
average rate of income tax.
Example: Mr. Asim has income from other sources Rs. 300,000 and share from AOP Rs. 230,000 and paid zakat
Rs.8,000. Compute tax payable by him if tax credits and reductions other than AOP share are Rs. 9,000.
Solution:
Mr. Asim
Computation of taxable income and tax liability: Rs.
10. Tax credit to a person registered under the Sales Tax Act (Section 65A)
With effect from Tax year 2010 every manufacturer registered under the Sales Tax Act is entitled to tax credit of
2.5% of tax payable for Tax Year if 90% of the sales are made to persons who are registered under the Sales Tax
Act. for claiming credit, the person shall provide complete detail of the persons to whom the sales were made during
the tax year. The facility however is not allowed to a person whose income is covered under final tax regime or
minimum tax regime and further unadjusted balance carry forward facility is not available under this section.
Example: Mr. Amir is a registered manufacturer under the Sales Tax Act, 1990. His taxable income from business is
Rs.850,000. Compute tax payable by him if 95% of his sales are made to persons registered under the Sales Tax
Act, 1990.
Solution:
Mr. Amir
Computation of taxable income and tax liability: Rs.
Income from business 850,000
Computation of tax liability:
Tax on Rs. 850,000 [32,000 + 15% (850,000 750,000)] 47,000
Less: Tax credit (47,000 x 2.5%) 1,175
Tax liability 45,825
11. Tax credit for investment (Section 65B)
(a) Where a taxpayer being a Company invests any amount in the purchase of a plant and machinery for the
purposes of extension, expansion or balancing, modernization and replacement of plant and machinery already
installed there in, in an industrial undertaking set up in Pakistan and owned by it, credit equal to 10% of the
amount so invested shall be allowed against the tax payable (including on account of minimum tax and final
taxes payable) by it. Plant and Machinery should be purchased between 01-07-2010 and 30-06-2016,
In this case, tax credit in excess of tax liability shall be carried forward to adjust in following 2 tax years.
(b) A company setup in Pakistan before 01-07- 2011, which makes investment through 100% new equity during 01-
07-2011 and 30-06-2016, for the purposes of Balancing, Modernization or Replacement (BMR) of the plant and
machinery already installed in an industrial undertaking owned by the company. However, credit equal to 20% of
the amount so invested shall be allowed against the tax payable, including on account of minimum tax and
final taxes payable. The credit shall be allowed in the year in which the plant and machinery in the purchase of
which the investment as aforesaid is made, is installed therein.
In this case, tax credit in excess of tax liability shall be carried forward to adjust in following 5 tax years, however the
tax credit under this section shall not exceed from the aggregate limit defined a and b.
In this section the term new equity shall have the same meaning as defined in section 65E(7).
If it is subsequently discovered by the Commissioner Inland Revenue that any condition was not fulfilled, the credit
originally allowed shall be reversed.
An industrial undertaking shall be treated to have been setup on the date on which the industrial undertaking is ready
to go into production, whether trial production or commercial production.
Example: Following information is related to ABC (Pvt.) Ltd. for tax year 2015:
(a) Income from business Rs. 200,500
(b) Plant purchased for the purpose of balancing, modernisation and replacement Rs. 1,500,000
Required: Compute tax liability under section 65BA and 65B.
Solution under section 65A:
ABC (Pvt.) Ltd.
Computation of taxable income and tax liability: Rs.
Income from business 200,500
Computation of tax liability:
Tax on Rs. 200,500 @ 32% 64,160
Less: Tax credit for investment in fixed assets
(1,500,000 x 10%) 150,000
Tax liability Nil
As the amount of tax credit is in excess of tax liability the taxpayer is not liable to pay any tax and the amount of
unadjusted tax credit in this case (only in this case) shall be carried forward for 2 succeeding tax years.
Solution under section 65B:
The amount of tax credit (Rs. 1,500,000 x 20%) Rs. 300,000 shall be allowed and no tax liability is to be paid by the
taxpayer and the unadjusted tax credit Rs. 235,840 shall be carried forward for 5 succeeding tax years.
Provided that the reduction under this clause shall be available to so much of the flying allowance or the submarine
allowance as does not exceed an amount equal to the basic salary.
16. Reduction in tax liability in case of total allowances received by pilots of Pakistani airlines
Total allowances received by pilots of any Pakistani airlines shall be taxed at a rate of 7.5%, provided that the
reduction under this clause shall be available to so much of the allowances as exceeds an amount equal to the basic
pay.
17. Reduction in tax liability in case of Senior citizens
Where the taxable income (excluding income covered under final tax regime) in tax year of a taxpayer (an
individual) aged 60 years or more on the first day of that tax year does not exceed Rs. 1,000,000, then his tax
liability shall be reduced by 50%.
Example: 62 years old Mr. Rizwan earned following incomes during the tax year 2016. Compute taxable income
and tax liability for tax year 2016.
(a) Taxable salary Rs. 150,000,
(b) Income from business 440,000,
(c) Examination fee 30,000
Solution:
Mr. Rizwan
Tax year 2016
Computation of taxable income and tax liability: Rs.
Income from salary:
Taxable salary 150,000
As salary income is less than 50% of taxable income, hence taxpayer is non-salaried person.
Example: Mr. Nasir has provided you following information for computation of taxable income and tax liability:
(a) Income from salary Rs. 300,000,
(b) Income from other sources Rs. 1,500,000
(c) Profit on Bahbood Saving certificates Rs.80,000
Solution:
Mr. Nasir
Computation of taxable income and tax thereon Rs.
Income from salary 300,000
Income from other sources 1,500,000
Profit on Bahbood Saving certificates 80,000
Taxable income 1,880,000
Taxpayer is a non-salaried person (salary income is less than 50% of taxable income).
Computation of tax liability
Tax on Rs. 1,880,000 [144,500 + 20% x (1,880,000 1,500,000)] 220,500
Less: tax credit (if any for senior citizen and full time teacher) 0
223,500
Reduction in respect of Behbood Saving Certificate (Note 1) 1,383
222,117
(Note 1) : Reduction in respect of Behbood Saving Certificate:
Proportionate tax on behbood saving certificate
Tax after tax reductions / taxable income x profit on Bahbood Saving certificates
(220,500 / 1,880,000 x 80,000) 9,383
Tax @ 10% [80,000 x 10%] 8,000
Excess tax (to be allowed as reduction in tax) 1,383
Important note: It in worthwhile to mention here that where the proportionate tax liability under NTR on Bahbood
Saving certificates is less than the amount computed on such profit at 10% then no tax reduction shall be computed
and the same reduced tax is to be paid by the taxpayer.
20. Tax credit for tax already paid or deducted at source [Section 168(5)]
A person shall be allowed a tax credit for advance tax already paid or collected or deducted at source. If amount of
this tax credit is more than the tax liability, then excess shall be refunded to the taxpayer in accordance with section
170.
Master example covering all the tax credits:
Calculate tax liability of Mr. Hamid Sarfraz (66 years old, resident person) from following data available.
Rs.
Salary from Punjab University as full time teacher 600,000
Income from other sources (Taxable) 100,000
Taxable income from business in foreign country 100,000
Tax paid in foreign country in respect of above business income 20,000
Property income (after admissible deductions) 200,000
Zakat deducted at source 6,000
Zakat paid to relatives 40,000
Donation paid to approved charitable institution 12,000
Furniture donated to a Government Hospital with FMV 90,000
Shares acquired from privatization commission of Pakistan. 60,000
Share from AOP 150,000
Solution:
Pakistan source income: Rs. Rs.
6,966
42,222
Tax payable on income excluding share from AOP (Rs.994,000 / 1,144,000 x 42,222) 36,686
Less: Senior Citizen Allowance @ 50% 18,343
Less: full time teacher allowance [(18,343 x 600,000 / 994,000) x 40%] 4,429
13,914
(c) 25%
(d) 0%
Q.10. Where any property is donated, then _______ of property is taken as value of donation.
(a) Cost
(b) Fair market value
(c) Any of these
(d) Higher of value recorded for capital value tax or Fair market value
Q.11. Donation to the Liaqat National Hospital Association, may be made up to______________.
(a) 50% of taxable income
(b) 95% of taxable income
(c) Total taxable income
(d) none of (a) to (c)
Q.12. A Tax Credit equal to _________ for donation made to unapproved institutions.
(a) Full amount of donations is allowed
(b) Half amount of donations is allowed
(c) Calculated at average rate of tax is allowed
(d) Not allowed
Q.13. A tax credit________ is allowed to a person making investment in the shares of a listed company (not being as first
allottee).
(a) Whole amount of donation
(b) At the average rate of tax
(c) Proportionate basis
(d) Not allowed
Q.14. A tax credit for investment in shares is made allowed for an investment which is,_____________.
(a) Total cost of shares
(b) 20% of taxable income
(c) Rs.1,000,000
(d) Lesser of a, b and c.
Q.15. Where a taxpayer disposes of the shares within ______ of the purchase, the tax liability of the person shall increase
by an amount equal to tax credit allowed to him in the year of disposal.
(a) 24 months
(b) 6 months
(c) 12 months
(d) None of these
Q.16. A tax credit at the average rate of tax shall be allowed to a person for contribution to approved pension fund if he
derives income from _________.
(a) Salary
(b) Business
(c) Both a and b
(d) None of these
Q.17. The total allowed contribution made to approved pension fund on the basis of age above 40 years on July 01, 2006
should not be more than _______ taxable income of the year.
(a) 10%
(b) 20%
(c) 30%
(d) 50%
Conceptual Approach to Taxes 251
Tax Credits Chapter-15
Q.18. Tax credit for enlistment of a company in any stock exchange in Pakistan shall be _____________of the tax payable
for the tax year in which the said Company is enlisted.
(a) 10%
(b) 15%
(c) 20%
(d) 25%
Q.19. Where tax liability is less than the tax credit of a person, who is also a member of an AOP and AOP having tax
payable then the excess amount would be_____________.
(a) Carried back
(b) Carried forward
(c) Claimed by the AOP as tax credit
(d) Claimed by the person as tax credit
ANSWERS
1 (a) 2 (c) 3 (c) 4 (d) 5 (b)
6 (a) 7 (b) 8 (a) 9 (b) 10 (b)
11 (d) 12 (d) 13 (d) 14 (d) 15 (a)
16 (c) 17 (d) 18 (c) 19 (c)
Q. No. 2 (b) Spring 2013 A company formed for establishing and operating a new industrial undertaking for
Manufacturing in Pakistan is allowed a tax credit equal to 100% of the tax payable on the taxable income arising from
such industrial undertaking for a period of five years from the date of setting up or commencement of commercial
production, whichever is later.
Required:
Specify the conditions which must be satisfied for availing the above tax credit.
Q. NO. 3 (d) SUMMER 2008 Define the types of tax credits available u/s 61 to Section 64 of the Income tax Ordinance,
2001.
Q. NO. 4 (b) SUMMER 2004 What are the requirements to avail Tax Credit on investment in shares by a person other than
a company u/s 62 of Income tax Ordinance, 2001? Also explain how tax credit is computed on acquisition and its treatment
on disposal of shares.
Chapter
16 COMMON RULES
Important notes:
It is important to mention here that if the share of each co-owner shall not be determinable then the same shall be
taxable in the ratio of capital invested in property.
Example
Mr. A and Mr. B carry on a business as partners. There share in the profit is 60% and 40% respectively. Taxable
income of business is Rs. 300,000.
Required: Calculate the tax liability of both Mr. A and Mr. B
Solution: As they are members of an AOP hence tax shall be paid by AOP.
Rs.
Taxable income of AOP under NTR 300,000
Tax liability of AOP
As income of AOP is below taxable limit, hence no tax is payable.
Note: This tax shall be paid by the AOP and members shall receive share of the divisible income i.e. Rs. 300,000.
This share received by the members shall be exempt from tax however the same shall be included in other income of
the members for rate purposes.
2. Apportionment of deductions (u/s 67): If an expenditure relates to
(a) derivation of incomes chargeable to tax under more than one head of income; or
(b) derivation of incomes chargeable to tax under Normal Tax Regime and Final Tax Regime or Separate Block of
Income; or
(c) derivation of income chargeable to tax and some other purpose,
then such an expenditure shall be apportioned on any reasonable basis taking account of the relevant nature and
size of the activities to which it relates. The board may make rules u/s 237 for the purposes of apportioning
deductions.
Apportionment of expenditures [Rule 13]
(a) Any expenditure that is incurred for a particular class or classes of income shall be allocated to that class or
classes.
(b) Any common expenditure excluding financial expenses relatable or attributable to non-business advances or
loans and the amount as stated above relatable to business including FTR and exempt income, shall be
allocated to each class of income according to the following formula, namely:-
Example: M/s. Nitro Chemicals has received the following information from his clients:
(a) Crook Ltd paid him a sum of Rs. 120,625 after deducting a tax of Rs. 4,375.
(b) IT international paid a sum of Rs.40,000 on behalf of Nitro to Cooker Man.
(c) Nitro Chemicals purchased medicines from Green pharmacy of Rs. 20,000 which are adjusted against the
balance of Green pharmacy and received the remaining amount of Rs.30,000.
You are required to record the receipts which are taxable for the tax year.
Client Taxable Receipt Comments
Crook Ltd. 125,000 Amount received and tax thereon.
IT International 40,000 Paid on behalf of company
Green pharmacy 50,000 Actual balance include Rs. 20,000
Total 215,000
5. Recouped expenditure (Section 70)
Where a person has been allowed a deduction for any expenditure or loss incurred in a tax year and subsequently he
receives in cash or in kind any amount in respect of such expenditure or loss then the amount so received shall be
included in the income chargeable under that head for the tax year in which it is received.
Example: Asif Health Business has incurred loss and unable to pay the financial charges of the bank and claimed
deduction of finance charges against the income of preceding years as follows:
Year 2015 Rs. 100,000 Year 2014 Rs. 85,000 Year 2013 Rs. 60,000
On 20 May 2016, the bank agreed to waive off mark up to the extent of Rs. 200,000 under a rescheduling agreement.
You are required to explain the tax exposure on such waiver of finance charges.
Solution: The waived amount of Rs 200,000 is taxable in the hands of Asif Health in the year of Waiver (2016) and
it will not be included in the preceding years.
6. Currency conversion (Section 71)
Every amount taken into account under this ordinance shall be in Rupees and if it is not in Pak rupees then this
amount shall be converted to the Rupee at the State Bank of Pakistan rate applying between the foreign currency and
the Rupee on the date the amount is taken into account for the ordinance.
Example: Alis Brother received an amount from his customer of US $ 750 on 01 April 2016, an expense incurred
in respect of this income on 02 February 2016 of 250 Euro. Exchange rate prescribed by the State Bank of Pakistan
are as under:
Description Amount
$ 750 x Rs. 83 62,250
Euro 250 x Rs.122 (30,500)
Income 31, 750
All companies except given below Tax year 1st July to 30th June 133 (R)/68, 31-07-1968
(c) Board
(d) None of above
Q.10. A person shall be treated as having received an amount, benefit, or perquisite if it is __________.
(a) Actually received by him;
(b) applied on his behalf at his instruction or under any law;
(c) made available to him.
(d) all of above
Q.11. Where a person has been allowed a deduction for any expenditure or loss incurred in a tax year and subsequently he
receives in cash or in kind any amount in respect of such expenditure or loss then the amount so received shall
be___________.
(a) exempt
(b) ignored
(c) included in the income chargeable under that head for the tax year in which it is received
(d) none of above
Q.12. Every amount taken into account under this ordinance shall be in Rupees and if it is not in Pak rupees then this
amount shall be converted to the Rupee at the _________ rate applying between the foreign currency and the Rupee
on the date the amount is taken into account.
(a) State Bank of Pakistan
(b) KIBOR
(c) Exchange rate
(d) all of above
Q.13. Normal tax years means a period of 12 months from 1 July to 30 June denoted by the calendar year in which the
_______ ends.
(a) financial year
(b) tax year
(c) assessment year
(d) normal tax year
Q.14. The ________ has authority to prescribe any special tax year in respect of any particular class of taxpayers.
(a) Board
(b) Commissioner Inland Revenue
(c) Chief Commissioner Inland Revenue
(d) Appellate Tribunal Inland Revenue
Q.15. If a normal tax year or special tax year changes then the period from the day next following the last full tax year to the
date of commencement of new tax year shall be treated as _________.
(a) normal tax year
(b) special tax year
(c) transitional tax year
(d) none of above
Q.16. If a person wants to change the tax year then he shall apply to the _________.
(a) Board
(b) Commissioner Inland Revenue
(c) Chief Commissioner Inland Revenue
(d) Appellate Tribunal Inland Revenue
ANSWERS
1 (b) 2 (a) 3 (c) 4 (d) 5 (b)
6 (d) 7 (b) 8 (d) 9 (b) 10 (d)
11 (c) 12 (a) 13 (d) 14 (a) 15 (c)
16 (b)
Required:
Write a brief note to the Finance Manager of the company explaining the requirements of Income Tax Ordinance, 2001 as
regards the following:
(i) Change in tax year
(ii) Determination of tax year and the date of filing of return in case the accounting year-end is changed from June to
December.
Q.4 (b) Autumn 2011 Explain the following as specified in the Income Tax Ordinance, 2001.
(ii) Fair Market Value (iii) Apportionment of Expenditures
Q.2(b) Sept 2007: One of your client which is a subsidiary of a foreign company wants to change Its accounting year from
June 30 to December 31 as the income year of its parent company ends on December 31, Advise the client about the
requirements of the ITO, 2001 regarding change in tax year from normal to special.
Q.2 (a) March 2005 Discuss the common rules with regard to the Fair Market Value
Q. 2 Spring 2005 Discuss the common rules with regard to the following under the Income Tax Ordinance, 2001:
(a) Fair Market Value (FMV)
(b) Income of Joint owners.
(c) Non-arms length transactions of disposal of assets.
Q. 2 Autumn 2004 Describe the common rules.
(a) Receipt of income
(b) Currency conversion
Chapter
Topic covered
Section Rule
(For CAF-6 AND ICMAP students)
114 34 Who should file the return of income
Requirements to file a return
Procedure to file the return
Special cases where less than twelve months return is required
Filing of return on demand
Conditions to revise return
115 35 & 39 Persons not required to furnish a return of income
Revision of statement in case of final taxation
116 36 Commissioner Inland Revenue power to require statement of final tax
Commissioner Inland Revenue power to require wealth statement
Wealth statement
Wealth statement for cases fall in final tax regime
117 Income tax requirements for discontinued business
118 73 Method to furnish the return
73 Persons required to file return / statements electronically
Due date for filing of return
119 Extension of time for furnishing returns and other documents
120 Status of complete return under the ordinance
Status of return not complete under the ordinance
121 Best judgment assessment
122 Amendment of assessments
122A Revision by commissioner inland revenue
122B Revision by Chief Commissioner
122C Provisional assessment
123 Provisional assessment in certain cases
124 Assessment giving effect to an order
124A Powers of tax authorities to modify orders
125 Assessment in relation to disputed property
126 Evidence of assessment
145 221, 222 & 223 Assessment of persons about to leave Pakistan
177 Audit by Commissioner Inland Revenue
181C Displaying of National Tax Number
221 Rectification of mistakes
Different tax strategies
MCQS with solutions
ICMAP and CA mod C past papers theoretical questions
(a) every company, owns immoveable property with a land area of 500 square
yards or more located in a rating area;
(b) every person (other than a company) whose owns a flat having covered area of 2,000 square feet or
taxable income for the year exceeds the more located in a rating area;
maximum amount not chargeable to tax,
(c) any non-profit organization, and owns a motor vehicle having engine capacity above
1000CC; and
(d) any welfare institution approved, has obtained National Tax Number.
(e) any person not covered in the above clauses is the holder of commercial or industrial connection of
who, electricity where the amount of annual bill exceeds
Rs.500,000.
has been charged to tax in respect of any of the is a resident person registered with any Chamber of
two preceding tax years; Commerce and Industry or any trade or business
association or any market committee or any professional
body including Pakistan Engineering Council, Pakistan
Medical and Dental Council, Institute of Chartered
Accountants of Pakistan or Institute of Cost and
Management Accountants of Pakistan.
claims a loss carried forward for a tax year; (1A) Every individual whose annual income under the head
Income from business exceeds Rs.300,000 and others
with annual income of Rs.400,000 in a tax year are also
required to furnish return of income for the tax year.
owns immovable property with a land area of
250 square yards or more or owns any flat
located in areas falling within the municipal
existing immediately before the commencement
of Local Government laws in the provinces; or
areas in a Cantonment or the Islamabad
Capital Territory;
Rating area: In this section rating area has not been defined but its means urban area where provinces tax applies.
Example: Briefly explain which of the following persons are required to file a return of income for the tax year 2016:
a) ABC (Pvt.) Ltd. was incorporated on July 02, 2012 and there was no activity during tax year 2016.
b) XYZ Ltd was incorporated in tax year 2015 and incurred loss during the tax year.
c) C Ltd was incorporated in tax year 2014 and taxable income of the company during the year was Rs. 454,000.
d) Mr. Ikram (NTN holder) is a salaried individual and his salary income during the tax year is below taxable limit.
e) Mr. Jamal is a non-salaried individual, his business income during the tax year is below taxable limit. He has not
obtained NTN certificate.
f) An individual owns an 800 CC motor vehicle.
g) Mr. Amir incurred loss in his business during the tax year. He wants to carry forward this loss.
h) Mr. Zahid (NTN holder) is 75 years old. He is living with his son and has no source of income.
i) Mr. Khan owns a property with the land area 550 square yards located in a non rating area.
j) Non-profit organisation or welfare institution.
k) Mr. Shahzad owns a flat having covered area 1900 square feet located in a rating area.
Solution:
1. In all three cases from (a) to (c) company is required to file return of income irrespective of its commencement
of business of profit or loss.
2. In case of (d) as Mr. Ikram has obtained NTN certificate so he is required to file return of income irrespective of
his income.
3. In case of (e) Mr. Jamal is not required to file return of income as his income is below taxable limit and he has
not obtained NTN certificate.
4. In case of (f) individual is not required to file return as engine capacity of the vehicle owned by him is not
exceeding 1000 CC.
5. In case of (g) Mr. Amir is required to file return of income as he is claiming loss to be carried forward.
6. In case of (h) Mr. Zahid is required to file return of income as he is NTN holder.
7. In case of (i) although area of the land is more than 500 square yards however the same is not in the rating
area therefore Mr. Khan is not required to file return of income.
8. In case of (j) every non-profit organisation and welfare institution is required to file return of income.
9. In case of (k) Mr. Shahzad is not required to file return of income as covered area of flat owned by him is less
than 2000 square feet.
1.1 Requirements to file a return [Section 114(2)]
A return of income
shall be in the prescribed form and shall be accompanied by annexures, statements or documents,
shall fully state all the relevant particulars or information specified in return form and declaration of the records
kept by the taxpayer; and
shall be signed by the person or the person's representative, where applicable.
shall be accompanied with due payment of tax due as per return of income; and
shall be accompanied with a wealth statement.
1.2 Furnishing of return of income [Rule 34]
A verified return of income u/s 114 shall be furnished in the form as specified in Annexure-XIII of Part VI of the
Second Schedule to Income Tax Rules, 2002 and accompanied by applicable documents, statements,
certificates, annexes; and
In case of companies, the return of income shall be accompanied by audited accounts and reconciliation of
profits as per accounts and taxable income as per return.
1.3 Procedure to file the return [Section 114(2A)]
A return of income filed electronically or through any magnetic media or any other computer readable media
specified by the Board shall also be deemed to be a return.
The Board by notification in the official Gazette may make rules for determining eligibility of the data of such
returns and e-intermediaries that will digitize the data of such returns, statements or other documents etc. to
transmit the same electronically under their digital signatures.
1.4 Special cases where less than twelve months return is required [U/S 114(3)]
The CIR may by notice in writing require from a person to furnish a return of income for a period of less than twelve
months, where the person has died, become bankrupt or gone into liquidation, permanently to leave Pakistan or
where considers appropriate that the return should be furnished.
1.5 Filing of return on demand [U/S 114(4) and (5)]
The CIR may by notice in writing require any person to file the income tax return who in the CIR opinion is required to
file the return within 30 days from the date of service of such notice or such longer or shorter period as may be
specified in notice or allowed by the CIR for one or more of the last five completed tax years or assessment years.
1.6 Conditions to revise return [U/S 114(6) (6A)]
Any person after filing of return discovers any omission or wrong statement therein may revise return subject to the
following conditions:
it is accompanied by the revised accounts or revised audited accounts as the case may be; and
the reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return.
Before receipt of notice u/s 177 or section 122(9) No penalty shall be recovered from him.
During the audit or before the issue of notice u/s 122(9) 25% of the penalties shall be recovered from him.
After the issue of show cause notice u/s 122(9) 50% of the penalties shall be recovered from him.
Example: Which of the following statements of final taxation can be revised in tax year 2016?
1. Statement filed in tax year 2009 2. Statement filed in tax year 2013 3. Statement filed in tax year 2014
Solution: Statements filed in tax year 2013 and 2014 can be revised in tax year 2016.
Commissioner inland revenue's power to require statement of final tax [Section 115(5) and (6)]
The CIR may by notice in writing require any person to file the statement of final taxation who in the CIR opinion is
required to file the same within 30 days from the date of service of such notice or such longer or shorter period as
may be specified in notice or allowed by the Commissioner Inland Revenue for one or more of the last five
completed tax years or assessment years.
3. Commissioner Inland Revenue power to require wealth statement [Section 116(1)]
The CIR may require a wealth statement by notice in writing from any person being an individual on the compliance
date specified in notice and on such form and duly verified by stating therein particular's as on the date or dates
stated in the notice of:-
the person's total assets and liabilities;
the total assets and liabilities of the person's all the dependents;
any assets transferred by the person to any other person during the period or periods and the consideration for
the transfer;
Detail of total expenditures incurred by the person and all the dependents during the period or periods; and
the wealth reconciliation statement,
3.1 Wealth statement [Section 116]
Every resident individual taxpayer (including member of an AOP) liable to file a return of income for any tax year for
the tax year shall furnish a wealth statement and wealth reconciliation statement for that year along-with such return.
[Section 116(2)]
A person (including members of an AOP as stated above) on filing of return in response to a provisional assessment
u/s 122C shall furnish a wealth statement accompanied by wealth reconciliation statement and an explanation of
sources of acquisition of assets. [Section 116(2A)]
Where a person after filing of wealth statement discovers any omission or wrong statement therein may furnish a
revised wealth statement along with the revised wealth reconciliation and the reasons for filing revised wealth
statement, at any time before amendment in assessment for the tax year to which it relates is made. [Section
116(3)]
Example: Mr. Arif having declared income of Rs. 400,000 is required by the Commissioner Inland Revenue Inland
Revenue to file wealth statement for tax year 2016. Explain under the ITO, 2001 whether Mr. Arif is legally under
obligation to file the wealth statement or not.
Solution:
Now every individual is required to file the wealth statement along-with the income tax return however the CIR is
empowered to require any individual taxpayer to furnish a wealth statement. Hence, Mr. Arif is under obligation to file
the wealth statement on the demand of the Commissioner Inland Revenue.
3.2 Wealth statement for cases fall in final tax regime [Section 116(4)]
Every person (other than a company or an association of persons) filing statement covered under final tax regime
shall file a wealth statement along-with wealth reconciliation statement.
3.3 Furnishing of wealth statement [Rule 36]
A verified wealth statement shall be in the form specified in Part IV of the Second Schedule to the Income Tax Rules,
2002, accompanied by such documents, statements and certificates required under the Ordinance / Rules along-with
a wealth reconciliation statement.
4. Income tax requirements for discontinued business [Section 117]
Any person discontinuing a business shall give notice in writing to the CIR within 15 days of such effect. [Section
117(1)]
The person discontinuing the business shall by himself or so required by CIR by notice in writing furnish a return of
income for the period started from the first day of the tax year in which business is discontinued and ending on
the date of discontinuance and this period shall be treated as a separate tax year. [Section 117(2)]
Where no notice has been given by the taxpayer for discontinuance of business but the CIR has reasonable grounds
that a business has discontinued or is likely to discontinue, a notice may be served to such person to furnish within
specified time a return of income for such period that shall be treated as a return of income for all purposes. [Section
117(3) (4)]
A return furnished after discontinuance of business shall be furnished by the due date specified in the notice.
[Section 118(5)]
The CIR may by notice in writing require any person to file the income tax return who in the CIR opinion is
required to file the return within 30 days from the date of service of such notice or such longer or shorter
period as may be specified in notice or allowed by the CIR for one or more of the last five completed tax
years or assessment years. [Section 114(4) and (5)]
Where a taxpayer is not on the National Tax Number Register and fails to file an application for National Tax
Number with the taxpayer's return of income, such return shall not be treated as a return for income tax
purposes. [Section 118(6)]
6. Extension of time for furnishing returns and other documents [Section 119(3)]
If a person is required to furnish a return of income, a statement of final tax regime or a wealth statement then the
person may apply in writing to the CIR for an extension of time by the due date to furnish the same. [Section 119(1)
and (2)]
On receipt of application if CIR is satisfied that the applicant is unable to furnish the return of income and other allied
documents by the due date because of absence from Pakistan, sickness or other misadventure or any other
reasonable cause the CIR may allow in writing an extension of time for a period not exceed 15 days from the due
date of furnishing unless there are exceptional circumstances justifying a longer extension of time. [Section 119(3)
and (4)]
An extension of time granted to file the return and other documents shall not be deemed as allowed for tax
payable with the return and default surcharge shall be charged till the payment of the same. [Section 119(6)]
Example: A and B Co is an AOP having year end 30-06-2016. However on the last date of filing of income tax return
the information was not complete to file the income tax return. Now what option is available with the AOP to avoid
from the penalty of late filing of income tax return?
Solution: U/s 119 the AOP is having the option to file a request for extension regarding filing of income tax return on
the last date to file the income tax return.
7. Status of complete return under the ordinance [Section 120(1), (1A) and (2)]
Where a taxpayer has furnished a complete return of income other than a revised return for a tax year ending on
or after 1.7.2002 and the return shall be taken for all purposes to be an assessment order issued to the taxpayer
by the CIR on the day the return was furnished. However the Commissioner Inland Revenue may conduct audit of
the income tax affairs of a person u/s 177.
7.1 A return of income shall be taken to be complete on fulfilment of the following conditions:
A return of income
shall be in the prescribed form and shall be accompanied by annexures, statements or documents,
shall fully state all the relevant particulars or information specified in return form and declaration of the records
kept by the taxpayer; and
shall be signed by the person or the person's representative, where applicable.
Important note: A complete return filed by a taxpayer will be considered an assessment order as stated above and
the said assessment may be amended u/s 177 / 122 of the ITO, 2001. Even where the case of a taxpayer has been
selected for total audit u/s 177 or for amendment in assessment u/s 122 the loss already assessed u/s 120 may be
carried forward unless the same is not amended through an order under the aforesaid sections.
7.2 Status of return not complete under the ordinance [Section 120(3), (4), (5) and (6)]
Where the return of income furnished is not complete, the Commissioner Inland Revenue shall issue a notice
to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable computed or
short payment of tax payable) and directing him to provide such information by such date specified in the
notice.
Where a taxpayer fails to fully comply the notice by the due date, the return furnished shall be treated as an
invalid return.
Where in response to a notice the taxpayer has by the due date fully complied with the requirements of the
notice the return furnished shall be treated to be complete on the day it was furnished.
No notice of short documents shall be issued after the expiry of 180 days from the end of the financial
year in which return was furnished
8. Best judgment assessment [Section 121]
Where a person fails to:
furnish a return on receipt of notice or a return being as non-resident ship or aircraft owner or wealth statement to
produce before the CIR or a special audit penal appointed under section 177(11) or any person employed, accounts,
documents and records required to be maintained or required for the purpose of making assessment.
The CIR may, based on any available information or material and to the best of his judgement shall make
assessment of such person and the assessment, if any, treated to have been made on the basis of return or
revised return filed by the taxpayer shall be of no legal effect.
As soon as possible after making an assessment, the CIR shall issue the assessment order to the taxpayer
stating the taxable income, the amount of tax due, the amount of tax paid, if any and the time, place and
manner of appealing the assessment order.
An assessment order as stated above shall only be issued within five years after the end of the tax year or
the income year to which it relates.
- In case of company:
If return of income along with audited accounts or final accounts, as the case may be, for the relevant tax year
are filed by the company electronically during the said period of 45 days
13. Provisional assessment in certain cases [Section 123]
Where a concealed asset of any person is impounded by any department or agency of the Federal Government or a
Provincial Government, the Commissioner Inland Revenue may, at any time before issuing any best judgment
assessment order or amended assessment order, issue to the person a provisional assessment order for the last
completed tax year regarding concealed asset of the person.
The Commissioner Inland Revenue shall finalise a provisional assessment order as soon as practicable.
14. Assessment giving effect to an order [Section 124]
The CIR or CIR (appeals) must give the appeal effect as per the following:
Within two months from the end of the date the CIR is
For direct relief case u/s 124(4):
served with the appellate order.
Within one year from the end of the financial year in which
For case set aside u/s 124(2):
the order is received by the CIR or authority
For case of assessment after a decision by any Within one year from the end of the financial year in which
Civil Court in Pakistan u/s 125: the decision in brought to the notice of CIR.
and records, required to be maintained U/S 174 or any other relevant document, electronically kept
record, electronic machine or any other evidence that may be required by the CIR or the panel, the CIR
may proceed to make best judgment assessment U/S 121 of this Ordinance and the assessment treated
to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal
effect.
If any one member of the special audit panel, other than the Chairman, is absent from conducting an
audit, the proceedings of the audit may continue, and the audit conducted by the special audit panel shall
not be invalid or be called in question merely on the ground of such absence.
Functions performed by an officer or officers of Inland Revenue as members of the special audit Panel,
for conducting audit, shall be treated to have been performed by special audit panel.
The Board may prescribe the mode and manner of constitution, procedure and working of the special
audit panel.
20. Displaying of National Tax Number (181C)
Every person deriving income from business chargeable to tax and who has been issued NTN shall display his NTN
at a conspicuous place at every place of his business.
21. Rectification of mistakes [Section 221]
The CIR, the CIR(Appeals) or the ATIR may, by an order in writing, amend any order passed by him to rectify
any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a
taxpayer.
No order which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely
to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard.
Where a mistake apparent on the record is brought to the notice of the CIR or CIR (Appeals) and no order has
been made before the expiration of the financial year next following the date on which the mistake was brought
to their notice, the mistake shall be treated as rectified. Further no rectification may be made after 5 years from
the date of the order sought to be rectified.
22. Different tax strategies
There are different approaches to whereby a person to mitigate or reduce the tax incidence over a person.
There are classified in the following three headings.
Tax evasion: Tax evasion is the approach whereby a person evades the tax due on its income. He did not
declare the true particulars of income or conceal the taxable activity from the concerned Authorities. The tax
evasion is a criminal Act and it is not only punishable but also liable to be prosecuted.
Tax avoidance: Tax avoidance scheme is a strategy whereby a person although pay the tax, however, he
understates his income or taxable activity. In order to achieve objective, the taxpayer may temper the record
and evidences. The open courts also deprecate this method and it also attracts penal provisions of law.
Tax planning: Tax planning is the strategy wherein a taxpayer plans its transaction in such a way that its tax
incidence may be reduced. The process is simply availment of the benefits, credits, exemptions available
under the law in favour of a taxpayer. The taxpayer may also take the advantage of any lacunas in the law.
However, such planning can only be exercised with the help of good legal experts. The accepted the fact and
acknowledge its applicability in the course of business transactions. Therefore, it is a permissible mode to
reduce the tax incidence of a person.
(a) 15 days
(b) 30 days
(c) Less then 15 days
(d) Normally 15 days but longer extension can also be granted exceptional cases
Q.10. If a person fails to pay the income tax with the return of income, then he will___________.
(a) Revise the return of income
(b) Pay default surcharge for late payment
(c) be deemed as not filed the return
(d) both (b) and (c)
Q.11. The period within which the Commissioner Inland Revenue may demand to furnish an income tax return
is___________.
(a) 15 days
(b) 5 days
(c) 30 days or such longer or shorter period
(d) None of the above
Q.12. A notice by Commissioner Inland Revenue to furnish the income tax return on demand can be issued for the last
completed _____________.
(a) 5 years
(b) 6 years
(c) 10 years
(d) None of the above
Q.13. The Commissioner Inland Revenue may demand the return of income for the period less than 12 months in
case_______.
(a) The person has died
(b) The person has not paid the tax
(c) The person has gone into liquidation
(d) Both a and c
Q.14. The revised return may be furnished by the taxpayer within the period of ________from the end of the financial year
in which original return was furnished.
(a) 6 years
(b) 10 years
(c) 5 years
(d) 4 years
Q.15. The Commissioner Inland Revenue may made best judgment assessment on non-filing of return by the taxpayer
by_____.
(a) Without giving notice to the taxpayer
(b) after giving notice and using information / materials available to him
(c) by selecting the audit
(d) All of the above
Q.16. Where a person has to file the wealth statement, the Commissioner Inland Revenue may__________.
(a) give the notice to the respective person to file the wealth statement
(b) Can make a best judgment assessment
(c) Both a and b
(d) None of the above.
Q.17. Assessment order after making the best judgment assessment can be issued only within the period of ___ years after
the end of the Tax year or the income year to which it relates.
(a) 5 years
(b) 6 years
(c) 10 years
(d) 3 years
Q.18. First amendment in an assessment can be made by the Commissioner Inland Revenue within the period
of____________.
(a) 5 years from the end of the financial year in which return was being furnished.
(b) 5 years from original assessment
(c) 6 years from original assessment
(d) 5 years after the year end
Q.19. The Commissioner Inland Revenue cannot revise the order of_______________.
(a) any taxation officer
(b) his own
(c) Commissioner (Appeals)
(d) All of the above
Q.20. Under the following cases revision cannot be made___________.
(a) Where the time for appeal has not expired
(b) Where the time for appeal has expired
(c) Where the order is pending in an appeal before any of the appellate authorities
(d) Both a and c
Q.21. The Commissioner Inland Revenue is required to pass an assessment order in case of direct relief case after the
appellate decision within _____________from the date of receipt of appellate order by the CIR.
(a) One year
(b) Two year
(c) Two months
(d) None of the above
Q.22. Where the appellate authority has ordered for the refund of excess tax deposited, the Commissioner Inland Revenue
shall issue necessary orders within_________.
(a) 3 months from the date the order was served to him
(b) 1 month
(c) 6 months
(d) 2 months from the date the order was served to him
Q.23. In case of disputed property, the Commissioner Inland Revenue shall issue the assessment order for income derived
from such property within__________.
(a) One year from the end of the financial year in which the court has decided the case
(b) Two years
(c) Three year after the end of the financial year in which the court has decided the case
Q.24. A person discontinuing his business shall give notice of discontinuance to the Commissioner Inland Revenue
within___________ from the date of such discontinuance.
(a) 30 days
(b) 60 days
(c) 15 days
(d) 20 days from the date of such discontinuance
Q.25. Every shareholder of the company is liable to pay the amount or tax of the company if he holds at least
___________of paid-up capital of the company.
(a) 10%
(b) 5%
(c) 15%
(d) 20%
Q.26 A male salaried person having taxable income exceeds __________ is required to file the return of income.
(a) Rs.300,000
(b) Rs.200,000
(c) Rs.100,000
(d) Rs.400,000
Q.27 A person having annual salary income of Rs. 500,000 is required to file___________ with the tax department.
(a) Income tax return
(b) Wealth statement with wealth reconciliation
(c) both a and b
Q.28 A person is required to file a statement instead of return of income if his total income is derived from such sources
that are taxable under___________.
(a) FTR
(b) NTR
(c) as SBI under FTR
(d) Both a and c.
Q.29 National tax number is a must in order to file the income tax return ___________.
(a) On E- portal
(b) manually
(c) by post
(d) none of the above
Q.30 A taxpayer can revise the wealth statement as a result of any omission discovered_______.
(a) before amendment in assessment has been made
(b) after amendment in assessment has been made
(c) at any time after filing of wealth statement
(d) all of the above
Q.31 Extension may be granted by Commissioner Inland Revenue in respect of ____________.
(a) Annual statement of final tax regime
(b) Income tax return
(c) Wealth statement
(d) All of the above
Q.32 A taxpayer can apply for extension in __________ under section 119.
(a) Due date for payment of tax
(b) Due date for filing of income tax return
(c) Due date for filing of sales tax return
(d) none of the above
Q.33 A return of income by a company should be filed __________.
(a) Electronically
(b) manually
(c) by post
(d) All of the above
Q.34 __________ is empowered to select any person for an audit of his income tax affairs.
(a) directors
(b) employed directors
(c) employees
(d) both a and b
Q.43 A director who has paid the tax of the company cannot recover it from the ________
(a) other directors
(b) company
(c) Commissioner Inland Revenue
(d) Both a or b.
Q.44 If the member of an AOP cannot pay the tax in respect of his share from AOP then it shall be recovered
from____________.
(a) AOP
(b) other member of the AOP
(c) both a and b
(d) None of the above
Q.45 A person who has been audited in a year can also be re-audited in the following years by__________.
(a) Commissioner Inland Revenue
(b) Commissioner Inland Revenue (Appeals)
(c) Appellate Tribunal Inland Revenue
(d) Chief Commissioner Inland Revenue
Q.46 The Commissioner may by notice in writing require from a person to furnish a return of income for a period of less
than twelve months, where ________.
(a) person has died
(b) become bankrupt or gone into liquidation
(c) permanently leaving Pakistan
(d) Commissioner Inland Revenue considers appropriate
(e) all of above
ANSWERS
Q. No. 2 (a) Spring 2013 Zia has discovered error in his annual income tax return submitted by him and intends to file a
revised return voluntarily.
Required:
Under the provisions of Income Tax Ordinance, 2001:
(i) Narrate the conditions which Zia has to comply with in order to submit a valid revised return.
(ii) State the benefits which Zia could derive by filing the revised return voluntarily,
Q. No. 2 (b) Spring 2013 Beena is engaged in the business of interior designing for the last many years. For the tax year
2013, her tax consultant had determined that income tax amounting to Rs. 345,000 was required to be paid with her annual
return which was due for filing on 31 August 2013.
On the date of filing of return, Beena was not present in Pakistan. Therefore, the consultant filed her return manually signing
it on her behalf. He also applied to the commissioner for extending the date of payment of tax by 15 days.
Required: Comment on the steps taken by Beenas consultant, in the light of Income Tax Ordinance, 2001.
Q. NO. 2 (a) Spring 2013 Discuss when a notice required to be served on a resident individual under the Income Tax
Ordinance, 2001 shall be treated as properly served.
(b) Mr. Dynamic has received a notice from the commissioner in which he identified certain errors and deficiencies in the
return filed for the last.
Required:
(i) State the deficiencies on account of which the return submitted by Mr. Dynamic may be regarded as incomplete for tax
purposes.
(ii) Narrate the circumstances under which the commissioner may amend Mr. Dynamics assessment order.
Q.4 (b) Autumn 2012 Zubaida is operating a business as a Wedding Event Planner since past 12 years. She had filed her
complete return for the tax year 2007 on 20 August 2007. On 1 September 2012, Commissioner Inland Revenue (CIR)
served a Show Cause Notice, requiring her to explain certain receipts which were credited to her account during the tax year
2007.
Zubaida is uncertain as to whether Commissioner Inland Revenue is empowered to issue such a notice after a lapse of so
many years.
Required:
Advise Zubaida about the validity of the Show Cause Notice issued by Commissioner Inland Revenue under the Income Tax
Ordinance, 2001.
Q.2 (b) Spring 2012 Identify the due dates for filing of income tax return in each of the following cases:
(i) A company whose income year ended on 30 September 2011.
(ii) A company whose income year ended on 31 December 2011.
(iii) A company whose income year would end on 31 March 2012.
(iv) A member of an association of persons (AOP) if the income year of the AOP would end on 30 June 2012.
Q.2 (a) Autumn 2011 Mrs. Hina has been living in USA for the last twenty years. She is the owner of two residential
properties in Karachi and Islamabad measuring 750 square yards and 1,000 square yards respectively.
On 1 September 2011, the Commissioner Inland Revenue served a notice on her residential property located at Karachi, for
filing of return within 20 days from the date of receipt of notice for the tax year 2010. Mrs. Hinas servant informed her about
this notice over telephone.
Required: Discuss the validity of the notice in the light of provisions contained in the Income Tax Ordinance, 2001.
Q.2 (b) Autumn 2011 On 9 September 2011, Mr. Yaqoob received a notice from the Income Tax Department requiring him
to make payment of the outstanding tax demand in compliance of an assessment order issued by the CIR. Presently, Mr.
Yaqoob is experiencing cash flow difficulties and is therefore not able to pay the amount as required in the notice.
Required: As a tax consultant, advise Mr. Yaqoob about the due date for payment of tax and recourse available to him if he
is not in a position to make payment of the tax on time.
Q.NO. 3(b) Spring 2010 Mr. Sami has recently received a notice from the CIT to file return of income for the tax years 2003
and 2006 within 20 days of receiving the notice. In your capacity as a tax consultant, advise Mr. Sami on the following issues
along with appropriate explanations.
(i) Is the Commissioner Inland Revenue justified in issuing the above notice?
(ii) If Mr. Sami is not in a position to meet the deadline for filing the returns, can he get an extension?
Q.6 (a) Sept 2009 Mr. Zia's father expired in March 2009. Being the only heir, he received all his father's business and
assets. In August 2009, a notice was received from the income tax department in the name of his father to pay unpaid tax
liabilities along with penalty and default surcharge. Mr. Zia is of the view that since his father expired, the notice is irrelevant.
Required: In the light of Income Tax Ordinance, 2001 explain the correct legal position of Mr. Zia with regard to his father's
income tax liabilities and the related income tax proceedings.
Q.NO. 4(a) Autumn 2009 (a) State the provisions of the Income Tax Ordinance, 2001 with regards to rectification of
mistakes.
(b) Ayub Limited has been selected for the audit of its income tax affairs. The management is of the opinion that since their
tax affairs were audited last year also, they should not have been selected for audit this year.
Required: Discuss the managements point of view in the light of Income Tax Ordinance, 2001.
Q.NO. 5(a) Spring 2009 What do you understand by the term definite information as described in the Income Tax
Ordinance, 2001?
Q.NO. 5(b) Spring 2009 Nomani Industries (Pvt.) Limited filed their return of income for the year ended June 30, 2007 on
December 31, 2007. On January 15, 2009, the Taxation Officer issued a notice requiring the company to file the audited
financial statements. The Taxation Officer has also identified certain errors in the return of income filed for the year and has
shown his intention to amend the assessment of the Company for the year.
Required:
(i) When is a return of income regarded as incomplete for tax purposes?
(ii) Is the taxation officer justified in issuing the above notice? Explain.
(iii) Discuss the circumstances under which taxation authorities may amend the assessment order of a company.
(iv) Identify the specific date up to which the taxation authorities may amend the assessment of NI (Pvt.) Limited. Assume
that the return of income was complete on December 31, 2007 when it was filed.
Q.NO. 3(c) Spring 2008 Under what circumstances, the CIT can require a person to furnish a return of income for a period of
less than twelve months?
Q.NO. 2(a) Autumn 2008 List the persons who are required to file a return of income under the Income Tax Ordinance, 2001.
Q.NO. 5(b) Spring 2007 Under the ITO, 2001, the Commissioner Inland Revenue may serve upon the taxpayer, a notice
requiring him to pay any tax due within such time as may be specified in the notice.
Describe the modes of recovery available to the CIR, if the taxpayer fails to pay the amount of tax within the time specified in
the said notice.
Q.NO. 6(b) Spring 2007 Every resident taxpayer whose last declared or assessed income is Rs.500,000 or more is required
to furnish a wealth statement for that year along with the income tax return.
State the main particulars that are required to be included in the wealth statement.
Q.NO. 2(c) Autumn 2007 Mr. Rafiq, a salaried individual, whose taxable income for previous year was more than Rs.
500,000, has not filed the wealth statement. He is of the view that since he has no other source of income besides salary and
his employer has already filed the annual statement, he is not required to file a wealth statement.
Evaluate Mr. Rafiqs point of view in the light of Income Tax Ordinance, 2001.
Q.6 (a) Sept 2007 A resident person is about to leave the country. Briefly explain the following in the light of Income Tax
Ordinance, 2001:
- responsibility of such person in relation to filing of tax return;
- powers of the Commissioner Inland Revenue in such situation;
- rules relating to assessment of income.
Q.NO. 6(a) Autumn 2007 A resident person is about to leave the country. Briefly explain the following in the light of Income
Tax Ordinance, 2001:
responsibility of such person in relation to filing of tax return;
powers of the Commissioner Inland Revenue in such situation;
rules relating to assessment of income.
Q.5 (a) March 2006 One of your clients, Mr. Nadir who is the legal representative of his deceased uncle Mr. Ather, has
approached you seeking your views with regard to his legal obligations u/s 87 on the following matters:
(i) Taxation of income earned by Mr. Ather prior to his death and the extent of tax liability of Mr. Nadir in respect of such
income.
(ii) Legality of the tax assessment proceedings pending against Mr. Ather at the time of his death.
Q.NO. 6(b) Autumn 2006 Under what circumstances, an assessment made can be amended or an amended assessment
can be further amended by the CIT?
Q. NQ. 6(c) Autumn 2006 The Income Tax Ordinance, 2001 empowers the Commissioner Inland Revenue to select a
person for audit of his tax records.
You are required to list down the criteria under which the CIT can select a person for tax audit.
Q.NO. 8(a) Spring 2006 What are the time limits prescribed by the ITO 2001, within which the Commissioner Inland
Revenue is required to pass an order to give effect to the decision of Income Tax Appellate Tribunal under the following
circumstances?
(a) The ITAT has set aside the assessment and order of the ITAT was received by the Commissioner Inland Revenue on
November 30, 2004.
(b) The ITAT has deleted the additions made by the assessing officer and the order of the ITAT was received by the
Commissioner Inland Revenue on December 15, 2004.
Q.NO. 4 Autumn 2005 How will tax be recovered if a private limited company fails to pay tax at the time of winding up.
Q.NO. 7 Autumn 2005 Under what conditions is it necessary for an individual to file a return of income.
Q.NO. 8 Spring 2005 What is the status of a complete return of income filed under the Income Tax Ordinance, 2001?
Q.8 March 2004 Describe the requirements of Income Tax Ordinance, 2001 for a person who is about to discontinue his
business
Q.NO. 7(a) Spring 2004 Please discuss the parameters of audit of income tax affairs of any person given in the Income Tax
Ordinance, 2001.
Q.NO. 8 Spring 2004 Describe the requirements of Income Tax Ordinance, 2001for persons who are about to discontinue
his business.
Q.NO. 7 Autumn 2003 Briefly state the time frame for filing the return of income by
(a) a company; (b) Persons other than a company.
Q.NO. 8 Spring 2003 What is meant by term amendment of assessments as laid down in Section 122 of the Income Tax
Ordinance, 2001.
Q.4 Autumn 2001 Your client A bank has received a notice u/s 92 of the Income Tax Ordinance, 1979 for the recovery of
tax from one of their account holder. Please advise your client on its obligations.
Q.5 Autumn 2001 Can the income tax be recovered from a director or shareholder of a a private company whose liability is
limited to the extent of amount paid on shares subscribed by him.
Q.6 Autumn 2001 Describe briefly the provisions relating to re-opening of a completed assessment, including period of
limitation, if any?
Q.NO. 6 March 2000 can assessment once finalized be re-opened or modified? Discuss with basis and reasons.
Q.NO. 8 Sep 2000 an assessing officer has completed the assessment proceedings by making the following additions in the
income of a taxpayer:
- depreciation disallowed as claimed by the taxpayer;
- disallowances of printing and stationery expenses to the extent of 10% of the claim;
- non-acceptance of trading results by estimating sales from Rs. 1 million to Rs. 1.1 million and enhancing G.P rate
from 12% to 15%
The aggrieved taxpayer has approached you and requested to let him know his rights available under the law to protect his
interest. You are required to address him a reply including stating the deadlines within which such legal rights can be
availed.
Q.NO. 6 Sep 1999 what are the powers of the Commissioner Inland Revenue for revision of the assessment order. Also
explain the conditions for revision applications.
Q.NO. 8 Sep 1999 write short note on wealth reconciliation statement.
Q.NO. 2 April 1998 what are the provisions under the Income Tax Ordinance, 1979 for rectification of mistakes.
Q.NO. 2 April 1998 what are the provisions under the Income Tax Ordinance, 1979 for revision of an assessment order by
the CIR.
Q.NO. 6 May 1994 state different provisions under which assessment can be framed.
Q.NO. 7 Spring 1994 what are the various options available to a taxpayer who is not satisfied with the assessment order
framed by the income tax assessing officer.
Chapter
Topic covered
Section Rule
(Part - I for CAF-6 & ICMAP students)
PART I
127 76 Appeal to the Commissioner Inland Revenue (Appeals)
128 Procedure in appeal
129 Decision in appeal
131 77 Appeal to the Appellate Tribunal
132 Disposal of appeals by the Appellate Tribunal
133 78 Reference to High Court
134A 231C Alternative Dispute Resolution
136 Burden of proof
223 Appearance by authorized representative
4.3 The following additional information/ documents are also required to be furnished under Rule-77 of the
ITR, 2002:
(i) The appeal should be filed in triplicate.
(ii) Appeal should be accompanied by a copy of the notice of demand and original copy of the assessment
appealed against.
(iii) A true copy of the form of appeal has been sent by registered post / acknowledgement due/courier
service or delivered to the concerned officer personally.
5. Disposal of appeals by the Appellate Tribunal [Section 132]
The Appellate Tribunal (ATIR):
(1) may before disposing of an appeal call for such particulars as it may require in respect of the matters arising
on the appeal.
(2) shall afford an opportunity of being heard to the parties to the appeal and, in case of default by any of the party
on the date of hearing, the Appellate Tribunal Inland Revenue may, if it deems fit, dismiss the appeal in
default, or may proceed ex parte to decide the appeal on the basis of the available record.
(3) shall decide the appeal within 6 months of its filing;
(4) Where the appeal relates to an assessment order, the Appellate Tribunal Inland Revenue may make an order
to -
(a) affirm, modify or annul the assessment order; or
(b) remand the case to the Commissioner Inland Revenue or the Commissioner Inland Revenue(Appeals).
(5) shall not increase the amount of any assessment or penalty or decrease the amount of any refund unless the
taxpayer has been given a reasonable opportunity of being heard.
(6) The Appellate Tribunal Inland Revenue shall communicate its order to the taxpayer and the Commissioner
Inland Revenue that shall be final on point of fact.
6. Reference to High Court [Section 133 and Rule 78]
(1) Within 90 days of the communication of the order of the Appellate Tribunal Inland Revenue, the aggrieved
person or the Commissioner Inland Revenue may prefer an application, in the prescribed form u/r 78 along
with a statement of the case, to the High Court, stating any question of law arising out of such order.
(2) The statement to the High Court shall set out the facts, the determination of the Appellate Tribunal Inland
Revenue and the question of law which arises out of its order.
(3) Where on an application made the High Court is satisfied that a question of law arises out of the order it may
proceed to hear the case.
(4) A reference to the High Court under this section shall be heard by a Bench of not less than two judges of the
High Court.
(5) The High Court upon hearing a reference shall decide the question of law raised by the reference and pass
judgment thereon specifying the grounds on which such judgment is based and the Appellate Tribunal Inland
Revenue order shall stand modified accordingly. The Court shall send a copy of the judgment under the seal
of the Court to the Appellate Tribunal Inland Revenue.
(6) Even where a reference has been made to the High Court, the tax shall be payable in accordance with the
order of the Appellate Tribunal Inland Revenue:
As a result of High Court judgement if the amount of tax is refundable to the taxpayer, the High Court may on
application by the Commissioner Inland Revenue within 30 days of the receipt of such judgment that he wants
to prefer appeal to the Supreme Court may postpone the refund until the disposal of appeal by the Supreme
Court.
(7) An application to High Court by a person other than the Commissioner Inland Revenue shall be
accompanied by a fee of Rs.100.
(8) Where recovery of tax has been stayed by the High Court by an order, such order shall cease to have effect
on the expiration of a period of 6 months following the day on which it was made unless the appeal is decided
or such order is withdrawn by the High Court earlier.
Name of Authority
Appellate whose order Limitation
Decision in Limitation period
Authority may be Filing fee period for Stay Power
appeal for decision
appealed filing appeal
against
1. CIR Rs.1,000 for Within 30 days (a) Direct Within 120 days CIR(A) may stay
Commissioner companies from the date relief from the date of the recovery of
Inland and Rs.200 of receipt of filing of appeal or tax not exceeding
Revenue in other Commissioner such extended time 30 days in
(Appeals) cases Inland (b) Specific as deem fit by the aggregate.
Revenue order direction
Commissioner
Inland after affording
Revenue(Appeals) opportunity of
being heard to
the
Commissioner
against whose
order appeal has
been made, may
stay the
recovery of such
tax for a further
period of thirty
days, provided
that the order on
appeal shall
passed within
the said period
of thirty days.
2. Appellate CIR (Appeals) Rs.2,000 but Within 60 days (a) Direct Within 6 months ATIR may stay the
Tribunal Inland not required from the date relief from the date of its recovery of tax not
Revenue from the of receipt of filing exceeding 180 days
(ATIR) income tax Commissioner in aggregate.
department Inland (b) Specific
direction
Revenue
(Appeals)
order (c) Set aside
3. High Court ATIR Rs.100 but Within 90 days (a) Direct HC on the expiry of
(HC) not required from the date relief 6 months following
from the of receipt of the day on which it
ATIR order Not applicable
income tax was made unless
department (b) Specific the appeal is
direction
decided or such
order is withdrawn
(c) Set aside by the High Court
earlier.
4. Supreme High Court
Court of
Pakistan
Note: Although
appeal may be
filed by the
taxpayer or by
the tax
department
however the
same is not a
part of ITO,
2001 as the
same is filed
under the
Constitution of
Pakistan.
Any person, against whom an order has been made may, within 30 days of service of notice of the order,
appeal to the Board to have the order cancelled. The Board may admit an appeal after the expiration of the
said period if satisfied that the appellant was prevented by sufficient cause from lodging the appeal within the
period.
No order made, shall take effect until thirty days after notice of the order is served on the person or, where an
appeal has been lodged until the disposal of the appeal.
"Accountant" means a chartered accountant, a cost and management accountant within the meaning of the
respective Acts or a member of any association of accountants recognised for this purposes by the Board; and
"income tax practitioner" means a person who is registered as such by the board, for this possesses having
such qualifications or who has retired after putting in satisfactory service in the Income Tax Department for a
period of not less than ten years in a post or posts not below that of Income Tax Officer.
(c) 40 days
(d) 60 days
Q.9 The memorandum of appeal to Appellate Tribunal Inland Revenue must be in triplicate and shall be accompanied
by________.
(a) Order against which the appeal is being made
(b) Order of the Commissioner Inland Revenue
(c) Both a and b
(d) Order of the Board, if any
Q.10 Income tax stay granted by Appellate Tribunal against the recovery of tax shall_____________.
(a) Not more than 6 months in aggregate
(b) Not more than 3 months
(c) Not less than 6 months in aggregate
(d) None of above
Q.11 On the basis of point of law the aggrieved party or the taxpayer has an option if not satisfied with the decision of the
tribunal to refer the case to______________.
(a) Supreme Court
(b) High Court
(c) Higher appellate tribunal
(d) None of the above
Q.12 The appeal before the High Court against the order of Appellate Tribunal may be filed by the taxpayer or the tax
department within________ of the communication of such orders of the Appellate Tribunal.
(a) 90 days
(b) 30 days
(c) 60 days
(d) 15 days
Q.13 The fee for referring the case to the High Court is_______________.
(a) Rs.500
(b) Rs.200
(c) Rs. 100
(d) Rs.1,000
Q.14 The Commissioner Inland Revenue can file an appeal against the order of High Court to Supreme Court under the
_________.
(a) Income tax Ordinance, 2001
(b) Companies Ordinance, 1984
(c) Wealth tax Act
(d) Constitution of Pakistan
Q.15 The following shall not be appointed as the authorized representative by the taxpayer to appear before any tax
authority:
(a) A relative of taxpayer
(b) A person who has retired from the service in the Income Tax Department, for the period of one year from the
date of retirement.
(c) Any legal practitioner who is entitled to practice in any Civil Court in Pakistan.
(d) Both a and b
Q.16 The appeal against the order of the Commissioner Inland Revenue in case of misconduct by the authorized
representative can be filed within______________ from the service of order.
(a) 30 days
(b) 15 days
(c) 60 days
(d) None of the above
Q.17. Revision is the reconsideration of the case by the_____________.
(a) higher administrative authority
(b) not by the same authority
(c) same authority
(d) both a or c
Q.18. Revision can be initiated by the authority on___________.
(a) its own motion
(b) application made by taxpayer
(c) both a or b
(d) Appellate Tribunal Inland Revenue
Q.19. Revision is different from_______________.
(a) provisional assessment
(b) best judgement assessment
(c) amendment of assessment
(d) both a and b
Q.20. The Board cannot interfere with the discretion of the ___________ in the exercise of his appellate function.
(a) Commissioner Inland Revenue (Appeals)
(b) Appellate Tribunal Inland Revenue
(c) Commissioner Inland Revenue
(d) both a and b
Q.21. The Commissioner Inland Revenue has the authority to grant extension in the filing period of ______, if necessary.
(a) income tax return
(b) wealth statement
(c) statement of deduction of tax
(d) all of above
Q.22. The Appellate Tribunal Inland Revenue has _______ types of members.
(a) five
(b) two
(c) four
(d) ten
Q.23. The taxpayer or the Commissioner Inland Revenue if not satisfied with the decision of the Commissioner Inland
Revenue (Appeals), can file an appeal to the ________________.
(a) Chief Commissioner Inland Revenue
(b) Appellate Tribunal Inland Revenue
(c) Supreme Court of Pakistan
(d) High court
Q.24. The term Accountant for authorised person means a _________.
(a) chartered accountant
(b) cost and management accountant
(c) member of any association of accountants recognized by board
ANSWERS
1 (b) 2 (c) 3 (b) 4 (d) 5 (b)
6 (b) 7 (a) 8 (d) 9 (c) 10 (a)
11 (b) 12 (a) 13 (c) 14 (d) 15 (b)
16 (a) 17 (d) 18 (c) 19 (d) 20 (d)
21 (d) 22 (b) 23 (b) 24 (d) 25 (c)
26 (a) 27 (b) 28 (a) 29 (b) 30 (d)
31 (c) 32 (d) 33 (d) 34 (c) 35 (a)
36 (d) 37 (b)
Name of Appellate Authority whose order may Limitation period Decision in Limitation period for
Filing fee
Authority be appealed against for filing appeal appeal decision
Q.NO. 2 March 1999 state remedies available to a taxpayer at different stages against the assessment order.
Q.NO. 6 May 1997 write short note on Appellate authorities.
Q.NO. 6 April 1995 what are the appeal forums available to an aggrieved taxpayer.
Q.NO. 6 April 1995 what are the conditions to be fulfilled before filing of income tax appeals.
Chapter
Topic covered
Section
(Part - I for CA & ICMAP students)
Part - I (For CAF-6 and ICMAP Students)
Federal Board of Revenue with table and chart (FBR)
Part - II (For CA Mod F and ICMAP Students)
Chief Commissioner Inland Revenue
Commissioner Inland Revenue
Officer of Inland Revenue
Appellate Tribunal Inland Revenue
206 & 206A Circulars and Advance ruling
209 Jurisdiction of income tax authorities
210 Delegation
211 Power of function exercised
212 Authority of approval
213 Guidance to income tax authorities
214 Income tax authorities to follow order of the Board
214A Condonation of time limit
214B Power of the Board to call for records
214C Selection for audit by the Board
214D Automatic selection for audit
215 Furnishing of returns, documents etc
216 Disclosure of information by a public servant
217 Forms and notices, authentication of documents
218 Service of notice and other documents
219 Tax or refund to be computed to nearest Rupee
220 Receipts for amounts paid
221 Rectification of mistakes
222 Appointment of expert
224 Proceedings under the Ordinance to be judicial proceedings
225 Proceedings against companies under liquidation
226 Computation of limitation period
227 Bar of suits in civil courts
227A Reward to Inland Revenue officers and officials
228, 229 & 230A The Directorate General of Internal Audit, Training and Research & withholding taxes
230 Directorate General (Intelligence & Investigation), Inland Revenue
230B Directorate-General of Law
230C Directorate-General of Research and Development
MCQS with solutions
CA MOD C past papers theoretical questions
Director Generals
Director General (Information Management System) Director General (Human Resource)
Director General (Intelligence and Investigation) Director General (Training and research)
Directorate-General of Law Directorate-General of Research and Development
The Chairman shall appoint the Secretary of the Board who shall act under his direction and shall deal with all
matters connected with the meetings of the Board.
In case the appointment of the Chairman is delayed for any reason, the FG may appoint or designate most
senior member as acting Chairman.
The Board shall meet at least once in two months but a special meeting of the Board may be convened by the
Chairman at any time or on the request of any member.
The Board may constitute one or more committees to consist of members that are appointed by the Board and
they shall perform such functions as are entrusted to them by the Board.
The FG may delegate any of its powers under this FBR Act, 2007 to the Chairman on such terms and
conditions as the FG may determine.
All the income tax authorities except Board shall be subordinate to the Board
1.2 Powers and functions of the Board:
The Board shall exercise powers and perform all such functions that include the following, namely to:-
(a) implement the tax administration reforms;
(b) promote voluntary tax compliance and to make the Board a service oriented organization and to
implement comprehensive policies and programs for the education and facilitation of taxpayers,
stakeholders and employees, etc., in order to develop the Board into a modern efficient authority;
(c) adopt modern effective tax administration methods, information technology systems and policies in
order to consolidate assessments, improve processes, organize registration of tax payers, widen the tax
base, and make departmental remedies more efficient including enforcement of, or reduction or
remission in, duty, penalty or tax, in accordance with the relevant law for the time being in force;
(d) improve the productivity through a comprehensive and effective human resource strategy;
(e) identify and select through Internal Job Posting process the employees for designated jobs;
(f) grant additional allowances or any other incentives and rewards to the employees and members of the
Board;
(g) take appropriate measures including internal controls to combat corruption within the organizations
under the Board and provide checks to ensure the integrity of employees that is verified periodically
through applicable procedure which shall be made one of the criterion for promotion and incentives;
(h) re-designate existing posts within its jurisdiction, prepare job description of any post and create posts as
per rules;
(i) direct or advise, where necessary, investigation or inquiry into suspected duty tax evasion, tax and
commercial fraud, money-laundering, financial crimes cases and to coordinate with the relevant law
enforcement agencies;
(j) introduce and maintain a system of accountability of performance, competence and conduct of the
employees.
(k) implement the provisions of all the fiscal laws for the time being in force and to exercise all powers
provided under the provisions of the fiscal laws and to take any action, make policy, issue rules or
guidelines for the purpose to make the implementation of the fiscal laws clearer, transparent, effective
and convenient;
(l) implement international obligations pursuant to a treaty, resolution or any international commitment;
(m) establish a foundation for the welfare of the present and retired employees and their families, and to
create, establish, organize, assist in the social and cultural facilities;
(n) create a surplus pool of employees as and when required;
(o) make regulations, policies, programs, strategies in order to carry out the purposes of this Act;
(p) engage any person or entity on contract basis to carry out assignments or for the consultancy in
accordance with the rules of the Federal Government;
(q) regulate and enter into any agreement, contract, understanding, with any international organization or
institution or donor agency or counterpart entity with approval of the FG;
(r) create field formations of Board for greater efficiency in implementation of fiscal laws and refer to them
with appropriate titles;
(s) set up mechanism and processes that facilitate removal of grievances and complaints of the tax payers;
(t) carry out any other function, activity and acts, etc., as decided and determined by the Board;
(u) enable electronic communication in respect of all taxation matters such as e-filing, e-payments, e-
notice, e-notification, digital imaging, protocols or agreements as may be prescribed; and
(v) perform any other functions entrusted from time to time by the FG.
The Board may, where appropriate, issue statutory rules and orders (SROs), orders, circulars and instructions
for the enforcement of any of the provisions of fiscal law and the provision of this Act.
The Board shall perform all other functions assigned by the FG for the purpose of implementation of this Act.
2. Chief Commissioner Inland Revenue
The Chief CIR is appointed u/s 208 of the ITO, 2001. According to section 207(3A) CIR, Additional CIR, Deputy CIR,
Additional CIR, Revenue Officers, Inland Revenue Audit Officer, Superintendents Inland Revenue, Auditors Inland
Revenue and Inspectors Inland Revenue, shall be subordinate to the Chief CIR.
2.1 Powers and functions of Chief Commissioner Inland Revenue are discussed below:
The Chief CIR shall perform all or such functions and exercise all or such powers under this Ordinance as may
be assigned to him in respect of such persons or classes of persons or such areas as the Board may direct.
[U/s 209(1)]
Chief CIR may, by an order, confer upon or assign to any Officer Inland Revenue all or any of the powers and
functions conferred upon or assigned to the CIR, under this Ordinance, in respect of any person or persons or
classes of persons or areas as may be specified in the order. [U/s 209(2)]
Where a question arises as to whether a CIR has jurisdiction over a person, the question shall be decided by
the concerned Chief CIR. [U/s 209(6)]
2.2 Commissioner Inland Revenue Commissioner Inland Revenue is appointed u/s 208 of the ITO, 2001.
2.3 Powers and functions of CIR: Commissioner Inland Revenue has following powers and functions:
a. He has the power to approve the gratuity fund and superannuation fund. [U/s 2(3)]
b. He has the power to recognize the provident fund. [U/s 2(48]
c. He has the power to approve a non-profit organization. [U/s 2(36)]
d. He may allow a person to charge tax on income from salary on accrual basis and he may also charge income
under head salary on accrual basis if he is satisfied that payment of tax was deferred for tax avoidance. [U/s
12(7) and 110]
e. He may allow a person to change his method of accounting or method of valuation of stock. [U/s 32(4) and
35(6)]
f. He may allow a person to change his tax year. [U/s 74(3)]
g. He shall determine the fair market value of any property or rent, asset, service, benefit or perquisite if it is not
ordinarily ascertainable. [U/s 68(3)]
h. He may require a person to furnish a return of income for a period of less than 12 months. [U/s 114(3)]
i. He may require a person to file income tax return, statement of final taxation and wealth statement if the
person has failed to file these statements. [U/s 114, 115 and 116]
j. He may grant extension of time to furnish the return, certificate of statement, as the case may be. [U/s 119(3)]
k. He may conduct audit of the income tax affairs of a person u/s 177 and all the provisions of that section shall
apply accordingly. [U/s 120(1A)]
l. Where the return of income furnished is not complete, the CIR shall issue a notice to the taxpayer informing
him of the deficiencies and directing him to provide such information, particulars, statement or documents. [U/s
120(3)]
m. He may amend an assessment by making such alterations or additions as the CIR considers necessary. [U/s
122(1)]
n. The CIR may suo moto call for the record of any proceeding under this Ordinance or under the repealed
Ordinance in which an order has been passed by any Officer of Inland Revenue other than the CIR (Appeals).
[U/s 122A(1)]
o. CIR can make provisional assessment in certain cases [U/s 122C and 123]
p. He may grant the taxpayer an extension of time for payment of tax due under sub-section (2) or allow the
taxpayer to pay such tax in instalments. [U/s 137(4)]
q. CIR can recover the tax out of property and through arrest of taxpayer and the CIR shall have the same
powers as a Civil Court has under the Code of Civil Procedure, l908 for the purposes of the recovery [U/s 137]
r. He can recover tax from persons holding money on behalf of the taxpayer. [U/s 140]
s. He may allow any person to make payment without deduction of tax. [U/s 153(4)]
t. He shall, upon application in writing by the person, issue the person with an exemption or lower rate certificate.
[U/s 159(1)]
u. He can recover the tax from person from whom tax was not collected or deducted [U/s 162(1)]
v. In the event of the liquidation or bankruptcy of a person who has collected or deducted tax from a payment the
CIR shall have a first claim for that amount before any distribution of property is made. [U/s 166(2)]
w. The CIR may require any person to install and use an Electronic Tax Register. [U/s 174(5)]
x. The CIR has power to enter and search premises of any taxpayer in order to enforce any provision of the
ordinance. He may also authorize any valuer or expert to enter any premises and perform any task assigned to
him by the CIR. [U/s 175(1) and (2)]
y. The CIR may call for any record or documents including books of accounts maintained under this Ordinance or
any other law for the time being in force for conducting audit. [U/s 177(1)]
3. Officer of Inland Revenue
OIR means any Additional CIR, Deputy CIR, Assistant CIR, Inland Revenue Officer, Inland Revenue Audit Officer or
any other officer howsoever designated or appointed by the Board for the purposes of this Ordinance.
The CIR may, by an order in writing, delegate to any OIR, subordinate to the CIR all or any of the powers or functions
conferred upon or assigned to the CIR under this Ordinance, other than following powers:
(a) Power of delegation
(b) Powers of amendment of assessment contained in section 122(5A) to an OIR below the rank of Additional CIR
[U/s 210]
The exercise of a power or the performance of a function, of the CIR by an OIR shall not prevent the exercise of the
power, or the performance of the function, by the CIR. [U/s 211(2)]
4. Appellate tribunal inland revenue:
Appellate Tribunal Inland Revenue means the Appellate Tribunal Inland Revenue established u/s 130. The Appellate
Tribunal shall consist of a chairperson and such other judicial and accountant members as are appointed by the
Federal Government having regard to the needs of the Tribunal.
4.1 Appointment of Judicial Member:
A person may be appointed as a judicial member of the Appellate Tribunal if the person-
(a) has exercised the powers of a District Judge and is qualified to be a Judge of a High Court;
(b) is or has been an advocate of a High Court and is qualified to be a Judge of the High Court; or
(c) is an officer of Inland Revenue Service in BS-20 or above and is a law Graduate.
4.2 Appointment of Accountant Member:
A person may be appointed as an accountant member of an appellate tribunal if,-
(i) he is an officer of Inland Revenue Service equivalent to the rank of Regional Commissioner;
(ii) a CIR or CIR (Appeals) having at least three years experience as CIR or Collector; or
(iii) a person who has, for a period of not less than ten years, practiced professionally as a chartered accountant
within the meaning of Chartered Accountants Ordinance, 1961.
4.3 Appointment of chairperson:
The Federal Government shall appoint a member of the Appellate Tribunal as Chairperson of the Tribunal and except
in the special circumstances, the person appointed should be a judicial member.
Procedure of appellate tribunal (Functions)
i. The powers and functions of the Appellate Tribunal shall be exercised and discharged by Benches constituted
from members of the Tribunal by the Chairperson of the Tribunal.
ii. A bench shall consist of not less than two members of the Appellate Tribunal and shall be constituted so as to
contain an equal number of judicial and accountant members, or so that the number of members of one class
does not exceed the number of members of the other class by more than one. However, the FG may direct
that all or any of the powers of the Appellate Tribunal shall be exercised by any one member; or more
members than one, jointly or severally.
iii. The Chairman may constitute as many benches consisting of a single member as he may deem necessary to
hear such cases or class of cases as the FG may by order in writing, specify.
iv. The Chairman or any other member of the Appellate Tribunal authorized, in this behalf by the Chairman may,
sitting singly, dispose of any case where the amount of tax or penalty involved does not exceed Rs.5 million.
v. If the members of a Bench differ in opinion on any point, the point shall be decided according to the
opinion of the majority.
vi. If the members of a Bench are equally divided on a point, they shall state the point on which they differ and the
case shall be referred by the Chairperson for hearing on that point by one or more other members of the
Appellate Tribunal, and the point shall be decided according to the opinion of the majority of the members of
the Tribunal who have heard the case including those who first heard it.
vii. If there are an equal number of members of the Appellate Tribunal, the FG may appoint an additional member
for the purpose of deciding the case on which there is a difference of opinion.
viii. Subject to this Ordinance, the Appellate Tribunal shall have the power to regulate its own procedure, and the
procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions including the
places at which the Benches shall hold their sittings.
5. Circulars [u/s 206]
(1) To achieve consistency in the administration of this Ordinance and to provide guidance to taxpayers and
officers of the Board, the Board may issue Circulars setting out the Board's interpretation of this Ordinance.
(2) A circular issued by the Board shall be binding on all Income Tax Authorities and other persons employed in
the execution of the Ordinance, under the control of the said Board other than CIR (Appeals).
(3) A Circular shall not be binding on a taxpayer.
6. Advance ruling [u/s 206A]
(1) The Board may, on application in writing by a non-resident taxpayer, issue to the taxpayer an advance ruling
setting out the Commissioner's position regarding the application of this Ordinance to a transaction proposed
or entered into by the taxpayer.
(2) Where the taxpayer has made a full and true disclosure of the nature of all aspects of the transaction relevant
to the ruling and the transaction has proceeded in all material respects as described in the taxpayer's
application for the ruling, the ruling is binding on the CIR with respect to the application to the transaction of
the law as it stood at the time the ruling was issued.
(3) Where there is any inconsistency between a circular and an advance ruling, priority shall be given to the terms
of the advance ruling.
Provided that this section shall not apply to a non-resident tax payer having a permanent establishment in Pakistan.
7. Jurisdiction of income tax authorities [U/s 209]
(1) The Chief Commissioners, the CIR and the CIR (Appeals) shall perform all or such functions and powers as
may assigned to them in respect of such persons or classes of persons or such areas as the Board may direct.
Provided that the Board or the Chief Commissioner, as the case may be, may transfer jurisdiction in respect of
cases or persons from one CIR to another.
(2) The Board or the Chief Commissioner may, delegate all or any of the powers by order in writing to any OIR
such powers and functions assigned to the CIR.
(3) An order as stated above shall be made only with the approval of Board by the Chief Commissioner and such
OIR shall be treated to be the CIR.
(4) The CIR shall have jurisdiction,-
(a) where the person's place of business is within such area, or where the business is carried on in more
than one place, the person's principal place of business is within such area; or
(b) in respect of any other person, if the person resides in such area:
Explanation.- The expression "place of business" as used above, means,-
(a) in the case of listed or unlisted public limited company, the place where the registered office is situated;
(b) in the case of other companies,-
(i) if the company is primarily engaged in manufacture or processing, the place where the factory is
situated;
(ii) if the company is primarily engaged in business other than manufacture or processing, the place where
main business activities are actually carried on.
(5) Where a question arises as to whether a CIR has jurisdiction over a person, the question shall be decided by
the Chief CIR Chief Commissioners concerned and, if they are not in agreement, by the Board.
(6) No person shall call into question the jurisdiction of a CIR after that person has furnished a return of income to
the CIR or, where the person has not furnished a return of income, after the time allowed by any notice served
on the person for furnishing such return has expired.
(7) The power shall include the power to transfer jurisdiction from one income tax authority to another.
(8) Where, in respect of any proceedings, an income tax authority is succeeded by another, the succeeding
authority may continue the proceedings from the stage it was left by that authority's predecessor.
8. Delegation [U/s 210]
(1) The CIR may by an order in writing, delegate to any OIR subordinate to him (falling in the jurisdiction of CIR)
all or any of the powers or functions assigned to the CIR, other than the power of delegation.
(2) The CIR shall not delegate the powers of amendment of assessment to an officer of Inland Revenue below the
rank of Additional CIR.
(3) The CIR may, by an order in writing, delegate to a special audit panel appointed under section 177(11),
or to a firm of chartered accountants or a firm of Cost and Management Accountants appointed by the
Board or the CIR to conduct an audit of person U/S 177, all or any of the powers or functions to conduct
an audit under this Ordinance.
(5) The CIR shall have the power to cancel, modify, alter or amend an order issued above.
9. Power or function exercised [U/s 211]
(1) Where, by virtue of an order an OIR or by a special audit panel appointed under section 177(11) exercises
a power or performs a function, such power or function shall be treated as having been exercised or performed
by the CIR.
(2) The exercise of a power, or the performance of a function, of the CIR by an OIR shall not prevent the exercise
of the power, or the performance of the function, by the CIR.
(3) The Board or with the approval of the Board an authority appointed under this Ordinance, shall be competent
to exercise all powers conferred upon any authority subordinate to it.
10. Authority of approval [U/s 212]
The Board may, by a general or special order, authorize the Regional Commissioner or the CIR to grant approval in
any case where such approval is required from the Board under any provision of this Ordinance.
11. Guidance to income tax authorities [U/s 213]
In the course of any proceedings under this Ordinance, the CIR or any taxation officer may be assisted, guided or
instructed by any income tax authority to whom he is subordinate or any other person authorized in this behalf by the
Board.
12. Income tax authorities to follow orders of the Board [U/s 214]
All income tax authorities and other persons employed in the execution of this Ordinance shall observe and follow the
orders, instructions and directions issued by the Board except that the Board that will interfere with the discretion of
the CIR (Appeals) in the exercise of his appellate function.
13. Condonation of time limit [U/s 214A]
Where any time or period has been specified within which any application is to be made or any act or thing is to be
done, the Board may itself or may empower any CIR or Chief Commissioner, in any case or class of cases, permit
such further time for filing of an application or the thing to be done.
Explanation,- For the purpose of this section, the expression any act or thing is to be done includes any act or
thing to be done by the taxpayer or by the authorities specified in section 207
14. Power of the Board to call for records [U/s 214B]
(1) The Board may, of its own motion, call for and examine the record of any departmental proceedings for the
purpose of satisfying itself as to the legality or propriety of any order passed therein and may pass such order
as it may think fit:
No order imposing or enhancing any tax or penalty than the originally levied shall be passed unless the person
affected by such order has been given an opportunity of being heard.
(2) No proceeding as above shall be initiated in a case where an appeal is pending or on the expiry of three years
from the date of original decision or order.
(1A) Notwithstanding anything contained in this Ordinance or any other law, for the time being in force, the Board
shall keep the parameters confidential; and
(2) Audit of Income Tax affairs of persons selected as above shall be conducted as per procedure of total audit
u/s 177 except that the CIR may also call for record for total audit.
(3) For the removal of doubt it is hereby declared that Board shall be deemed always to have had the power to
select any persons or classes of persons for audit of Income Tax affairs.
Explanation. For the removal of doubt, it is declared that the powers of the CIR under section 177 are independent
of the powers of the Board under this section and nothing contained in this section restricts the powers of the CIR to
call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under
section 177.
16. Automatic selection for audit [U/s 214D]
(1) Every person shall be automatically selected for audit of income tax affairs for a tax year if.
a. the return is not filed within the date it is required to be filed as specified in section 118 or as the
case may be not filed within the time extended by the board u/s 214A or further extended for a
period not exceeding 30 days by the CIR U/S 119; or
b. the tax payable as per return has not been paid;
(2) Audit of income tax affairs of persons automatically selected under sub section (1) shall be conducted as per
procedure given in section 177 and all the provisions of this Ordinance shall apply accordingly.
Provided that audit proceedings shall only be initiated after the expiry of 90 days from the date as mentioned in
sub section (1);
(3) Subject to section 182, 205 and 214C, sub section (1) shall not apply if the person files the return within 90
days from the date as mentioned in sub section (1) and
(a) 25% higher tax than the previous tax year tax liability has been paid or
- 2% tax on turnover or tax payable under Part I of the First Schedule, whichever is higher has been paid
along-with a return by a person who in the preceding year has either not filed with the return or had declared
income below taxable limit. Where return was filed for immediately preceding tax year, turnover declared for
the tax year should not be less than the turnover declared in immediately preceding tax year.
(4) The provisions of sections 177 and 214C for a tax year shall not apply to a person registered as retailer
under rule (4) or rule (6) of the ST Special Procedure Rules, 2007 subject to the conditions that
(a) name of the person registered under rule (4) of the ST Special Procedure Rules, 2007
appears throughout the tax year in the sales tax ATL;
(5) Sub section (4) shall have effect from the date appointed by the Board through notification in official
gazette.
17. Furnishing of returns, documents etc [U/s 215]
Where, by virtue of an order of delegation of power by the CIR to any OIR the function and power to receive an
application, or to call for and receive, any returns of income, certificates, documents, accounts and statements from
any person or persons or class of persons, the filer on furnishing of aforesaid documents, shall be treated as having
been furnished to the CIR.
18. Disclosure of information by a public servant [U/s 216]
(1) All particulars contained in -
(a) any statement made, return furnished, or accounts or documents produced.
(b) any evidence given, or affidavit or deposition made, in the course of any proceedings under this
Ordinance, other than proceedings of offences and prosecutions; or
(c) any record of any assessment proceedings or any proceeding relating to the recovery of a demand,
shall be confidential and no public servant save as provided in this Ordinance may disclose any such
particulars.
(2) Notwithstanding anything contained in the Qanun-e-Shahadat, 1984, or any other law for the time being in
force, no' court or other authority shall be, save as provided in this Ordinance, entitled to require any public
servant to produce before it any return, accounts, or documents contained in, or forming a part of the records
relating to any proceedings under this Ordinance, or any records of the Income Tax Department generally, or
any part thereof, or to give evidence before it in respect thereof.
(3) Nothing contained in sub-section (1) shall preclude the disclosure of any such particulars-
(a) to any person acting in the execution of this Ordinance, where it is necessary to disclose the same to
him for the purposes of this Ordinance;
(b) to any person authorized by the CIR, in this behalf, where it is necessary to disclose the same to such
person for the purposes of processing of data and preparation of computer printouts relating to returns
of income or calculation of tax;
(c) where the disclosure is occasioned by the lawful employment under this Ordinance of any process for
the service of any notice or the recovery of any demand;
(d) to the Auditor-General of Pakistan for the purpose of enabling the Auditor-General to discharge his
functions under the Constitution;
(e) to any officer appointed by the Auditor-General of Pakistan or the CIR to audit income tax receipts or
refunds;
(f) to any officer of the FG or a Provincial Government authorized by such Government in this behalf as
may be necessary for the purpose of enabling that Government to levy or realize any tax imposed by it;
(g) to any authority exercising powers under the Federal Excise Act, 2005, the Sales Tax Act. 1990, the
Wealth Tax Act, 1963 or the Customs Act, 1969, as may be necessary for the purpose of enabling its
duty to exercise such powers;
(h) occasioned by the lawful exercise by a public servant of powers under the Stamp Act, 1899 to impound
an insufficiently stamped document;
(i) to the SBP to enable it to compile financial statistics of international investment and balance of
payment;
(j) as may be required by any order made u/s 19(2) of the Foreign Exchange Regulation Act. 1947 or for
the purposes of any prosecution for an offence u/s 23 of that Act;
(k) to the SECP or the Monopolies Control Authority for the purposes of the Securities and Exchange
Ordinance, 1969, the Monopolies and Restrictive Trade Practices Ordinance, 1970, the Companies
Ordinance, 1984 or the SECP Act, 1997, as the case may be;
(l) relevant to any inquiry into a charge of misconduct in connection with income tax proceedings against a
legal practitioner or an accountant;
(m) to a Civil Court in any suit or proceeding to which the FG or any income tax authority is a party which
relates to any matter arising out of any proceedings under this Ordinance;
(n) for the purposes of a prosecution for any offence under the Pakistan Penal Code, 1860 in respect of
any such statement, returns, accounts, documents, evidence, affidavit or deposition, or for the purposes
of a prosecution for any offence under this Ordinance;
(o) relevant to any inquiry into the conduct of an official of the Income Tax Department to any person or
officer appointed to hold such inquiry, or to a Public Service Commission, when exercising its functions
in relation to any matter arising out of such inquiry;
(p) as may be required by any officer or department of the FG or of a Provincial Government for the
purpose of investigation into the conduct and affairs of any public servant, or to a Court in connection
with any prosecution of the public servant arising out of any such investigation;
(q) to an authorized officer of the government of any country outside Pakistan with which the Government
has entered into an agreement for the avoidance of double taxation and the prevention of fiscal evasion;
or
(r) to the Federal Tax Ombudsman.
(4) Nothing in this section shall apply to the production by a public servant before a Court of any document,
declaration, or affidavit filed or the giving of evidence by a public servant in respect thereof.
(5) Nothing contained as above shall prevent the CIR from publishing, with the prior approval of the FG, any such
particulars as are referred therein.
(6) Nothing contained in sub-section (1) shall prevent the FG from publishing particulars and the amount of tax
paid by a holder of a public office as defined in the National Accountability Bureau Ordinance, 1999.
(7) Any person to whom any information is communicated and any person employee under the first-mentioned
person's control, shall be, in respect of that information, subject to the same rights, privileges, obligations, and
liabilities as if the person were a public servant.
(8) No prosecution may be instituted except with the previous sanction of the Board.
19. Forms and notices, authentication of documents [U/s 217]
Forms, notices, returns, statement, tables and other documents required under this Ordinance may be in such form
as determined by the Board for the efficient administration of this Ordinance and publication of such documents in the
official Gazette shall not be required-
The CIR shall make the documents available to the public in the manner prescribed.
A notice or other document issued, served or given by the CIR under this Ordinance shall be sufficiently
authenticated if the name or title of the CIR, or authorized OIR, is printed, stamped or written on the notice or
document or if it is computer generated and bears the authentication in the manner prescribed by the Board.
20. Service of notices and other documents [U/s 218]
(1) Any notice, order or requisition required to be served on a resident individual for the purposes of this
Ordinance shall be treated as properly served on the individual if -
(a) personally served on the individual or, in the case of an individual under a legal disability or a non-
resident individual, the representative of the individual,
(b) sent by registered post or courier service to the place specified in clause (b) of sub-section (2) or to the
individual's usual or last known address in Pakistan; or
(c) served on the individual in the manner prescribed for service of a summons under the Code of Civil
Procedure, 1908.
(2) The aforesaid provisions shall apply as it is in case of representative of a non resident individual in Pakistan.
(3) Where an AOP is dissolved, any notice, order or requisition required to be served under this Ordinance on the
association may be served on any person who was the principal officer or a member of the association
immediately before such dissolution.
(4) Where business has discontinued, any notice, order or requisition required to be served under this Ordinance
on the person discontinuing the business may be served on the person personally or on any individual who
was the person's representative at the time of discontinuance.
(5) The validity of any notice issued as above shall not be called into question after the return to which the notice
relates has been furnished or the notice has been otherwise complied with.
21. Tax or refund to be computed to the nearest Rupee [U/s 219]
In the determination of any amount of tax or refund payable, fractions of a rupee less than fifty paisa shall be
disregarded and fractions of a rupee equal to or exceeding fifty paisa shall be treated as one rupee.
22. Receipts for amounts paid [U/s 220]
The CIR shall give a receipt for any tax or other amount paid or recovered under this Ordinance.
23. Rectification of mistakes [U/s 221]
Already covered in chapter of Assessment.
24. Appointment of expert [U/s 222]
The CIR may appoint any expert as the CIR considers necessary for the purposes of this Ordinance, including for the
purposes of audit or valuation.
25. Proceedings under the Ordinance to be judicial proceedings [U/s 224]
Any proceedings under this Ordinance before the CIR, CIR (Appeals) or Appellate Tribunal shall be treated as judicial
proceedings.
26. Proceedings against companies under liquidation [U/s 225]
Notwithstanding anything contained in section 316 of the Companies Ordinance, 1984, leave of the Court shall not be
required for continuing with or commencing any proceeding under this Ordinance against a company in respect of
which a winding up order has been made or Provisional Liquidator appointed.
27. Computation of limitation period [U/s 226]
In computing the period of limitation, there shall be excluded -
(a) in the case of an appeal or an application under this Ordinance, the day on which the order complained of
was served; and
(b) in the case of an assessment or other proceeding.
(i) the period, if any, for which such proceedings were stayed by any Court, Appellate Tribunal or any other
authority; or
(ii) the period, if any, for which any proceeding for the tax year remained pending before any Court,
Appellate Tribunal or any other authority.
28. Bar of suits in Civil Courts [U/s 227]
No suit or other legal proceeding shall be brought in any Civil Court against any order made under this Ordinance,
and no prosecution, suit or other proceedings shall be made against any person for anything which is in good faith
done or intended to be done under this Ordinance or any rules or orders made there under.
Notwithstanding anything contained in any other law for the time being in force, no investigation or inquiry shall be
undertaken or initiated by any governmental agency against any officer or official for anything done in his official
capacity under this Ordinance, rules, instructions or direction made or issued there-under without the prior approval of
the Board-
29. Reward to Inland Revenue officers and officials [227A]
In cases involving concealment or evasion of income tax and other taxes, cash reward shall be sanctioned to the
officers and officials of Inland Revenue for their meritorious conduct in such cases and to the informer providing
credible information leading to such detection, as may be prescribed by the Board, only after realization of part or
whole of the taxes involved in such cases.
The Board may, by a notification in the official Gazette, prescribe the procedure in this behalf and specify the
apportionment of reward sanctioned under this section for individual performance or to collective welfare of the
officers and officials of Inland Revenue.
30. The Directorate General of Internal Audit, Training and Research and withholding taxes [U/s 228, 229 and
230A]
The Directorate General of internal Audit, training and research and withholding taxes shall consist of a Directors
General and as many Directors, Additional Directors, Deputy Directors and Assistant Directors and such other officers
as the Board, may by notification in the official Gazette, appoint.
The Board may, by notification in the official Gazette, specify the functions, jurisdiction and powers of the Directorate
General of Internal Audit, Training and Research and Withholding Taxes.
31. Directorate General (Intelligence and Investigation), Inland Revenue [U/s 230]
The Directorate General (Intelligence and Investigation) IR shall consist of a Director General and as many
Directors, Additional Directors, Deputy Directors and Assistant Directors and such other officers as the Board,
may by notification in the official Gazette, appoint.
The Board may, by notification in the official Gazette,-
(a) specify the functions and jurisdiction of the Directorate General and its officers; and
(b) confer the powers of authorities specified in section 207 upon the Directorate General and its officers.
32. Directorate-General of Law [U/s 230B]
The Directorate- General of Law shall consist of a Director General and as many Directors, Additional Directors,
Deputy Directors, Assistant Directors, Law Officers and such other officers as the Board may, by notification in the
official Gazette, appoint.
The Board may, by notification in the official Gazette, specify the functions, jurisdiction and powers of the Directorate-
General of Law.
33. Directorate-General of Research and Development [U/s 230C]
The Directorate-General of Research and Development shall consist of a Director General and as many Directors,
Additional Directors, Deputy Directors, Assistant Directors and such other officers as the Board may, by notification in
the official Gazette, appoint.
The Board may, by notification in the official Gazette, specify the functions, jurisdiction and powers of the Directorate-
General of Research and Development.
ANSWERS
1 (c) 2 (c) 3 (a) 4 (a) 5 (d)
Chapter
T OPIC COVERED
Section 41 to 55 Exemptions & tax concessions
Part I (2nd Schedule) Exemptions from total income
Part II (2nd Schedule) Reduction in tax rates
Part III (2nd Schedule) Reduction in tax liability
Part IV (2nd Schedule) Exemption from specific provisions
EXEMPTIONS & TAX CONCESSIONS (OTHER THAN SPECIFIED IN RESPECTIV CHAPTERS) UNDER VARIOUS
SECTIONS OF INCOME TAX ORDINANCE, 2001
SECTION PARTICULARS
48 Support payments under an agreement to live apart
49 Federal Government, Provincial Government and Local Government income
51 Foreign-source income of returning expatriates
53 Exemptions and tax concessions in the Second Schedule
54 Exemptions and tax provisions in other laws
55 Limitation of exemption
EXEMPTIONS (OTHER THAN SPECIFIED IN RESPECTIV CHAPTERS) FROM TOTAL INCOME [PART I OF 2ND
SCHEDULE]
CLAUSE PARTICULARS
23B Amounts received as monthly instalment from an income payment plan invested out of the accumulated
balance of an individual pension accounts
23C Any withdrawal of accumulated balance from approved pension fund
57 NIT, ICP, Mutual Funds, collective investment schemes, REIT, Venture Capital, Provident, Gratuity and
Superannuation Funds, Benevolent Funds, group insurance schemes, service funds, EOBI, certain Army
institutes and funds, pension fund, Voluntary pension balance. Sh. Sultan Trust and Sindh Province
pension fund
61 Donations to certain institutions and funds
64A Donations to victims of Terrorism
64B Punjab Relief Fund for internally Displaced Persons (IDPs) of NWFP
64C Flood Relief Fund for victims of flood 2010
65 Donations to research on Islamic history, art and culture, Istanbul
102A Govt. Subsidy
103A Inter-corporate dividend
104 Dividend from Pak Libya Holding
105 Dividend from Saudia Pak Industrial and Agricultural Inv. Co.
105A Dividend from Pak-Kuwait Investment Co.
105B Dividend from Agriculture Income.
REDUCTION IN TAX RATES (OTHER THAN SPECIFIED IN RESPECTIV CHAPTERS) [PART II OF 2ND SCHEDULE]
CLAUSE PARTICULARS
24A 1% tax on Distributors of cigarette and pharmaceutical products and for large distribution houses
REDUCTION IN TAX LIABILITY (OTHER THAN SPECIFIED IN RESPECTIV CHAPTERS) [PART III OF 2ND SCHEDULE]
CLAUSE PARTICULARS
2 Currency devaluation/revaluation for petroleum and mineral business
EXEMPTION FROM SPECIFIC PROVISIONS (OTHER THAN SPECIFIED IN RESPECTIV CHAPTERS) [PART IV OF 2ND
SCHEDULE]
CLAUSE PARTICULARS
3 Donations to Agha Khan Hospital
12 Agricultural Products
16 Non-application of minimum tax and other provisions on institutions of the Agha Khan
16A Non application of section 153(1) on payments against news print media services
42 Exemption from presumptive tax for certain services for sea-port and infrastructure projects
43A Exemption from deduction on supply of petroleum products imported by the same person.
45A 1% WHT on supplies etc. to textiles, carpets, leather, surgical goods, and sports good sector
46A Exemption from presumptive taxation for manufacturers for iron and steel, individuals or AOP
56C Person file return of total income U/S 153 & 169
56F Person file return of total income of gross amount of commission or discount
73 Foreign experts
92 Aircrafts
Chapter
21
SOLVED PAST PAPERS INCOME TAX NUMERICALS OF MOD-
C (2001 TO 2015)
Note: All the following questions have been solved under the Income tax Ordinance, 2001 effective from July 01, 2015.
Q.NO.1 Spring 2015On 1 July 20X4, Tahir commenced business of manufacturing garments. Income statement of
the business for the year ended 30 June 20X5 is as follows:
Cost of preparation of a feasibility study amounting to Rs. 250,000 which was issued prior to the commencement of business.
Salary of Rs. 50,000 per month was paid to Tahirs brother who handles the financial matters of the business.
iii. Financial charges include Rs. 80,000 pertaining to a vehicle obtained on lease from a leasing company. The cost of vehicle was Rs.
1,300,000. Depreciation of Rs. 260,000 has been included in administrative and selling expenses. Lease rentals paid during the year
amounted to Rs. 300,000.
iv. Other charges include:
running and maintenance expenses of vehicle amounting to Rs. 295,450. Use of vehicle for personal purposes was
approximately 20%.
provision for bad debts amounting to Rs. 25,000.
Other information:
i. Tahir was working in UAE for the past five years and had come back to Pakistan in April 20X4. He received an amount
equivalent to Rs.150,000 from his ex-employer as differential amount on his final settlement in August 20X4.
ii. He sold a plot for Rs. 3,500,000 which was inherited from his father in 20X1. Fair market value of the plot at the time of
inheritance was Rs. 1,500,000.
iii. 5,000 shares were purchased for Rs. 600,000 from initial public offering of a new listed company.
iv. Premium of Rs. 300,000 was paid on Tahirs life insurance policy.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax liability of Tahir for the tax
year 20X5. Provide comments in respect of items which do not appear in your computation.
Mr. Tahir
Resident : Individual
Tax Year : 2016
Computation of Taxable income and tax thereon
Income from Business (W-1) 1,939,840
Total Taxable Income 1,939,840
Working - 1
Income from Business
Working - 2
Depreciations WDV Depreciation
Cost of Machinery 1,500,000
Less: 25% Initial allowance (375,000) 375,000
1,125,000
Less: Depreciation (168,750) 168,750
Total 956,250 543,750
Working - 3
Higher of investment in shares OR Life Insurance
Note -1 As the taxpayer is a returning expatriate hence no treatment of foreign source salary has been made as the same
is exempt under section 51 of the Income tax ordinance, 2001.
Note -2 No treatment of gain on disposal of plot has been made as the same is not taxable due to its disposal after two
years from the date of its inheritence.
Q.NO.4(b) Spring 2015 On 1 July 2014, Fahim agreed to rent out a house to Mirza at a monthly rent of
Rs. 180,000 with effect from 1 August 2014 and received one years rent in advance. He also received Rs. 800,000 as a
security deposit which was partly used to repay the security deposit amounting to Rs. 400,000 received from the
previous tenant in July 2010 and partly used for renovation of the house.
Fahim also incurred the following expenses in respect of the above house:
(i) property tax of Rs. 15,000.
(ii) payment of interest amounting to Rs. 200,000 to his friend against amount borrowed for renovation of the
house.
(iii) insurance premium of Rs. 110,000.
(iv) Rs. 5,000 per month to Wasif for collection of rent.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income of Fahim for tax year 2015
assuming he has no other income.
Mr. Fahim
Tax Year 2016
Computation of taxable income
Income from Property
Rent (180,000 x 11) 1,980,000
Unadjustable advance (W-1) 64,000
2,044,000
Less: Deductions u/s 15A
1/5th repair allowance 408,800
Property tax 15,000
Profit on debt for renovation of rented house 200,000
Insurance premium 110,000
Lower of actual collection & admin charges or 6% of RCT 55,000 (788,800)
Taxable Income 1,255,200
W-1
Working for Unadjustable advance
[ 800,000 - ( 400,000 / 10 x 4 ) ] / 10 64,000
Q.NO.6 Spring 2015 Aslam is a resident taxpayer who operates his business from Lahore (LHR) and Paris
(PAR). In August 2014, he established a new branch in Berlin (BER).
Following information is available in respect of his business operations for tax year 2015:
Capital loss - 6 -
The following amounts paid by Aslam in respect of BER have been charged to LHR:
(i) salaries for the first three months amounting to Rs. 5 million.
(ii) rent expense for the year amounting to Rs. 7 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate the tax payable by Aslam in the tax year 2015
and foreign tax losses to be carried forward to next year, if any.
The un-adjusted business loss of PAR of Rs. 15 million and Ber of 27 million shall be carried forward for adjustment
against succeeding years foreign source business income with limitation of maximum upto six tax years.
Less tax credit for foreign source capital gain (Lower of Pakistan (3)
average tax OR Foreign tax paid)
19
Less advance tax paid (10)
Balance tax payable 9
No tax credit on foreign (PAR) source business income has been computed as the tax on such income in Pakistan is nil
as comared to Rs. 3 million in Ber.
Q.1CAF September 2014 Sultan is working as electronic engineer with Ansari Electrical Company Limited (AECL). He
has provided you with the following information for the tax year ended 30 June 2014:
(b)He was also provided the following benefits in accordance with the terms of his employment:
(i)Leave encashment amounting to Rs. 300,000.
(ii) Hospitalization cost is covered by an insurance policy up to the amount of Rs. 1.5 million. The insurance
premium relating to this benefit amounted to Rs. 55,000.
(iii) He is allowed to use his personal car for office use. Reimbursement of car running and maintenance expenses
amounted to Rs. 550,000. 15% of these expenses pertain to personal use.
(c)Rs. 200,000 were received from a private limited company for attending board meetings.
(d)A lump sum amount of Rs. 1.2 million was received as the author of a literary work.
(e)Sultan took three years to complete this literary work.
(f)Sultan is also a part time singer and owns a studio. He sold the premises in which the studio was situated for Rs. 10
million and shifted his musical instruments to new premises which he purchased for Rs. 15 million. He received Rs. 2.5
million from his father in cash as loan to pay for his new studio. The previous premises was purchased several years ago
for Rs. 1.4 million and had a tax written down value of Rs. 600,000 at the time of disposal.
(g) The net income from the studio for tax year 2014 was Rs. 990,000. The expenses include salaries of two
workers at Rs. 15,000 and Rs. 18,000 per month and utility bills amounting to Rs. 110,000. All expenses were paid in
cash.
(h) He won a car, in a competition held by Star Motor Limited for promotion of its sales. The fair market value of the car
was Rs. 850,000.
(i)He gifted 40 fans having a fair market value of Rs. 100,000 to an approved charitable organisation.
(j)An amount of Rs. 500,000 was paid by him as contribution to an approved pension fund.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax thereon for the tax year
2014.
Mr. Sultan
Resident : Individual
Tax Year 2016
Compitation of taxable income and tax thereon
Rs. Rs.
Income from Salary
Basic Salary 5,760,000
Medical allowance 576,000
Utilities allowance 660,000
Accommodation
Rent free accommodation 900,000
45 % of 5,760,000 2,592,000 2,592,000
Leave encashment 300,000
Conveyance allowance 82,500
9,970,500
Income from Business
Studio Income 990,000
Inadmissible expense 216,000
Gain on sale of studio 800,000 2,006,000
Q. NO. 1 Spring 2014 Qamar is engaged in the business of manufacturing and repair of electric motors. His
accountant has prepared the following tax computation for the tax year 20X4:
Computation of tax
Tax liability 125
Less: Tax deducted by bank on interest income (500,000 x 10%) (50)
Tax payable 75
Following expenses are included in the cost of sales and administrative expenses:
Qamar is not satisfied with the tax return prepared by his accountant and has requested you to review the return.
Required:
(a) Compute the revised taxable income of Qamar and tax payable by or refundable to him for the tax year 20X4.
(b) Briefly comment on treatment of the above items of expenses in your tax computation.
Solution: (a)
MR. QAMAR
Revised taxable income & tax thereon
For the tax year 2016
Rs. in '000'
INCOME FROM BUSINESS U/S 18
Income form other sources (assumed net of allowable expenses and fully
covered under normal tax regime) 850
Total income 500
Less straight deduciton U/C 61 of Part II of 2nd Schedule to the
Income tax Ordinance, 2001. [Rs. 300,000 or 30% of Rs. 500,000] (b - 2) 150
Taxable income 350
As the income is less than Rs. 400, 000 (maximum non taxable limit) hence no tax liability has been
computed under normal tax regime (read with N - 1).
ASSUMPTIONS / BASIS:
(N - 1) In the absence of information no minimum tax under section 113 of the Income Tax Ordinance, 2001 has been
computed.
Less:
Electricity charges - residence 150
Donation to a non-profit Orgnization 300
Unabsorbed depreciation brought forward from previous tax year 500
Fine paid for infringement of environmental laws 200
(1,150)
Revised cost of sales 31,850
Solution: (b)
(1) Un-absorbed depreciation of (current year and brought forward) may be adjusted against any other head of income
chargeable to tax (except income under the head salary or income from property) under section 57(4) read with section
56(1) of the Income Tax Ordinance, 2001.
(2) It has been assumed that the limitations of clause 61 has been met by the AOP in order to claim the same as
straight deduction from total income.
(3) As the personal expenses are not allowable under section 21(h) of the Income tax Ordinance, 2001 hence the
electricity charges of residence has been accordingly deducted from the given cost of sales amount.
(4) As the fine or penalty for voilation of any law, rule or regulation is not allowable under section 21(g) of the Income tax
Ordinance, 2001 hence the fine paid for infirngment of enviornmental laws has been accordingly deducted from the given
cost of sales amount.
Q. NO. 4 Spring 2014 Basher and Jamil jointly own a house in Karachi. Basher has 75% share in the house. On 1
September 20X3, the house was let out at an annual rental of value of Rs. 6,500,000. This amount includes Rs. 186,000
per month for utilities, cleaning and security.
During the tax year 20X4, owners incurred the following expenditures in relation to the house:
Rupees
Utilities, cleaning and security 650,000
Repair and maintenance 810,000
Insurance premium 240,000
Collection charges 25,400
Mark-up on amount borrowed for extension of the house 840,000
Basher and Jameel have no other sources of income. All the above expenses were incurred by them jointly.
Required
Calculate taxable income of Basher and Jameel under appropriate heads of income for the tax year 20X4.
Solution:
Income from utilities, cleaning and securities (Rs. 186,000 x 10) 1,860,000
Tax on Rs. 1,210,000 [Rs. 32,000 + (Rs.1,210,000 - Rs. 750,000) x 15%] 101,000
Divisible income afer tax 1,109,000
(N - 1) Share of both the members in income from other sources of the AOP has been included for rate purposes of
respective member of the AOP.
Mrs. Aslam was employed with Sahal Limited (SL) as a Marketing Manager. On 30 June 2012 she resigned from her
employment with SL. On 1 July 2012, she joined Hassan Pakistan Limited (HPL), a quoted company, as a Marketing
Director. She has provided you the following information in respect of the tax year 2013:
(i) In July 2012, she received following amounts from SL in final settlement:
LeaveencashmentamountingtoRs.95,000.
GratuityofRs.500,000fromanunrecognizedgratuityfundmaintainedbySL.
ReimbursementofRs.100,000againstahealthinsurancepolicy.TheinsuranceclaimwaslodgedbySLon
behalf of Mrs. Aslam in January 2012.
(ii) In accordance with the terms of her employment, income tax related to her salary and benefits is to be borne by HPL.
Her emoluments / benefits during the tax year were as follows:
BasicsalaryofRs.200,000permonth.
MedicalallowanceofRs.60,000permonth.
RentfreeaccommodationwithannuallettingvalueofRs.480,000.
TravellingallowanceofRs.50,000permonth.60%oftheamountwasspentintheperformanceofofficial
duties.
Providentfund@10%ofbasicsalary.AnequalamountwascontributedbyHPL.
(iii) Under an employee share scheme, Mrs. Aslam was awarded 5,000 share in HPL on 1 January 2013. Under the
scheme she was not allowed to sell the shares up to 31 March 2013. she sold all the shares in HPL on 1 May 2013. Fair
value of the shares on the above dates was as follows:
Rs.20pershareon1January2013
Rs.28pershareon31March2013
Rs.32pershareon1May2013
(iv) On 31 December 2012, she received a loan of Rs. 400,000 from HPL. The loan carries a mark-up of 4% per
annum. The prescribed benchmark rate is 10%.
(v) She won the best executive employee award of HPL and received a laptop having a fair market value of Rs.
100,000
(vi) An amount of Rs. 355,000 was received from her spouse as support payment, under an agreement to live apart.
(vii) She paid Rs. 105,000 as zakat under the Zakat and Ushr Ordinance, 1980.
(viii) Donation of Rs. 70,000 was paid to an approved organization.
Required:
Compute the taxable income, tax liability and tax payable for the tax year 2013.
Note: Show all relevant exemptions, exclusion and disallowances.
Solution
MRS. ASLAM
SALARIED RESIDENT INDIVIDUAL
COMPUTATION OF INCOME & TAX THEREON
FOR THE TAX YEAR 2016
Rupees Rupees Rupees
Exempt /
Total income income not Taxable income
taxable
INCOME FROM SALARY U/S 12
Reimbursement of insurance -
ASSUMPTIONS / BASIS:
N-1 Gratuity
Contribution to un-recognised gratuity fund U/C 13 is exempt upto Rs. 75,000 or 50% of the amount whichever is lower.
N-8 Donation
No comparison with amount worked out at 30% of taxable income has been made as the actual donation amount is
already less than the same.
Gulzar is a Pakistani resident and operates various businesses. He disposed off the following assets during the tax
year 2013:
(i) An immovable property was sold for Rs. 50 million. The cost of the immovable property was Rs. 25 million. Tax
depreciation of Rs.4 million had been allowed on the immovable property up to the tax year 2012.
(ii) A car was disposed of for Rs. 1.2 million. The car was acquired on 1 July 2011. The tax written down value of the car
at the beginning of tax year 2013 was Rs.0.9 million. The car was being used partly (70%) for business purposes. The
rate of depreciation for tax purposes is 20%.
(iii) An antique sculpture was purchased for Rs. 350,000 on 30 August 2000. It was sold for Rs. 1,500,000 an 28
February 2013 through auction. The auctioneer was paid a commission of Rs. 15,000 . Tax was deducted and paid by
Gulzar from the amount of commission within due date.
Required:
Compute the amount of capital gain / loss arising on the above transactions under the provisions of the Income Tax
Ordinance, 2001.
Solution
MR. GULZAR
Rs. Rs.
Immoveable property:
Consideration received from the sale of immovable property 50,000,000
Less: WDV of immovable property
Cost of asset U/S 22(13)(d) 50,000,000
Less: Depreciation charged upto 2013 (4,000,000) 46,000,000
Gain on sale of immovable property taxable under the head 4,000,000
Business income U/S 18
Antique sculpture:
Note: The cost of motor vehicle not plying for hire is well within the
maximum limit of Rs.2.5 million for pessanger transport vehicle &
further no initial allowance has been claimed on the assumption
that the motor vehicles are not for hiring purposes. Although the
normal depreciation rate of 20% on motor vehicles has been given
however 15% applicable rate as per 3rd Schedule has been used
for the solution.
(b) In addition to above, he was also provided the following benefits in accordance with his terms of employment:
(i) Rent-free furnished accommodation in a bungalow situated on a 500 square yard plot of land. Rent for comparable
accomodation facility in the vicinity is Rs 150,000 per month.
(ii)An 1800cc company maintained car. The car was purchased two years ago at a cost of Rs. 1,600,000 and is used
both for official and personal purposes.
(c) A house owned by Mr. creative had been leased out by him at a monthly rent of Rs 50,000.
The Lease expired on 31 December. Mr. Creative refused to renew the lease in spite of the tenant's offer to renew the
lease offer after increasing the rent by 10%.
He returned the non-adjustable deposit of Rs.300,000 to the tenant, which was received two years ago. The house was
immediately leased to his cousin without any security deposit on a monthly rent of Rs.48,000.
(d) Five years ago, Mr. Creative had purchased 20,000 shares of Rs.10 each, of an unlisted public company at the rate of
Rs.140 per share. After one year of acquisition, he received 8,000 bonus shares from the company. During the latest tax
year, he sold 75% of the bonus shares at a price of Rs. 145 per share.
(f) During the latest tax year, he redeemed 4,000 units of an open-end mutual fund at Rs. 50 per unit and Mr. creative had
claimed a tax credit of Rs.40,000 on this investment.
(g) Donations of Rs.50,000 were paid to charitable institutions listed in the second schedule to the Income Tax
Ordinance, 2001.
Required:
Compute the taxable income, tax liability and tax payable for the latest tax year.
Solution
Rent (Rs. 50,000 6 months) + (Fair market rent Rs.55,000 x 6 N-1 630,000
months) (Assumed after allowable deductions)
Open end mutual fund (No tax credit computed on this N-2 -
investment as the same was made in the latest tax year and further
due to partial encashment within 24 months period the tax credit of
preceeding tax year shall be adjusted in the latest tax year and not
in the current tax year).
600,000
Less tax credit Rs. 1,387,488 / 6,874,500 x 600,000 (121,099)
1,266,389
Less tax deducted at source against salary income (737,000)
Balance tax payable 529,389
Notes
N-1: No treatment of security refunded after two years has been made in the current year as no further security
received by the landlord.
N-2: In the absence of information it has been assumed that all the open end fund units sold during the current tax
year.
Imaginative Enterprise (IE) is an Association of persons and was formed two years ago. During the latest tax year, IE's
Pakistan source income amounted to Rs.2,500,000 and tax payable thereon amounted to Rs. 722,500.
Following are the details of its foreign source incomes, tax paid thereon and foreign losses brought forward for the latest
tax year:
Heads of income Foreign income Foreign tax paid Foreign losses
brought forward
RUPEES RUPEES RUPEES
Speculation business 500,000 125,000 (250,000)
Non- Speculation business (1,000,000) - -
Capital gains 750,000 75,000 (1,500,000)
Other sources 1,250,000 187,500 -
The foreign tax credit relating to Income from other sources which remained unadjusted during the last tax year
amounted to Rs.50,000.
Required:
Calculate total tax payable and foreign tax losses to be carried forward to next year (if any).
Solution
Speculation U/S 18
Current year income 500,000
Brought forward losses (250,000) 250,000
Net foreign source of income 500,000
Add Pakistan source of income 2,500,000
Total taxable income 3,000,000
Notes:
1. Non speculation losses adjusted against firstly income form other sources and balance against specualtion
income.
2. Last year unadjusted foreign tax credit on income from other sources is not allowed to be refunded, carried
forward or carried back.
3. The income tax given in question only on Pakistan source of income has been ignored as credit shall be on total
tax liability basis that is Pakistan source income plus foreign source income.
Beena Sikandar is a lawyer and owns a law firm under the name Beena and Co. She is also Director Legal Affairs at
Ayesha Foods Limited. Details of her income for the tax year 2012 are as follows:
(A) INCOME FROM BEENA and CO.
Income Statement Note Rupees
Revenue (i) 8,500,000
Less: Expenses
Salaries (ii) 2,000,000
Gifts and donations (iii) 400,000
Lease charges (iv) 900,000
Professional fee (v) 400,000
Property expenses (vi) 350,000
Travel expenses 150,000
Other expenses (vii) 600,000
Tax withheld by clients 200,000
5,000,000
Net profit 3,500,000
(ii) Salary expenses include amount of Rs. 50,000 and Rs. 75,000 per month paid to Beena and her brother respectively.
Her brother looks after administration and financial matters of the firm.
(iii) Gifts and donations include gifts to clients, gift to her son and donation to Edhi Foundation amounting to Rs. 100,000,
Rs. 50,000 and Rs. 250,000 respectively.
(iv) A vehicle was obtained solely for official purposes on operating lease, from a bank. The lease commenced on 1 March
(iv) She received a fee of Rs. 150,000 from AFL for attending the meetings of the Board of Directors (BOD).
(v) Details of tax deducted by AFL are as follows:
Rupees
From salaries 390,000
From fee received for attending the meetings of BOD 9,000
Required:
Compute the taxable income, tax liability and tax payable by Beena Sikandar for the tax year 2012. Provide appropriate
comments on the items appearing in the notes which are not considered by you in your computation.
Solution
Beena Sikandar (Resident)
Computation of taxable income and tax liability
For the tax year 2016
Notes Rs.
INCOME FROM BUSINESS U/S 18
Profit before tax as per accounts 3,500,000
Add:
Tax withheld by clients 200,000
Salary paid to Beena 600,000
Gifts to clients and son 1 150,000
Donation to Edhi Foundation 1 250,000
Security deposit on operating lease 2 500,000
Legal charges paid for personal law suit 150,000
Rent related to personal apartment (2/5 x 350,000) 140,000
Club membership fee paid in cash 150,000
2,140,000
5,640,000
INCOME FROM SALARY U/S 12
Monthly remuneration from AFL (Rs. 100,000 x 12) 1,200,000
Bonus received in tax year 2012 3 200,000
Conveyance (2,000,000 x 5%) U/R 5 100,000
Fee as employee for attending meeting of the BOD (N - 4) 150,000
1,650,000
Total taxable income 7,290,000
Salary is less than 50% of taxable income, hence rates of non-salaried individual applied.
Tax on Rs. 7,290,000 [1,319,500 + 35% x (7,290,000 - 6,000,000)] 1,771,000
Less: Proportionate tax on income chargeable to tax under
minimum tax liability (1,771,000 / 7,290,000 x 5,640,000) 1,370,156
400,844
Proportionate tax (as above) (A) 1,370,156
Minimum tax (deductible) (8,500,000 x 10%) (B) 850,000
Notes
1. Gifts and donation
It is assumed that gifts are given in personal capacity, therefore not allowed for tax purposes. Tax credit shall be allowed
on donation to Edhi Foundation.
2. Security deposit on lease
It is assumed that security deposit does not form part of the lease rentals and shall be refunded by bank on repayment of
all lease rentals.
3. Bonus
Salary including bonus is chargeable to tax on receipt basis.
In May 2012, Hameeda sold certain personal assets at the following prices:
Rupees
Plot in DHA Karachi 10,000,000
Paintings 2,000,000
Jewellery 5,000,000
Additional information
(i) Plot in DHA Karachi was inherited by her from her father in May 2006. It was purchased by her father for Rs. 4,000,000
and market value at the time of inheritance was Rs. 5,000,000.
(ii) Paintings were inherited from her mother in July 2011. these paintings were purchased by her mother for Rs.
1,000,000 and market value at the time of inheritance was Rs. 2,350,000.
(iii) Jewellery costing Rs. 3,000,000 was purchased and gifted to her by her husband in March 2009.
Required: Discuss the taxability of Hameeda in respect of the above gains/ losses on sale of assets in the context of
Income Tax Ordinance, 2001.
Solution
Hameeda (Resident)
Computation of taxable income and tax liability
For the tax year 2016
Paintings:
Sale price 2,000,000
FMV at the date of inheritance 2,350,000 (350,000)
As the loss on painting is covered under section 38(5) hence the same
has not been considered for computation of taxable gain.
Jewellery:
Sale price 5,000,000
FMV at the date of inheritance (assumed equal to cost) 3,000,000
2,000,000
As holding period is more than 1 year, therefore 25% is exempt (500,000) 1,500,000
On 1 July 2010, Kashmala and Shumaila formed an Association of Persons (AOP) with the objective of providing
information technology support services to corporate clients. They contributed Rs. 1.2 million and Rs. 0.8 million
respectively in their capital accounts and agreed to share profits and losses in the ratio of their capitals.
For the year ended 30 June 2011, business loss and unabsorbed depreciation of Rs. 0.4 million and Rs. 0.3 million
respectively were assessed and carried forward. The total turnover of the AOP in 2011 was Rs. 40 million.
During the year ended 30 June 2012, the AOP incurred a net loss of Rs. 0.8 million on a turnover of Rs. 50 million. The
cost for the year was arrived after adjustment of the following:
(i) Salaries amounting to Rs. 0.5 million and Rs. 0.3 million were paid to Kashmala and Shumaila respectively.
(ii) Accounting depreciation on office assets amounted to Rs. 0.3 million.
The taxes withheld by the clients, for the year ended 30 June 2012 amounted to Rs. 0.55 million. AOP is entitled to claim
tax depreciation of Rs. 0.25 million in respect of the office assets.
Required: Calculate the taxable income, net tax payable and unabsorbed losses (including unabsorbed depreciation), if
any , to be carried forward by the AOP for the year ended 30 June 2012.
Solution
AOP
Computation of taxable income and tax liability
For the tax year 2016
INCOME FROM BUSINESS U/S 18 Rs.
Accounting loss 800,000
Add:
Salaries paid to partners (500,000 + 300,000) 800,000
Accounting depreciation 300,000
1,100,000
10% minimum tax on gross receipts of Rs.50 million against services 5,000,000
Less tax deduted under section 153 550,000
Balance tax payable 4,450,000
As there is nil income during the tax year after adjustment of brought forward losses, hence business loss of Rs. 100,000
for current year shall be carried forward for the succeeding six tax years whereas the unabsorbed brought forward
depreciation loss shall be carried forward to the extent of Rs. 550,000 without any time limitation.
Rupees
Rent for the year 870,000
Non-adjustable security deposit:
- received from a new tenant 700,000
- paid to old tenant (received three years ago) -500,000
Tax withheld -50,000
Property tax on building -8,000
Net receipts 1,012,000
(iii) The amount was received for writing an article in an international magazine on World Health Day.
(iv) 60% of the motor car expenses were incurred in connection with his personal use.
(v) Donation was given to a Government medical college for upgrading its library.
(vi) Depreciation on motor car and surgical equipment, under the 3rd Schedule of the ITO, 2001 is Rs. 96,000
and Rs. 75,000 respectively.
Required: Compute the taxable income, tax liability and tax payable by Dr. Sona for the latest tax year. Provide
appropriate comments on the items which are not relevant for your computations,
Surgery fee from hospital (assumed net of tax hence grossed up 1,671,111
1,504,000 x 100 / 90)
3,760,000
Less: proportionate expenses:
Depreciation on motor vehicle 38,400 / 8,510,000 x 3,638,710 16,419
Car expenses (Rs.200,000 x 40%) = 80,000 / 8,510,000 x 34,206
3,638,710
Other income
3,709,374 3,709,374
Total taxable income 8,404,332
Mr. Khursheed, a Pakistani national, was employed as the chief financial officer in Zulfiqar Gas Company (ZGC), since
1990. Following information pertains to his income for the tax year 2011:
(1)IncomefromZGC
Khursheed was employed with ZGC up to 31 December 2010. During this period he received the
following emoluments:
- Basic salary of Rs. 400,000 per month, medical allowance of Rs. 75,000 per month and utility allowance equivalent
to 10% of basic salary.
- A company-maintained car for official and private use. The car was purchased two years ago at a cost of Rs. 5
million. According to the companys policy, ZGC deducted Rs. 10,000 per month from his salary, for private use of the car.
On 31 July 2010, Khursheed had undergone a major surgery and incurred an expenditure of Rs. 1,500,000. ZGC
reimbursed the entire amount as a special case as it was not covered under the terms of employment.
Due to poor health, Khursheed opted for early retirement on 31 December 2010 under the companys voluntary retirement
scheme. He received the following benefits on his retirement:
-Rs.7,500,000asagoldenhandshakeunderthevoluntaryretirementscheme.
-Rs.9,100,000fromanunapprovedgratuityfundmaintainedbyZGC.
- Transfer of companys car for Rs. 2,600,000. The amount was deducted from his final settlement. The fair market
value of the car as of 31 December 2010 was Rs. 2,800,000.
The tax deducted at source for the tax year 2011 amounted to Rs. 3,750,000.
(2)OtherInformation
- On 1 January 2011, Khursheed commenced business of marketing of horticultural plants and related items.
However, due to intense competition, he had to wind-up this venture on 31 May 2011. During this period, he had incurred
a loss of Rs. 750,000.
- He purchased 5000 shares for Rs. 500,000 from initial public offering of a new listed company on 1 June 2010. He
claimed a tax credit of Rs. 60,000 on such investment, against the tax payable for the tax year 2010. On 15 June 2011, he
sold these shares for Rs. 700,000.
-HeincurredalossofRs.500,000onthesaleofhisshareholdingsinaprivatelimitedcompany.
-HesoldhispersonalcarataprofitofRs.300,000.
- On 1 March 2011, he purchased an apartment for Rs. 5,000,000. 60% of this amount was financed by a scheduled
bank. During the tax year 2011, he paid markup amounting to Rs. 127,500. On 1 April 2011, he rented out the flat to Mr.
Abdul Sattar at a monthly rent of Rs. 25,000 and received advance rent for eight months.
-Hisaveragetaxratefortheprecedingthreeyearsis18%.
Required:
(a) Compute the amount of taxable income, tax liability and tax payable / (refundable), if any, for the tax year 2011.
(b) Briefly comment on the items which are not considered by you in the above computation.
1. Rental income
The rent received or receivable by a person for a tax year shall be chargeable to tax in that year under the head Income
from property. Therefore, only three months rent is included in the taxable income of Mr. Khursheed. Further it has been
assumed that the same is after allowable deducitons under section 15A of the Ordinance.
2. Business loss
No loss (including Loss under the head business income) shall not be set off against income from salary and income from
property. However the loss shall be carried forward to adjust the same against the business income of six subsequent tax
years.
4. Capital loss
Where a person sustains a loss on sale of shares of a private company it is construed as a capital loss and it cannot be
set-off against any other head of income, but shall be carried forward to the next year and set off against the capital gain,
if any.
6. Golden handshake
It is assumed that last three years' average rate of tax for golden handshake is 18% and further it is more beneficial
for the taxpayer to opt for taxation of golden handshake at last three year's average rate as compared to this to
include the same in the current year's income.
The market price of the shares as on 1 June 2010 was 12.5 per share. On 10 April 2011, Mr. Feroz sold all shares at 13
per share. He paid a commission of 50 to the brokerage house.
Required: Compute the amount to be included in the taxable income of Mr. Feroz for tax years 2009, 2010 and 2011 and
specify the head of income under which the income would be classified.
Mr. Feroz
Computation of taxable income
Shares were issued in tax year 2014, however, transferability of the shares is restricted in tax year 2014 hence
nothing is taxable in tax year 2009.
Carrot Ltd (CL) is engaged in the manufacture, import and sale of electronic appliances for the past twenty years. When
reviewing the company's tax provisions, you noticed the following amounts appearing in the tax calculation for the year
ended June 30, 20X2.
1. Profit on debt of Rs. 500,000 paid on a working capital loan obtained from a foreign bank.CL did not deduct
withholding tax while paying profit on debt considering the bank does not have a Permanent Establishment in
Pakistan.
2. Expenditure of Rs. 450,000 on promotion of a product which is expected to generate revenue for twelve years.
3. Bad debt in respect of a staff loan, Rs. 25,000.
4. Reimbursement of expenses of Rs. 300.000 to CL by the parent company- This amount was incurred by CL in
20X1 on marketing a new product imported from Dubai.
5. Initial allowance of Rs. 4,000,000 on a used equipment acquired locally from MSD Limited.
6. Financial charges amounting to Rs. 100,000 and depreciation amounting to Rs. 300,000 on a vehicle acquired
on finance lease from Radish Leasing. Lease rentals paid during the year amounted to Rs. 400,000.
Required:
Under the provisions of CIR, 2001 discuss the admissibility of the above amounts for tax purpose.
1. It is not admissible as the withholding tax @ 20% under section 152(2) of the Income tax Ordinance, 2001 was not
deducted by CL limited.
2. It is an admissible expense as it is incurred for the purpose of business of company.
3. Bad debts in respect of loan to employees shall not be admissible under the Income Tax Ordinance, 2001 because the
same is not against a trading liability already allowed.
4. As the amount is the reimbursement of expenses incurred on behalf of parent company so the same shall be adjusted
against the receivable balance from parent and has no impact on taxable income.
5. Initial allowance on locally purchased equipment shall not be allowed as the asset is already used in Pakistan.
6. Amount of rental payment shall be allowed as deduction, however the amount of depreciation and financial charges
shall not be allowed as deduction.
Mr. Zameer Ansari is working as a Chief Executive Officer in Wimpy (Private) Limited (WPL). Following are the details of
his income / receipts during the tax year 2010:
(b) In addition to the above, he was also provided the following benefits in accordance with his terms of
employment:
(i) Medical insurance for hospitalization and surgery, limited to Rs. 1,500,000 per annum.
(ii) Payment of his children's school fees of Rs. 15,000 per month. The fee is deposited directly into the
school's bank account.
(iii) Rent free furnished accommodation on 1000 square yards. The accommodation is located within the
municipal limits of Karachi.
(iv) Two company-maintained cars. One of the cars was purchased by WPL for Rs. 3,000,000 and is
exclusively for his business use. The second car was obtained on lease on February 1, 2009 and is used
partly for official and partly for personal purposes. The fair market value of the leased vehicle at the time of
lease was Rs. 1,800,000.
(v) Leave encashment amounting to Rs. 100,000 was paid to Mr. Zameer on July 5, 2010.
(vi) An amount equal to one basic salary was paid by WPL to an approved pension fund.
(c) Mr. Zameer had received 15,000 shares of WPL on December 1, 2006 under an employee share scheme. He
had the option to transfer the shares on or after January 1, 2009. However, he sold all the shares on April 1,
2010
(e) He earned profit amounting to Rs. 750,000 on fixed deposit account maintained with a bank. The bank
withheld income tax amounting to Rs. 75,000 and Zakat amounting to Rs. 250,000.
(f) Tax deducted at source from his salary, amounted to Rs. 650,000.
Required: Compute the taxable income, tax liability and tax payable by Mr. Zameer Ansari for the tax year 2010.
On sale of (Pvt.) Ltd. company shares after retention of more than 67,500
12 months therefore gain shall be taxable as capital gain shares
{15,000 x (Rs.48-Rs.42) x 75%}
NOTES
N-1 Leave encashment has been ignored as received after the tax year. Salary and perquisites are charged on the receipt
basis.
Sohail, Khaled and Qazi are members of an AOP and share profit and loss in the ratio of 2:2:1. The principal activity of the
AOP is trading of rice and wheat. Following are the details of the annual income / (loss) of the AOP and its members:
(i) The AOP suffered loss before tax amounting to Rs. 1,500,000. The loss has been arrived at after adjusting
rental income earned by the AOP, the details of which are as follows:
Rupees
Rental income 2,000,000
Related expenses:
Property tax 40,000
Depreciation 457,500
Net rental income 1,502,500
(ii) The expenses debited to profit and loss account include the following amounts paid to the members of the
AOP:
(iii) Sohail earned Rs. 800,000 from another business, of which he is the sole proprietor.
(iv) Khaled received an amount of Rs. 255,000 as share of income after tax, from another AOP where he is
entitled to 40% of the total profit. Tax on annual income of that AOP amounted to Rs. 112,500. He also earned
income of Rs. 900,000 from a sole proprietorship concern owned by him.
(v) Qazi works as a Freelance IT Consultant and provides consultancy services to corporate clients. He received
Rs. 940,000 from his clients after deduction of tax amounting to Rs. 60,000. The total expenses incurred in
providing the consultancy services amounted to Rs. 150,000.
Required: Assuming that the above data pertains to the tax year 2010, compute the taxable income and tax liability of the
AOP and each of its members.
In the absence of information no minimum tax under section 113 has been computed.
Total income of the firm (Property income less business loss) 1,157,500
Total share from AOP included for rate purposes 560,400 515,400 180,200
Total income 1,360,400 1,415,400 1,030,200
Mr. Shahbaz, a resident individual, earned Rs. 700,000 from the sale of assets as shown below:
Discuss the treatment and the implications of each of the above transactions with brief reasons under the Income
Tax Ordinance, 2001.
- Similarly the holding period of jewellery is more than one year, hence 25% of the capital gain shall also be exempt.
- Loss on sale of shares of private company shall be adjusted against gain on sale of unlisted company and
jewellery.
Mr. Zulfiqar, a senior executive of Mirza Petroleum Limited (MPL), retired on March 31, 2009 after completion of nineteen
years of dedicated service. The details of Mr. Zulfiqars income for the tax year 2009 are given below:
(ii) As per terms of employment, tax liability of Mr. Zulfiqar to the extent of Rs. 200,000 is to be borne by MPL.
(iii) On his retirement, he received gratuity of Rs. 2,660,000 from an unrecognized gratuity fund maintained by
MPL.
(iv) He is receiving pension amounting to Rs. 50,000 per month from the date of his retirement.
Other Information
(v) He is also receiving pension of Rs. 12,000 p.m. from a multinational company where he worked from 1975 to
1990.
(vi) A plot inherited from his father was sold for Rs. 5,000,000. Fair market value of the plot at the time of
'inheritance was 'Rs. '1,000,000
(vii) On January 1, 2009, he rented out one of his residential bungalows to a private school for Rs. 100,000 per
(viii) Rs. 500,000 were invested in new shares offered by a listed company.
(ix) He paid mark up amounting to Rs. 250,000 on a house loan obtained from a scheduled bank.
Required:
(a) Compute taxable income and tax liability of Mr. Zulfiqar for the tax year 2009.
(b) Briefly comment on the items which are not considered in the above computation.
Pension amounting to Rs. 50,000 per month from the date of his 150,000
retirement (Rs. 50,000 x 3 months) (N-3)
Pension of Rs. 12,000 p.m. from a multinational company where he 144,000 144,000
worked from 1975 to 1990 (Rs. 12,000 x 12 months) (N-3)
Plot inherited from his father was sold for Rs. 5,000,000. N-1 -
Total salary income 7,366,000
NOTES
N-1 Plot inherited from father was sold is not taxable on the assumption that the same is being held for more than two
years.
N-2 Higher of the FMV of rent or 45% of (MTS or Basic Salary)
N-3 Only one pension with the higher amount is exempted so Rs.150,000 is exempted.
N-4 Advance rent received is adjustable against rent therefore it is ignored. Just the rent for 6 months will be taxable.
N-7 Lower of actual investment Rs. 500,000, 20% of Taxable income (Rs. 7,716,000 x 20%) = 1,543,200 or Rs.
1,500,000, hence lower amount of Rs. 500,000 has been taken into consideration.
During the tax year 2009, Ishaq Enterprise disposed off the following assets:
(i) an immovable property was sold for Rs. 200 million. The cost of immovable property was Rs. 100 million. Upto tax
year 2008, tax depreciation of Rs. 10 million had been allowed on the immoveable property.
(ii) a plant was exported to Nepal. The export proceeds amounted to Rs. 28 million. The cost and written down value of
the plant was Rs. 25 million and Rs. 18 million respectively.
(iii) three trucks were disposed off for Rs. 2.5 million. They were acquired in tax year 2008. The tax written down value of
trucks at the begning of tax year 2009 was Rs. 2.4 million. The trucks were being used partly i. .e. 60% for business
purpsoes. The rate of deprciation for tax purposes is 20%.
Required:
Compute the tax gain or loss on disposal of each of the above assets.
Note: There is no limitation on value of motor trucks as they are not passenger transport vehicle & further no initial
allowance has been claimed on the assumption that the motor trucks are not for hiring purposes.
Mr. Abdullah, an employee of a Malaysian based company, has been assigned to work in Karachi, in its subsidiary
company which is registered under the Companies Ordinance, 1984. The initial assignment of two years commenced on
March 1, 2009 and would be extended subject to mutual agreement. Mr. Abdullahs remuneration will be paid in Malaysia,
details of which are given below:
Required:
(a) Explain the residential status of Mr. Abdullah under the ITO, 2001 for the tax years 2009 and 2010.
(b) Compute taxable income of Mr. Abdullah for the tax years 2009 and 2010 with supporting comments.
a) RESIDENTIAL STATUS
YEAR 2015
Mr. Abdullah is a non-resident person because his stay in Pakistan was for 120 days that is less than 183 days in tax year
2009.
YEAR 2016
Mr. Abdullah is a resident person because he was in Pakistan for 183 days or more in tax year 2010.
Note: Foreign source salary of a resident shall be ignored for tax computation as tax on the same has already been
paid, however if foreign tax on the same is not paid within two years then the same shall be taxed in Pakistan.
Mr. Manto worked as an employee in Berlin Hotel, Germany for a period of five years. During the said period he did not
visit Pakistan for a single day. He returned to Pakistan on July 1, 2008 and immediately joined as a General Manager in a
well-reputed hotel, based in Karachi.
Assume that the details of his income for the tax year 2009 are as follows:
(i) Basic salary (per month) Rs. 100,000 House rent allowance (per month) Rs. 30,000 Medical 'allowance (per
month) 'Rs. '10,000
(ii) Besides medical allowance, he is also entitled to free medical treatment at approved hospitals.
(iii) He has been provided a company maintained 1600cc car which was used partly for official and partly for
personal purposes. The hotel has leased the car from a bank. The gross lease rentals payable over the
period of lease amount to Rs. 2,700,000. The fair market value of the car at the time of lease was
Rs. 1,600,000. The total lease rentals paid by the hotel during the year amounted to Rs. 800,000.
(iv) He is entitled to lunch at the hotels restaurants where the usual charges are Rs. 400 per person. He is
entitled to concessional rate of Rs. 40 per day which is deducted from his salary. Assume that there are 300
working days in the year.
(v) He went for a training course to Islamabad where boarding and lodging cost amounting to Rs. 150,000 was
borne by the hotel. He incurred a further expense of Rs. 125,000 which was reimbursed by the hotel.
(vi) Provident fund was deducted @10% of his basic salary. An equal amount was contributed by the hotel.
Interest credited to his provident fund account amounted to Rs. 48,000.
(vii) As per terms of employment agreed with Mr. Manto, tax of Rs. 249,200 on salary will be borne by the hotel.
(viii) During the year, he also received an amount of Rs. 94,000 (net of 6% withholding tax) from a local university
where he gave lectures on hotel management.
(ix) On July 15, 2008, he received a lump sum amount of Rs. 4,000,000 through a normal banking channel as final
settlement from Berlin Hotel.
(x) On August 1, 2008, he inherited 25,000 shares of a private limited company. The estimated fair market value
of the shares, on the date of inheritance, was Rs. 42 per share. He sold all the shares on February 28, 2009
at Rs.62 per share.
(xi) He paid zakat amounting to Rs. 200,000 to an approved organization, through cross cheque.
Required:
(a) Compute Mr. Mantos taxable income and tax payable for the tax year 2009.
(b) Briefly explain the treatment of items which are not considered in the above computation.
Less: Exempt upto lower of 10% of basic salary or 100,000 (100,000) 20,000
Lessor of (10% x Rs.1,200,000)120,000 or Rs.100,000
Employee contribution (not to be included as already included in salary) -
Interest on provident fund 48,000
Less: Exempt upto higher of 1/3rd of salary or calculated @ 16% (400,000) -
Tax liability paid by hotel 249,200
Amount received as final settlement from Berlin Hotel (not to include in income u/s 51 & 102) -
Total income from salary 2,029,200
Sale of inherited shares in (Pvt.) Ltd. Company Rs.(62-42) x 25,000 shares 500,000
As all the information has been considered while solving the Part (a) of this question hence there is not need any answer
for this part.
Mr. Qasm is in the business of manufacturing of leather products. The financial results of the business for the tax year
2009 are as follows:
Rupees
Sales 12,000,000
Cost of sales 10,000,000
Gross profit 2,000,000
Selling, administrative and other expenses 2,500,000
Net loss (500,000)
He had rented out the ground floor of his house and received Rs. 300,000 as rent thereof. No tax was deducted by his
tenant. Advance tax paid during the year includes the following:
Required:
Compute the tax payable/refundable by Mr. Qasmi for the tax year 2009.
As there is loss under normal law hence 5% minimum tax liability on industrial (A) 18,000
electricity bill is to be paid by the tax payer upto monthly bill of Rs. 30,000 that comes
to Rs. 1,500 p.m. (Rs. 1,500 x 12 months)
Note: Business loss is not allowed to set off against income from property, however the same shall be carried forward and
adjusted against business income only in succeeding six tax years.
Mr. Ali Raza is working as a Senior Executive in DD Pakistan Ltd. The details of his income/receipts during the tax year
2008 are as follows:
Compute his taxable income, total tax payable and tax payable with the return.
Less 1/5th fixed repair allowance irrespective of actual repair expenses (25,720)
Share in rent to HBFC (15,000) 87,880
Taxable income 1,376,480
NOTES:
N-1 Loss on sale of antique shall not be recognized.
Mr. Henry is a UK national and provides independent consultancy services in his individual capacity, to United Autos
Limited, a Pakistani company. Mr. Henry has entered into a contract with the company. The companys accountant has
treated payment under this contract as being under an employment contract with the company.
Mr. Henry stayed in Pakistan for eight months during the tax year 2008. During the said period, he was only involved in
providing in-house independent consultancy services to different departments of the Company. Mr. Henry is of the view
that:
i) Mr Henry assumption that being as UK National he is a non-reisdent for Pakistan tax purposes is not correct as the
residential status is being decided on number of days stay in Pakistan instead of Nationality base. As his stay in Pakistan
is for 183 days or more hence he is a reisdent for Pakistan tax purposes.
ii) As Mr. Henry is providing independent consultancy services to various departments of local company and the same
shall not be treated under the term employment hence a contract of services shall be treated as service contract and
higher of minimum tax at the rate of 10% or tax under normal tax regime on taxable profit, if any, is to be paid by Mr.
Henry.
iii) Tax paid by the company on behalf of Mr. Henry shall be treated as income and tax on the same is to be paid by Mr.
Henry on the same basis as given in Note 2 above.
iv) The presumption of Mr. Henry is again not correct as the conversion rate to the remuneration in pound sterling shall be
the date at which the amount received by Mr. Henry and not the date of agreement.
Saleem, Rashid and Moin are partners in a partnership concern carrying on the business of manufacturing and sale of
consumer goods. They share profit and loss in the ratio 2:3:5 respectively. The results of operations of the firm are as
follows:
Rs. 000
Sales (including rental income) 76,000
Cost of sales 53,000
23,000
Selling, administrative and other expenses 16,250
Profit before tax 6,750
Other information:
(i) The firm has rented out a vacant portion of its factory to a company at an annual rental of Rs.1 million. Tax
was duly deducted by the lessee.
(ii) Mr. Saleem has earned income of Rs. 325,000 from another business as a sole proprietor. He also sold his
personal car for a loss of Rs. 50,000.
(iii) Mr. Rashid earned a gross income of Rs. 200,000 from another partnership firm where he is entitled to 25%
of the total profit of the firm. He also earned dividend of Rs. 50,000 from a listed company.
(v) Mr. Moin has no other source of income.
Required:
Assuming that the above data pertains to the tax year 2008, compute the tax liability of the firm and each of its partners
and the amount of tax payable by them alongwith the return of income.
In the absence of information it has been assumed that the sale of the AOP is wholly to the persons that have
deducted withholding tax at source. Hence the income of the firm is fully covered under FTR.
Gross receipts of AOP on sale of goods manufactured Rs.1,750,000 x 100 / 4.5 38,888,889
The income of the AOP coverved under FTR shall not be included in the income of the respective partner for rate
purposes.
TAX LIABILITY OF PARTNERS
Saleem
Rashid
Moin
Business Income from AOP -
No tax liability has been computed as there is no taxable income from any head of income hence the share from AOP in
retanl income shall also not included for rate purposes.
Mr. Ayub, after retirement from a multinational company as a senior executive, was rehired on contract for a period of
three years. However, due to certain reasons, the contract was prematurely terminated six months earlier i.e. on
December 31, 2006. The detail of emoluments received by him during the tax year 2007 are given below:
Rupees
Basic salary (per month) 70,500
Rent of furnished accommodation (per month) 30,000
Utilities allowance (per month) 12,000
Medical benefits reimbursed during the year 25,000
House rent was paid by the company directly to the landlord. Medical benefits were reimbursed against bills submitted by
Mr. Ayub.
On his retirement as a permanent employee, he had been paid gratuity from the approved fund. According to the rules of
the fund, he was also entitled to a special gratuity in lieu of his services rendered under the contract. Accordingly, an
amount of Rs. 120,000 was also paid out of the fund, on termination of the contract.
In lieu of premature termination, the following additional benefits were allowed to Mr. Ayub:
(i) A compensation for early termination of Rs. 150,000 was paid.
(ii) Mr. Ayub had obtained an interest free loan of Rs. 200,000 on July 1, 2006 which was payable in lumpsum on
March 31, 2007. 25% of the outstanding balance was waived and remaining amount of loan was deducted
from his final settlement. The benchmark rate according to the ITO, 2001 is 10%.
(iii) He was allowed to retain a 1600cc car which was in his use, at accounting book value of Rs. 650,000. The
fair market value of the car at the time of settlement was Rs. 700,000.
Required: Compute the taxable income and tax liability for the tax year 2007.
NOTES
N-1 Assumed that Gratuity received is approved by Commissioner therefore it is totally exempted.
Mr. Zia inherited certain assets from his father in the year 2004. The fair market values of the assets on the date of
inheritance were as follows:
Mr. Ishaq sold all the assets transferred through gift in the same year. The assets fetched the following amounts:
Required:
(i) Based on the above information, compute the taxable income of Mr. Zia and Mr. Ishaq for the tax year 2007.
(ii) Give brief explanation for the items not included in the taxable income.
Mr. Zia
Gain on disposal of Assets Rs. Rs.
Gain from sale of shares of public listed company is taxable as SBI 1,258,000
@ 7.5% as it is held for more than 24 months (Rs. 1,500,000 -
242,000 FMV of sodl shares at the date of gift)
Mr. Ishaq
No gain or loss shall be recognized on the acquisition of any asset received by way of inheritance or gift.
No gain or loss shall be recognized on the acquisition of any asset received by way of inheritance or gift.
During the tax year 2007, Mr. Yahya, a resident person, derived an income of Rs. 1,500,000 from his business in
Pakistan. He has also earned an amount of US$ 30,000 from his business in a foreign country on which he paid income
tax to tax authorities of that country, amounting to US$ 10,500.
Compute the tax liability of Mr. Yahya for the tax year 2007.
Note: Applicable Tax Rate in Pakistan = 25%; US$ 1 = Pak Rupees 60.
(i) In 1998, Mr. Hamid inherited a rare sculpture of Buddha which had a fair market value of Rs. 200,000 on the
date of inheritance. In February 2007, the sculpture was sold by him at Rs. 500,000.
(ii) In December 2006, Mr. Yahya entered into an agreement for sale of his residential plot to Mr. Moosa, who paid
an advance of Rs. 500,000. According to the agreement, Mr. Moosa was required to pay the balance by
February 28, 2007. However, instead of paying the balance amount, he terminated the sale agreement.
Mr. Yahya forfeited the advance of Rs. 500,000 in accordance with the terms of the agreement.
(iii) In September 2006, Mr. Saleem sold his personal car, Toyota Corolla, to one of his cousins at a price of Rs.
50,000 whereas the fair market value of the car was Rs. 200,000. The car was purchased by him in the year
2000 at a cost of Rs. '300,000
(iv) Mr. Ibrahim was working as a Chief Financial Officer in Dawood Pakistan (Pvt.) Limited, which is a wholly
owned subsidiary of Dawood AG, Germany. According to the Companys policy, Mr. Ibrahim was sent on
secondment to Germany on January 1, 2007 for a period of five years. During this period, half of his salary
will be credited to his bank account in Pakistan, whereas the remaining portion will be received by him in
Germany.
Mr. Zubair provided consultancy services to a listed company. In consideration for his services, he received a net amount
of Rs. 47,000 after tax deduction of Rs. 3,000.
ii) Any forfeited money as advance against sale agreement of land 500,000
and building is included in the definition of "Rent". So, the amount
of forfeited money shall be chargeable to tax.
iii) As the sale of personal car is neither a business transaction nor a capital asset. There will be no tax treatment on the
disposal of personal asset. So, the cost, FMV or consideration are irrelevant.
iv) Mr. Ibrahim's salary income is taxable in Pakistan in 2007 and foreign source income in next 5 years as his
employment based in Pakistan according to section 101.
v) Any tax deducted at source on consultancy services is treated as minimum tax however the tax under normal law shall
be computed and higher from both is to be paid by Mr. Zubair.
The income of Mr. Yousuf during the tax year 2006 amounted to Rs. 120 million which included capital gains of Rs. 10
million and dividend income of Rs. 12 million. The tax liability for 2006 was Rs. 32 million out of which Rs. 4 million related
to tax on capital gains and dividend income. The following information is available for the quarter ended December 31,
2006:
Rs. in million
Tax deducted at source by the customers 3
Tax paid on import 2
Compute advance tax liability for the quarter ended December 31, 2006.
As the latest tax year income under NTR of Mr. Yousaf is more
than Rs. 500,000 therfore the quarterly advance tax liability on the
basis of latest tax year is as under.
Note-1 In the absence of information it has been assumed that the capital gain is on capital assets covered under section
37 that is under NTR hence the same has also been considered while computing advance tax under section 147 of the
Income tax Ordinance, 2001.
Note-2 As for individual the dividend income is fully covered under SBI hence the same has been ignored for the
computation of advance tax under section 147.
Note-3 In the absence of information it has been assumed that the individual is engaged in trade business hence the tax
deducted at source on sale of goods and commercial import have not been deducted from the advance tax liability as the
same are fully covered under Final tax regime.
Mr. Dollar has been working as a senior engineer in a local company. The detail of his monthly emoluments is as
under:
You are required to compute the amount of tax to be deducted each month, from his salary for tax year 2007.
Ms. Fatima Hasan was working as a Marketing Head with Consumer Products Limited (CPL) at following emoluments:
In May 2005, Fatima was approached by Pharma Industries (Pvt.) Limited (PIL). They offered her employment at a higher
salary and some extra benefits, alongwith a one time payment of Rs. 200,000 as an inducement to accept their offer.
Fatima accepted PILs offer by resigning from CPL with effect from June 1, 2005. She joined PIL from July 1, 2005. The
amount of Rs 200,000 was, however, paid to her on June 29, 2005.
During the year, Fatima has also undertaken the following transactions:
(i) Shares in QP (Pvt.) Ltd. were sold for Rs. 500,000. These shares were acquired in the year 1999 at a cost of
200,000
(ii) A residential plot inherited in the year 2000 was sold for Rs. 1,000,000. The fair market value of the plot at the
time of inheritance was Rs. 200,000.
(iii) A painting purchased at a cost of Rs. 100,000 was sold for Rs. 75,000.
(iv) She had won a cash prize of Rs. 250,000 in a quiz show. Tax of Rs. 50,000 was deducted from the prize
money u/s 156.
(v) Dividend of Rs. 50,000 was received on account of shareholding in a listed Company. Tax of Rs. 5,000 was
deducted u/s 150.
(vi) She received a fee of Rs. 100,000 in consideration for preparing a research paper for a foreign University.
Fatima incurred Rs.10,000 on the printing of research paper and courier charges for sending the paper abroad.
(vii) An amount of Rs. 50,000 was donated to an approved charitable institution.
In the light of above information, compute the taxable income of Ms. Fatima for the tax year 2005 by giving brief
explanation for the items not included in the taxable Income.
300,000
Taxable capital gain (holding period more than 1 year) 75% x Rs.300,000 225,000
Loss on sale of painting is not recognized (N - 1)
NOTE: N-1 Gain on the sale of residential plot after two years of retention is not taxable under capital gains.
Particulars Rupees
Loss from income from other source after setting off dividend income of Rs. 30,000 (20,000)
Income from speculation business 10,000
Capital gains on disposal of shares of private limited companies 20,000
Loss from business of textiles after considering tax depreciation of Rs. 290,000 410,000
Required:
You are required to work out the following:
(i) taxable income;
(ii) tax liability; and
(iii) amount of loss that can be:
(a) adjusted against any other head of income;
(b) carried forward for maximum 6 years;
(c) carried forward for indefinite period.
Mr. Imran is a citizen of Pakistan. During the first nine months of the tax year 2005, he worked as financial controller of a
Pakistan based subsidiary of a multinational group. After that he was transferred and employed as Head of Finance of the
UAE based subsidiary of the Group. Mr. Imrans family stayed in Dubai throughout the year. The detail of income earned
by him during the tax year 2005 is given below:
Required:
Compute the taxable income of Mr. Imran for the tax year 2005 based on the data provided above.
Note -1 Grant of an option or right is not taxable whereas exercise of an option to acquire shares is taxable where
the same is without restriction and limitation.
Mr B is the Chief Executive of a Multinational Company. Details of his emoluments are as follows:
Rs.
Basic Salary 8,800,000
Bonus 5,000,000
Utility allowance 880,000
Relocation allowance 200,000
According to the terms of employment the tax liability of Mr. B on the above benefits and perquisites from (i) to (iv) above
is borne by the employer. Tax liability on other remuneration is borne by himself.
Mr. B also owns a property which was let out on rent for a part of the year details of income and expenses incurred are
as follows:
The Bank account of Mr. B was credited with profit during the year amounting to Rs.6,300. During the year the
following amounts were withheld at source as Income Tax:
Rupees
From salary income 4,541,250
Tax paid by the employer 446,820
From profit on bank account 630
On receipt of rent 17,500
You are required to compute the taxable income and tax liability of Mr. B for the tax year 2004.
Mr. A is the Chief Executive of a multinational company. Details of his emoluments are as follows:
Apart from the above he has received Directors fee amounting to Rs. 52,000. During the year he has sold shares that
were acquired through exercise of a Stock Option(being the a share, of a UK company) two years ago. The gain on sale
amounts to Rs.4,206,000.
He also owns a property which has been let out on rent. The details of rent received and expenses incurred are as
follows:
(a) Rent Rs.10,000 per month. The property was let out on rent for the whole year. The annual letting
value of the house is 'Rs.100,000.
(b) He has paid property tax amounting to Rs. 11,500.
(c) During the year he has paid Rs.6,000 for repairs and maintenance.
During the year the following amounts were withheld at source towards income tax.
You are required to compute the taxable income and tax liability of Mr. A for the tax year 2004
NOTES
N-1 In the absence of information, it has been assumed that the shares of the company on which gain is given in
the question is in the definition of Public company hence tax has been levied accordingly u/s 37A of the Ordinance.
N-2 Profit on PLS is covered as SBI under final tax regime.
Mr. A is an employee of a multinational company incorporated in Pakistan. His remuneration during the year was as
follows -
(Rupees)
1 Basic Salary 1,117,245
2 Reward 22,062
3 Bonus 300,000
4 House Rent Allowance 643,514
5 Utility Allowance 111,724
The Company has provided him a car for personal and business use. The cost of the car was Rs.1,100,000. During the
year Mr. A has paid interest on loan borrowed for construction of a house amounting to Rs.115,000. In addition to the
above, Mr. A was granted Stock Option of 2500 shares by the Head Office of the Company at US$ 36 per shares. Out of
the above stock option, 1250 shares vested to him during the year were immediately exercised by him. The price of the
share at the time of exercise was US$ 41 per share. The exchange rate between US$ and Pak Rupee on the date on
which Mr. A exercised his option was US$ 1 = Rs.58.
During the year the company has withheld tax from his salary amounting to Rs. 695,000.
You are required to compute his taxable income and tax thereon for the Tax Year 2003.
Conveyance facility for both official and for business use (5% of 1,100,000) 55,000
Employee stock option (1,250 shares x 58 x (41 - 36)) 362,500
Taxable Income 2,612,045
Mr. A and B are equal partners of a Registered Firm (RF). The profit and loss account of RF shows profit before tax of Rs.
10 million for the year ended June 30, 2003. Assuming no other tax adjustment, the profit shown in the accounts is liable
to tax. You are required to compute the tax, if any, payable by the RF, Mr. A and Mr. B, assuming Mr. A and B have no
other source of income. Also give brief explanation of the treatment made in the computation.
Mr. Bashir Ahmed is an employee who had joined his current employment during the tax year 2003. His details of salary,
allowance and perquisites received from company A his previous employer and company B his present employer are
as follows:
The details of assessed income and assessed tax in respect of past three years is as follows:
Assessment year Assessed Tax assessed
Income
Rs. Rs.
2000-2001 1,309,570 269,902
2001-2002 1,545,850 371,255
2002-2003 2,264,940 557,633
During the year Company A had deducted tax u/s 149 amounting to Rs.270,000 and Company B had deducted tax u/s
149 amounting to Rs.800,000 from payments made to Mr. Bashir.
Required:
Compute the taxable income and tax liability of Mr. Bashir based on the data provided above for the tax year 2003.
Tax on golden hand shake: ( tax of last 3 years / Taxable Income 479,553
of last 3 years x 100) x Amount of golden hand shake Rs.
(1,198,790 / 5,120,360 x 2,048,300)
Total tax payable 695,547
Tax liability
As tax under option 1 is lower than from tax payable under option 2 679,416
hence the tax payer shall opt to pay tax under option 1.
Less: Tax deducted at source 1,070,000
Balance tax refundable (390,584)
Compute the projected advance tax liability and net advance tax payable in respect of ABC Limited a public company, for
the quarter ended September 30, 2003. The data of turnover and tax liability assessed in respect of the latest assessed
tax year is as follows:
Rs.
(i) Gross sales (including sale of imported goods and export sales) 20,000,000
Sales of imported goods 2,000,000
Export sales 3,000,000
Agency commission 1,000,000
Sale of fixed assets 200,000
Dividend income 1,000,000
Miscellaneous income 1,500,000
(ii) Gross Tax Liability 1,200,000
Tax on export sales 30,000
Tax on Import of goods 108,000
Tax on dividend income 50,000
The projected turnover and taxes expected to be withheld at source are as follows:-
All figures are for the quarter ended September 30, 2003
(i) Gross sales 5,000,000
Sale of imported goods 500,000
Export sales 1,000,000
Dividend income Nil
Miscellaneous income 500,000
(ii) Tax collection/deduction:
- U/s 148 on goods imported for sale 24,000
- U/s 153 on sale of imported goods 95,000
- U/s 154 on export sale 10,000
Less: tax deducted under section 153 on sale of imported goods 95,000
NOTES
N-1 Latest assessed tax under NTR
Gross Tax Liability 1,200,000
Less: Tax on export 30,000
Tax on import of goods 108,000
Tax on dividend 50,000 188,000
Net tax 1,012,000
N-2 Latest tax year turnover under NTR
Gross sales 20,000,000
Less: Export sales 3,000,000
Sales of imported goods 2,000,000 5,000,000
Net sales 15,000,000
N-3 Actual turnover for the quarter
Gross sales 5,000,000
Less: Export sales 1,000,000
Sales of imported goods 500,000 1,500,000
3,500,000
Required:
You are required to compute the amount available for deduction from the taxable income of Mercury and Co for each
year. Please show proper working.
2nd Year
Business Income -
Add: Inadmissible deductions
Depreciation 74,250
Interest (225,000 - 22,500 - 96,890 + 41,513) x 20.5% 30,160 104,410
104,410
Less:Admissible deductions
Lease rental 96,890 96,890
7,520
3rd Year
Business Income -
Add: Inadmissible deductions
Depreciation 74,250
Interest (225,000 - 22,500 - 96,890 - 96,890 + 30,160 + 16,480 90,730
41,513) x 20.5%
90,730
Less:Admissible deductions
Lease rental 96,890 96,890
(6,160)
Sun and Moon have recently registered as partnership. They have incurred the following expenditure.
Required: You are required to explain the tax treatment by computing the amount allowable as deduction in
accordance with the provisions of Income Tax Ordinance 2001
NOTES
N-1 Precommencement expenditure written off @ 20%
Machinery 1,000,000
Installation cost 50,000
1,050,000
1,050,000 @ 25% 262,500
Mr Amir-ud-din has recently constructed an office complex for the purposes of letting out. The office complex is also
equipped with its own electric generators for which tenants are separately charged on a monthly basis. As per terms and
conditions, Mr Amir-ud-din is also entitled to signing amount, which is nonrefundable.
For the tax year 2003 following information has been provided to you for the computation of his income from property and
tax liability thereon:
Rupees
Rent for the year already received 1,150,000
Rent for the year though due but irrecoverable 50,000
Signing amount (non-adjustable non-refundable) 100,000
Fire and water tax paid to the local authority 20,000
Lawyers fee for suit to recover rent 50,000
Lawyers fee for drafting master rent agreement 10,000
Salary of the caretaker who also collects monthly rent 36,000
Insurance premium being one per cent of market value of the property 200,000
Repair maintenance expenditure 50,000
Mr. Mushtaq has provided you with the following data for the computation of his total income and tax thereon for the tax
year 2003.
Basic salary 225,000 Bonus 50,000 Conveyance allowance 50,000 House rent allowance 101,250 Leave fare assistance
60,000
Cash paid to a non profit organization by way of donation Rs.20,000. Motor vehicle provided by employer and used partly
for personal and partly for business purpose. Running cost borne by employee Rs.30,000. During the year Mr. Mushtaq
was issued 5,000 shares under an employee share option scheme whereby he was offered shares at 25% discount to the
market value. The market value of shares is Rs.11 per share. House loan taken by Mr. Mushtaq Rs.200,000. Interest paid
on such loan during the year amounted to Rs.6,000.
Required:
You are required to compute his taxable income and tax thereon. Show all computations and assumptions, as
necessary.
NOTES
N-1 The value of conveyance facility is not provided so there will be
no treatment. conveyance allowance is fully taxable.
N-2 Benefit from share option
FMV of shares 55,000
Less: Cost of shares (5,000 shares x 11 x 0.75) 41,250 13,750
N-4 Deductible allowance on markup on house loan has not been claimed as the same has been assumed not fall within
section 64A.
ABC Associates owns a building which is 30 percent occupied for its business. The rest 70 percent is on rent.
Rent received includes Rs. 600,000 for three years commencing from July 01 of the current year. ABC Associates follow
accrual basis of accounting and its income year is July-June 2002.
Required:
Please compute the income of ABC Associates under the head income from house property.
Annual letting value of the property owned being as Fair market (A) 2,000,000
rent
Rentreceivedfromtenants 1,800,000
Less advance for next two years (Rs. 600,000 / 3 x 2) (400,000)
Add owners burden paid by tenant in the form of taxes 100,000
Actual rent for the tax year (B) 1,500,000
Higher of actual rent or Fair market rent i.e. higher of (B) & (A) 2,000,000
1/5thofrentchargeabletotaxasrepairallowance 400,000
Taxdepreciation(notanallowableexpense) -
PropertyTax 100,000
Muncipal/localGovt.taxesagainstproperty(70%relatedtorentedportion) 70,000
570,000
Net taxable income from property 1,430,000
Note - 1 It has been assumed that the data given in the question is only related to the rented out portion, unless where
specified.
Note - 2 General and administration expenses are not admissible against property income under section 15A of the
Income Tax Ordinance, 2001.
Note - 3 Taxes paid on behalf of owner by tenant shall be treated as income in the hands of the owner by virtue of section
69 of the Income Tax Ordinance, 2001.
Unique Ltd. has following salary related data for the period July 1, 2001 to June 30, 2002 of its three employees.
S G O
Rupees
(Salary and allowances per month)
Basic salary 37,500 23,000 6,000
House rent allowance 16,875 10,350 2,700
Conveyance allowance - 2,300 300
Utility allowance 4,000 2,500 1,000
Recovery of Provident Fund Loan 2,000 1,500 500
Additional information is as follows:
(i) S is provided a fully maintained car of 1000cc which is used both for private and business purpose.
(ii) G owns his conveyance and also incurs its running and maintenance cost. The conveyance is used partly for
business and private purposes.
(iii) S, G and O all were entitled for annual bonus due in Sept. 2001, the term of bonus is one basic pay.
On the basis of above, compute tax withholding per month under the CIR read with the Income Tax Rules, 1982.
20,700 1,976 -
Mr. Ashraf made the following donations during the income year 2000-2001:
(a) Rs. 200,000 in cash to a relief fund sponsored by the Government.
(b) Personal car to an institution referred to in Clause (61) of the Second Schedule. This car was purchased by
Mr. Ashraf four years ago at the cost of Rs. 80,000.
(c) The fair market value is Rs.60,000
Please advice Mr. Ashraf regarding the allowance for donation which may be claimed by him keeping in view the
requirement of Section 47 of the CIR 1979 if his income for the relevant income year has been assessed at Rs. 800,000.
Explain whether the following are admissible as business expenditure under the ITO 1979:
(a) Repayment of principal amount of lease rentals of plant and machinery. (b)Sales tax paid on the purchase of raw
material to be used in the production of exempt supply. (c) Dividend (d) Provision in respect of doubtful debts.
(b) Penalty levied u/s 108 of the CIR, 1979 for failure to file statement u/s 139.
a) Repayment of principal amount of lease rentals: Lease rentals are admissible where leased asset is acquired for
business purposes. In this case the repayment is principal amount with markup although not given in question.
b) Sales tax paid on the purchase of raw material to be used in the production of exempt supply shall be allowed as
admissible expense.
c) Dividend is not an allowable deduction while calculating the business income because it is profit and loss approprriation
item.
d) Provision in respect of doubtful debt is not allowed. Only actual bad debts are allowed.
e)PenaltyleviedunderSection108oftheIncomeTaxOrdinance,1979forfailuretofilestatementunderSection139
shall not be admissible under the income tax ordinance.
Mr. Javaid, Managing Director of a multi national Company has submitted the following data for the income year ending 30
Rs.
Basic Salary 130,500 p.m
Bonus 325,500 full year
House rent allowance 43,500 p.m
Utilities 13,050 p.m
- Mr. Javaid has been provided with free use of a Company maintained car of 1,600 C.C.
- In accordance with terms of his employment Mr. Javaid was paid Rs. 60,000 being the cost of air ticket in
connection with a foreign tour. He last undertook a foreign tour three years ago.
- During the year Mr. Javaid sold 180,000 shares of Rs. 10 each purchased at par three years ago of
M/s Azmat (Pvt) Ltd for Rs. 65 per share.
- Zakat paid Rs. 12,000
Required:
You are required to calculate the total income of Mr. Javaid and tax payable thereon.
Notes
N-1: The value of car not provided and further it is assumed that the car was being for office use only.
N-2: Air ticket for foreign trip treated as exempt as it is for the discharge of official duties.
Mr Amir Ali is manager finance in a multinational company. He has received the following salary and other perquisites
during the year ended on June 30, 2000:
The employer provided him a 1300 c.c. car for office/personal use and medical facility worth Rs.25,000 during the
year.
Compute the total income of Mr Amir Ali and tax payable thereon.
T and H Enterprises is a registered firm comprising of two equal partners named Tariq and Hamid. During the year ended
on 30th June 2001 the partners besides their shares in the firm enjoyed income and sustained losses from the sources
given below:
Tariq
Hamid
(a) Speculation loss 25,000
(b) Profit on sale of car 13,000
(c) Income tax refund 5,000
(d) Zakat paid 14,000
The profit and loss account of the registered firm for the year ended on 30th June, 2001, shows the following
position:
Rs. Rs.
Salaries 300,000 Gross profit b/d 480,000
Office maintenance 5,000 Dividend from
Public Co. 250,000
Repairs 38,000
Provision for bad debts 14,000
Super tax paid for last year 5,000
Legal expenses 15,000
Commission to Tariq 16,000
Premium of life policies of
Partners 5,000
Depreciation 34,000
Net profit:
Tariq 149,000
Hamid 149,000 298,000
730,000 730,000
Notes:
(i) Tariq and Hamid are paid Rs.45,000 and Rs.55,000 respectively as salary. This is included in total salary
expense.
ii) Repairs includes Rs.18,000 being cost of a typewriter to be depreciated by 10%.
(iii) Legal expenses include Rs.6,000, on which tax is deductible.
(iv) Tax Depreciation excluding typewriter Rs.14,000.
Compute:
(a) the total income of the firm and taxes payable by it. (b) the total income of each partner and tax thereon.
Tariq
Total income from foreign source 72,000 -
Less: Zakat (26,500) -
Taxable income 45,500 -
Add: Share of profit from AOP 115,100 -
Taxable income for rate purposes 160,600 -
Hamid
He has a speculation loss which is set off only against speculation profit. So nothing shall be included from share
from AOP.
NOTES
N-1 Dividend covered under FTR, so not included in taxable income.
Chapter
Topic covered
Section
Section Rule
For CA Mod F & ICMAP students
a. The income shall not be chargeable to tax under any other head of income in computing the taxable income of
the person.
b. No deduction shall be allowable for an expenditure incurred in deriving the income or any deductible
allowances.
c. The amount of income shall not be reduced by any tax credits or set off of any losses (except stated
otherwise).
d. In case where a person has no income other than final tax regime and files a statement for final tax regime an
assessment order shall be deemed as made u/s 120 on the date of filing such statement.
e. Return of income is not required to be filed where the only source of income is final tax regime. However,
statement for final tax regime u/s 115(4) is required to be filed on or before the due date for filing of return of
income.
f. There shall be no refund of the tax collected or deducted except where the tax so collected or deducted is in
excess of the amount for which the taxpayer is chargeable under the ordinance.
g. If tax deductible has not been deducted, or short deducted, the said non-deduction or short deduction may be
recovered under section 162, and all the provisions of this Ordinance shall apply accordingly.
3. Commercial Imports [Section 148(7) & (8A)]: (Covering NTR / FTR / MTL)
1. Tax rate The Collector of Customs shall collect advance tax from every importer of goods
(other than the goods or persons specified by the Board) on the value of the
goods at:
5.5% for companies & industrial undertakings.
6% for AOPs and individuals
12% of the value of film in case of foreign produced film imported for the
purpose of screening & viewing.
4.5% tax collected at the time of import of ships by ship breakers.
2. Reduced tax rate Although the general rate of tax is 5.5%, however, the Board has specified reduced
and more than general rate of 5.5% in Division II of Part V of Chapter X of first
Schedule as rates of advance tax.
3. Value of goods Means value as increased by sales tax, federal excise duty and custom duty.
4. Exceptions from Final tax Tax required to be collected on import of goods is final tax except the following:
Regime
(a) raw material, plant, machinery, equipment and parts by an industrial
undertaking for its own use;
(b) fertilizer by manufacturer of fertilizer; and
(c) motor vehicles in Completely Built Unit (CBU) condition by manufacturer of
motor vehicles.
(d) large import houses. (Definition given in payment chapter u/s 148)
(e) a foreign produced film imported for the purposes of screening and viewing
(e) The tax required to be collected from a person on the import of edible oil and
packing material for a tax year shall be minimum tax.
(f) 12% tax collected on the value of film in case of foreign produced film imported
for the purpose of screening & viewing is adjustable
5. Minimum tax liability The tax required to be collected from a person on the import of edible oil and
packing material for a tax year shall be minimum tax.
6. Opting out from Final Commercial importers paying taxes under the Final Tax Regime of the Ordinance
Tax Regime may opt for Normal tax regime [NTR], provided the tax liability under NTR does not
fall below 100% of the tax collected on imports.
[Clause 56B of Part IV of the Second Schedule]
Example:
Following information relates to Mr. Kamran for tax year 2016. He imports garments goods from America and sells
goods in the same condition in which they were imported.
Rs.
Sales 500,000
Expenses 350,000
Net Profit 150,000
Note: Expenses include imports of Rs. 300,000. For certain reasons, tax on half of the imports were not collected by
collector of custom duty.
Solution:
In this case tax required to be collected shall be treated as final tax liability of the taxpayer.
Tax required to be collected (300,000 x 6%) 18,000
Tax collected at import stage (8,250)
Balance tax payable 9,750
4. Dividends (Section 5 and 150):
Tax shall be deducted from gross dividend which shall be considered full and final tax for a person. This section is
not applicable in case where dividend is exempt from tax e.g. dividend received from agricultural business u/c 105B
of Part I of second schedule.
2. Sub-section (1AA) shall not apply to an amount, with the written approval of the Commissioner Inland
Revenue that is taxable to a PE in Pakistan of the non-resident person.
3. The tax deductible as above shall be a final tax on the income of a non-resident person except the following:
Royalty and fee for technical services connected or through Permanent Establishment (PE) of non-
resident in Pakistan.
Exempt royalty and fee for technical services.
In respect of non-resident contractors u/c 41 of Part IV of the second schedule unless he opts for Final
Tax Regime for 3 years.
4. In this section prescribed person means a prescribed person as defined in sub-section (7) of section 153.
7. Sale of goods, rendering of services and contracts [Section 153(a) and (c)]:
Every prescribed person making a payment to a resident person shall deduct tax at the time of payment (including
sales tax) as per following schedule:
Tax deductible on sale of good and execution of contract shall be final tax and tax deductible on rendering of services
shall be minimum tax except in the following cases:
- Tax deductible on sale of goods shall not be final tax if sale is made by a company being manufacturer or
public listed company.
- Tax deductible on execution of contracts shall not be final tax if payments are received by public listed
company.
Opting out from Final Tax Regime [Clause (56C), (56D) & (56E) of Part IV of the Second Schedule]
In case of supply of goods, contracts & services of stitching, dying & printing etc. provided to exporter & export
house, the said persons paying taxes under the Final Tax Regime of the Ordinance may opt for Normal tax regime
[NTR], provided the tax liability under NTR does not fall below 100% of the taxes deducted under respective sub
sections.
Example:
Following information relates of Mr. A. He is doing the business of manufacturing of garments for tax year 2015.
Rs.
Sales 6,500,000
Expenses 6,050,000
Net Profit 450,000
Note: All the sales amount has been received after tax deduction @ 4% being as industrial undertaking.
Solution:
Computation of tax liability: Rs.
Tax deducted u/s 153 (6,500,000 x 4%) 260,000
Total tax liability 260,000
Less: tax deducted at source (u/s 153) 260,000
Balance tax - -
Example:
Following information relates of Mr. B. He is doing the business of manufacturing of garments for tax year 2015.
Rs.
Sales 6,500,000
Expenses 6,050,000
Net Profit 450,000
Note: There was no tax deduction under section 153.
Solution:
Computation of tax liability: Rs.
Tax deductible u/s 153 (6,500,000 x 4%) 260,000
Total tax liability 260,000
Less: tax deducted at source - _
Balance tax payable 260,000
8. Exports [Section 154(4)]:
1. Tax deductible under this section shall be final tax as per the following rates:
Nature of Status Deduction/collecting
Section
payment/transaction
Tax rate Exemption payment authority
(a) Direct export:
Example: Compute taxable income and tax liability of Mr. Jamil for the Tax year 2015 from following data:
Local sales 600,000
Exports sales (total amount realized) 400,000
Cost of local sales 360,000
Cost of export sales 300,000
Other expenses related to local sales 100,000
Other expenses related to export sales 40,000
Solution:
Computation of taxable income Rs.
Tax rate is 7.5% for advertising agents, u/c 26 of Part II of second schedule.
Where any tax is required to be collected from a person as above, such tax shall be the final tax on the income of
such person.
Opting out from Final Tax Regime [Clause (56G) of Part IV of the Second Schedule]
In case of brokerage or commission, the said person paying tax under the Final Tax Regime of the Ordinance may
opt for Normal tax regime [NTR], provided the tax liability under NTR does not fall below 100% of the tax deducted
under this section.
Example: Mr. Ahsan earned commission on local business of Rs. 500,000 (gross) during the tax year and incurred
expenses of Rs. 100,000 in deriving this income. Compute his tax liability if tax was deductible on commission income
@ 12% but was not deducted.
Solution:
(FTR)
Tax liability: Tax required to be deducted on commission (500,000 x 12%) 60,000
In this case tax deductible on commission on sale of petrol is treated as full and final discharge of his tax liability and
no other tax is payable by him, however option for equal amount of tax is available under normal tax regime.
12. Goods Transport Vehicles [Section 234(5)] Any person at the time of collecting motor vehicle tax shall also collect
advance tax on it, if motor vehicle tax is collected in instalments the advance tax shall also be collected in
instalments.
Rs. 2 per Kg per annum shall be collected on registered laden weight from the owner of goods transport vehicle.
However where the registered laden weight of vehicle is less than 8,120 Kg (equal or more than 8,120 Kg @
Rs.1,200 per annum), advance tax shall not be collected after a period of 10 years from the date of first registration of
vehicle in Pakistan.
Where the tax so collected from any person from plying, or hiring out, of such vehicle being owner of goods transport
vehicle, the tax so collected shall be the final tax on the income of such person.
Example: Calculate the amount of tax on goods transport vehicle (for hiring) in tax year 2015, if the laden weight of
vehicle is as follows:
- Vehicle registered first time in Pakistan in 2013 with laden weight of 9,000 Kg.
- Vehicle registered first time in Pakistan in 2003 with laden weight of 8,200 Kg.
- Vehicle registered first time in Pakistan in 2003 with laden weight of 8,000 Kg.
Solution:
1. The tax shall be Rs. 18,000 i.e. Re. 2 per Kg.
2. The tax shall be Rs. 1,200 as the goods transport vehicle is more than 10 years old.
3. There is no tax liability as the vehicle after first registration is more than 10 years old.
13. CNG stations (Section 234A): The person preparing the gas consumption bill shall charge tax @ 4% of the amount
of gas consumption charges and such tax shall constitute final tax and further the taxpayer shall not be entitled to
claim any adjustment of withholding tax under any other head.
Example: Ali is operating a CNG station. Tax collected on gas consumption charges is Rs. 4,000. What will be his tax
liability?
Solution: The tax deducted on gas consumption charges is treated as full and final discharge of his tax liability.
2. When applicable If tax payable (other than tax payable or paid as final tax) is zero or less than minimum tax
on turnover because of:
(a) Loss for the current of earlier year,
(b) Exemption from tax, or
(c) Rebates of credits
3. When not This section shall not apply to a company which has declared gross loss before set off of
applicable depreciation and other inadmissible expenses. However if the loss is arrived at by setting of
depreciation and other inadmissible expenses of by changing accounting pattern, the
Commissioner Inland Revenue may ignore such claim and proceed to compute the tax as
per historical accounting pattern.
4. Rate of tax 1% or reduced tax rates as the case may be of the turnover.
6. Facility of carry Minimum tax in excess of actual tax liability shall be carried forward and adjusted against the
forward tax liability of subsequent 5 tax years. Facility of carry forward has also been extended to
individuals and AOPs from the tax year 2014. (See Example B hereunder)
Example A: ABC Limited is member of an AOP with 50% share. Sale of AOP for the year is Rs. 100,000 while sale
of company for the year is Rs. 50,000 including sales tax of Rs.10,000. What would be the turnover of the company
for the purpose of section 113?
Solution:
Rs.
Sales of the company excluding sales tax 40,000
Add: Share in sales of AOP 50,000
Turnover of company for the purpose of section 113 90,000
Year 2015
Tax liability
(Higher of actual or minimum tax) 60,000
Less: b/f balance from minimum tax of tax year 2014 for adjustment (5,000)
* 55,000
* Tax liability cannot be less than the minimum tax for the year i.e. Rs. 55,000.
Remaining minimum tax shall be carried forward i.e. 40,000 - 5,000 = Rs. 35,000.
(9) The provisions of this section shall not apply to taxpayers chargeable to tax in accordance with the provisions
contained in the fourth, fifth & seventh schedules.
(10) Tax credit u/s 65B shall be allowed against alternative corporate tax.
(11) The commissioner may make adjustments & proceeds to compute accounting income as per historical
accounting pattern after providing opportunity of being heard.
18. Tax paid on import of edible oil and packing material (section 148):
The tax collected from a person on the import of edible oil and packing material for a tax year shall be minimum tax.
Edible oil:
Edible oils includes crude oil, imported as raw material for manufacture of ghee or cooking oil.
Example: A company is engaged in the business of sale of cooking oil by manufacturing. Tax deducted on import of
edible oil is Rs. 10,000. Compute the income tax liability of the company from following data assuming that all the
expenses are admissible:
Rs.
Sales 40,000
Cost of sales 20,000
Other operating expenses 10,000
Solution
Rs.
Sales 40,000
Cost of sales 20,000
Gross profit 20,000
Other operating expenses 10,000
Taxable income 10,000
Computation of tax liability:
Higher of:
Tax on Rs. 10,000 @ 33% 3,300
OR
Tax deducted on import of
Edible oils 10,000
Tax liability 10,000
19. Tax deducted on services (section 153):
a. For a person other than a company, tax deductible on gross amount of services @ 10% u/s 153 shall be
minimum tax.
b. If the person to whom the services are provided is not required to deduct tax u/s 153 then minimum tax shall
not be applicable.
Income from royalty [Rule 18] Fee for technical services [Rule 19]
The income of a non-resident person by way of royalty Same as in column except that royalty shall be replaced
received from a resident person or a PE in Pakistan of a non- by the words fee for technical services
resident person shall be-
1. Same as in column 1 except that royalty shall
1. Royalty received as per agreement made before be replaced by the words fee received:
8.3.1980 covered under NTR:
2. Fee for technical services received as per
in the case a royalty received in pursuance of an agreement made on or after 8.3.1980 but before
agreement made before 8.3.1980, or an agreement 04-05-1981 covered under NTR:
made on or after the said date the proposal in respect
In the case of fee received in pursuance of an
of which was approved by the Government before the
agreement made on or after 8.3.1980 but before
said date, the gross amount of the royalty less the
deductions allowed u/s 40; or 4.5.1981, the gross amount of the fee less the
deductions allowed u/s 40 with a maximum total
2. Where final tax regime does not apply OR Royalty deduction equal to 20% of the gross amount of
received in pursuance to any other agreement: such fee; or
In any other case where FTR does not apply, the 3. Fee for technical services received covered
gross amount of the royalty less the following under NTR on which FTR is not applicable:
expenditure:
In any other case to which FTR does not apply, the
Any expenditure incurred in Pakistan in earning such gross amount of fee for technical services less the
income and in respect of any work done in pursuance following expenditures;
of such agreement; and
Any expenditure incurred in Pakistan to earn such
Any expenditure incurred outside Pakistan in fee for technical services, wherever paid.
pursuance of such agreement not exceeding 10%of
Any expenditure incurred outside Pakistan in
gross amount of royalty.
pursuance of such agreement not exceeding10%
No expenses shall be allowed where royalty is fully of gross amount of fee for technical services.
covered under FTR.
Provided that a non-resident may opt for taxation
under final tax regime by filing a written declaration/
option within 15 days of the commencement of
contract. Such option shall remain operative till
completion of the said contract.
No expenses shall be allowed where fee for
technical service is fully covered under FTR.
Tax on shipping income of a non-resident person Tax on air transport income of a non-resident person
[Section 7] [Section 7]
A tax shall be imposed at 8% on the gross amount (except Same as given in first column except that rate of tax shall
exempt amount)on every non-resident person carrying on the be 3% and ships shall be replaced by air transport.
business of operating ships as the owner or charterer in
respect of the gross amount received or receivable (whether in
or out of Pakistan) for the carriage of passengers, livestock,
mail or goods embarked in Pakistan and outside Pakistan.
Non-resident ship owner or charterer [Section 143]
Non-resident aircraft owner or charterer [Section 144]
1. Before the departure of a ship owned or chartered
by a non-resident person from any port in Pakistan, 1. A non-resident owner his agent or charterer of an
the master of the ship shall furnish to the Commissioner aircraft liable for tax shall furnish to the
Inland Revenue a return showing the gross amount in Commissioner Inland Revenue within 45 days
respect of the ship. from the last day of each quarter of the financial
year quarterly returns showing the gross amount.
2. Where the master of a ship has furnished a return, the
Commissioner Inland Revenue shall, after calling for 2. Same as given in first column except that in place
such particulars, accounts or documents, determine the of master of the ship the non-resident agent or
amount of tax due in respect of the ship and shall notify charterer shall be replaced.
the master in writing the amount payable within 3. Where the tax is not paid within 3 months of
specified time. service of the notice, the Commissioner Inland
3. The master of a ship shall be liable for the tax as if it Revenue may issue a certificate to the authority by
were tax due under an assessment order. whom clearance may be granted to the aircraft
operated by the non-resident person and until the
4. Where the Commissioner Inland Revenue is satisfied tax has been paid such authority shall refuse
that the master of a ship or non-resident owner or clearance from any airport in Pakistan to any
charterer of the ship is unable to furnish the return aircraft owned or chartered by the non-resident.
required before the departure of the ship from a port in
Pakistan, the Commissioner Inland Revenue may allow
the return to be furnished within 30 days of departure of
the ship andon satisfactory arrangements for the
payment of the tax due in respect of the ship.
5. The Collector of Customs or other authorised officer
shall not grant a port clearance for a ship owned or
chartered by a non-resident person until tax due in
respect of the ship has been paid or arrangements
payment have been made to their satisfaction.
Return to be furnished by a non resident ship owner or Return to be furnished by a non resident aircraft
charterer [RULE 37] owner or charterer [RULE 38]
A return required to be furnished u/s 143 shall be Same as given in first column U/R 37 except that section
accompanied by such documents, statements and certificates 143 shall be replaced by section 144.
as specified in the form, and in the Ordinance, these rules and
circulars issued under the Ordinance and may be furnished by
any of the methods specified in rules 73 & 74.
Q.9 The tax under section 113B on developers shall be treated as _____________.
(a) Fixed tax
(b) Final tax
(c) Minimum tax
(d) None of above
Q.10 A person who pays profit on debt, on account or deposit maintained by a banking company or financial institution
shall deduct tax at source at rate of
(a) 10%
(b) 15%
(c) 5%
(d) None of above
Q.11 Tax rate applicable to the contract with a T.V channel for advertisement services is
(a) 2%
(b) 6%
(c) 3%
(d) 1% on the gross amount payable
Q.12 Tax deduction on payment to a resident person on account of sale of edible oil is at
(a) 1.5%
(b) 3.5%
(c) 6%
(d) None of the above
Q.13 Goods supplied to an exporter under an inland back-to-back letter of credit is taxable at the rate of
(a) 2%
(b) 5%
(c) 1%
(d) None of the above
Q.14 Tax deducted on imported plant & machinery for own use shall be treated under _____________.
(a) NTR
(b) FTR
(c) Minimum tax
(d) Both band c
Q.15 Prizes and winnings are covered under
(a) NTR
(b) FTR as SBI
(c) As a separate block
(d) Both b and c
Q.16 Prize on prize bond is taxable at the rate of
(a) 20%
(b) 15%
(c) 10 %
(d) 5% of the gross amount paid.
Q.17 Prize on winning a quiz is taxable at the rate of
(a) 20%
(b) 15%
(c) 10%
(d) 5% of the gross amount paid.
Q.18 A person selling petroleum products to a petrol pump operator is required to deduct tax from the amount of
commission or discount allowed at the rate of____________.
(a) 15%
(b) 12%
(c) 20%
(d) None of the above
Q.19 The tax rate applicable to the indenting agent receiving commission or brokerage is____________.
(a) 12%
(b) 5%
(c) 5%
(d) None of the above
Q.20 Owner of goods transport vehicles shall pay tax on motor vehicles on the basis of _______.
(a) taxable income
(b) laden weight
(c) number of wheals
(d) none of above
Q.21 Where the income is taxable under ___ it shall not be chargeable to tax under any head of income while computing
the taxable income of the person.
(a) FTR
(b) SBI under NTR
(c) NTR
(d) all of above
Q.22 The person deriving income covered under ______ shall be allowed deduction for expenditure incurred in deriving
such income.
(a) FTR
(b) SBI under NTR
(c) NTR
(d) all of above
Q.23 Amount of tax paid by the owner of the goods transport vehicle having registered laden weight from 8,120 kg to
14,999 kg is taxable under_______________.
(a) FTR
(b) NTR
(c) SBI
(d) None of the above
Q.24 Amount of tax paid by the owner of the goods transport vehicle having registered laden weight above 59,999 kg is
taxable under________________.
(a) FTR
(b) NTR
(c) SBI
(d) None of the above
Q.25 The amount of tax per annum on the goods transport vehicle having registered laden weight more than 5,120 kg after
10 years of registration will be Rs.________.
(a) Nil
(b) 1,200
(c) 7,200
(d) None of the above
Q.26 Turnover tax under section 113 may be levied at the rate of ________.
(a) 0.50%
(b) 1%
(c) 0.2%
(d) Any of the above
Q.27 The turnover tax in excess of NTR shall be adjusted against the normal tax liability for the immediately succeeding
the years for maximum period of ____ upto the extent that the NTR liability of the following years should not be less
than the turnover tax of the following years.
(a) 6 years
(b) 5 years
(c) 10 years
(d) 3 years
Q.28 Turnover tax is not applicable where there is ______ in a tax year before setting off of depreciation and inadmissible
expenses.
(a) gross loss
(b) net loss
(c) net profit
(d) gross profit
Q.29 The general tax rate of 10% is applicable on dividend received by ______________.
(a) individual
(b) company
(c) AOP
(d) All of the above
Q.30 Tax rate on dividend income is applied on the __________.
(a) net amount
(b) gross amount
(c) amount after zakat deduction
(d) none of above
Q.31 Dividend income by an individual from a power generation company shall be charged @ ___% covered under FTR.
(a) 10
(b) 7.5
(c) 6
(d) 0
Q.32 Where applicable tax at source is deducted by a company at the time of making payment to an AOP taxpayer for
______ the same shall deemed as final discharge of tax in respect of such income.
(a) dividend
(b) sale of goods
(c) commission
(d) all of the above
Q.33 Where the non-resident is likely to leave Pakistan, who has earned income under fee for technical services, within the
period of one year, he shall fulfil all those requirements as are applicable to the __________.
Q. NO. 2(b) SUMMER 2010 Explain minimum tax with reference to section 113 of the Income tax Ordinance, 2001.
Q. NO. 4 (a) WINTER 2006 Explain the term Turnover u/s 113(3) of the Income tax Ordinance, 2001.
Chapter
2. Recovery of tax out of property and through arrest of taxpayer [Section 138]
For recovery of any tax due by a taxpayer, the Commissioner Inland Revenue may serve a notice requiring him to
pay the said amount within such time as specified in the notice.
If the amount of tax is not paid within specified time or within the further time as allowed by the Commissioner Inland
Revenue, then he may proceed to recover from the taxpayer the said amount by one or more of the following modes,
namely: -
(a) attachment and sale of any movable or immovable property of the taxpayer;
(b) appointment of a receiver for the management of the movable or immovable property of the taxpayer; and
(c) arrest of the taxpayer and his detention in prison for a period not exceeding six months.
Form of notice of recovery to be issued by commissioner inland revenue [Rule 123]
The notice required to be served upon the taxpayer u/s 138 shall be in the form as prescribed in part-Ill of First
Schedule to these rules.
Mode of service of notice [Rule 124]
The notice referred to in rule 123 and other notices under rules contained in this part shall be served as provided in
section 218 of the ITO, 2001.
Time limit for execution of the notice [Rule 125]
No step in execution of the notice as per rule 123 shall be taken until the period specified in the said notice has
elapsed.
If the Commissioner Inland Revenue is satisfied that the defaulter is to cancel, remove or dispose of the whole or any
part of such of his moveable property as would be liable to attachment in execution of a notice that the realization of
the amount of notice would in consequence be delayed or obstructed, he may at any time after the issue of the notice
under rule direct, for reasons to be recorded in writing, an attachment of the whole or part of such property:
If the defaulter whose property has been so attached furnishes security to the satisfaction of the Commissioner Inland
Revenue, such attachment shall be cancelled from the date on which such security is accepted by the Commissioner
Inland Revenue.
3. Recovery of tax by district officer (revenue) [Section 138A]
The Commissioner Inland Revenue may forward to the District Officer (Revenue) of the district in which the taxpayer
resides or carries on business or in which any property belonging to the taxpayer is situated, a certificate specifying
the amount of any tax due from the taxpayer and on receipt of such certificate, the recovery of tax from the taxpayer
shall be made as, it were an arrear of land revenue.
Provided that if the person opts to pay the tax due on the basis of an order under section 129 on or before the due
date given in the notice u/s 137(2) issued in consequence of the said order, and does not file an appeal u/s 131, he
shall not be liable to pay default surcharge for the period beginning from the due date of payment in consequence of
an order appealed against to the date of payment in consequence of notice u/s 137(2).
Provided that if the person opts to pay the tax due on the basis of an order u/s 129 on or before the due date given in
the notice under section 137(2) issued in consequence of the said order and does not file an appeal u/s 131, he shall
not be liable to pay default surcharge for the period beginning from the date of order u/s 161 to the date of payment.
15. Recovery of tax from the person from whom the tax was not collected or deducted (Section 162):
Where a person fails to collect or deduct tax from a payment, the Commissioner Inland Revenue may pass an order
to that effect and recover the amount not collected or deducted from the person from whom the tax should have been
collected or to whom the payment was made.
Such recovery of tax does not absolve the person who failed to deduct tax from any other legal action in relation to
the failure, or from a charge of default surcharge or the disallowance of a deduction for the expense to which the
failure relates.
16. Recovery of advance payment or deduction of tax at source (Section 163)
The provision of this Ordinance shall apply to any amount required to be paid to the Commissioner Inland Revenue
as advance tax or tax deducted at source as if it were tax due under an assessment order.
17. Certificate of collection or deduction of tax (Section 164)
Every person collecting tax or deducting tax from a payment shall furnish to the person from whom the tax has been
collected or deducted, copies of the challan of payment or any other equivalent document a certificate setting out the
amount of tax collected or deducted.
A person required to furnish a return of taxable income for a tax year shall attach to the return copies of the challan of
payment on the basis of which a certificate is provided to the person in respect of tax collected or deducted in that
year.
Certificate of collection or deduction of tax [Rule 42]
As required u/s 164(1), any person responsible for collecting tax under various sections of the Ordinance
(except in the case of salary) or deducting tax under the 6th Schedule to the Ordinance,
shall issue a certificate to the person from whom tax has been collected or deducted, in the form as set out in
Part VII of the Second Schedule to Income Tax Rules, 2002, within 15 days after the end of the financial year
or discontinuation of business etc.-
Where the person from whom tax has been collected or deducted requests for the issuance of the certificate
before the end of the financial year, the certificate shall be issued for the period in that year within 7 days of
such request.
If certificate issued has been lost, stolen or destroyed the recipient of the certificate may request, in writing, to
the issuer of the certificate to issue a clearly marked serially numbered certificate as duplicate.
18. Statement of tax deduction (Section 165)
Every person collecting or deducting tax from a payment furnish to the Commissioner Inland Revenue statement
even where no withholding tax is collected or deducted during the period.in the prescribed form setting out-
(a) The name, CNIC and NTN and address of each person from whom tax has been collected or deducted in
each month;
(b) the total amount of payments made to a person from which tax has been deducted or collected in each month;
and
(c) such other particulars as may be prescribed:
Every prescribed person collecting tax or deducting tax from payment shall furnish or e-file statements by the 20th
day of the month following the month to which the withholding tax pertains.
Explanation:- For the removal of doubt, it is clarified that this sub-section overrides all conflicting provisions
contained in the Protection of Economic Reforms Act, 1992, the Banking Companies Ordinance, 1962, the Foreign
Exchange Regulation Act, 1947 and regulations made under the State Bank of Pakistan Act, 1956, if any, on the
subject, in so far as divulgence of information u/s 165
A person may apply in writing, to the Commissioner Inland Revenue for an extension of time to furnish the statement
after the due date and the Commissioner Inland Revenue if satisfied that a reasonable cause exists for non-furnishing
of the statement by the due date may, by an order in writing, grant the applicant an extension of time to furnish the
statement.
Every person deducting tax from payment against salary shall furnish to the Commissioner Inland Revenue an
annual statement in the prescribed form.
(g) Suspicious Transactions Report means suspicious transaction report generated and submitted by a
banking company to the Financial Monitoring Unit under the Anti-Money Laundering Act, 2010 (VII of
2010); and
(h) Written off Loans Statement means Written off Loans Statement as specified in Form C;
(1) The Commissioner may, by notice in writing, require any person, whether or not liable for tax under this
Ordinance
(a) to furnish to the CIR or an authorized officer, any information relevant to any tax leviable under this
Ordinance or to fulfill any obligation under any agreement with foreign government or governments
or tax jurisdiction, as specified in the notice;; or
(b) to attend at the time and place designated in the notice for the purpose of being examined on oath by
the Commissioner or an authorised officer concerning the tax affairs of that person or any other person
and, for that purpose, the Commissioner or authorised officer may require the person examined to
produce any accounts, documents, or computer-stored information in the control of the person ; or
(c) the firm of chartered accountants, as appointed by the Board or the Commissioner, to conduct audit u/s
177, for any tax year, may with the prior approval of the Commissioner concerned, enter the business
premises of a taxpayer, to obtain any information, require production of any record, on which the
required information is stored and examine it within such premises; and such firm may if specifically
delegated by the Commissioner, also exercise the powers as provided in sub-section (4).
(1A) A special audit panel appointed under sub-section (11) of section 177, for any tax year, may, with the
prior approval of the CIR concerned, enter the business premises of a taxpayer, to obtain any
information, require production of any record, on which the required information is stored and examine it
within such premises and such panel may if specifically delegated by the CIR, also exercise the powers
as provided in sub-section (4).
(2) The Commissioner may impound any accounts or documents produced as above and retain them for so long
as may be necessary for examination or for the purposes of prosecution.
(3) The person from whom information is required, may at his option, furnish the same electronically in any
computer readable media.] Where a hard copy or computer disk of information stored on a computer is not
made available as required above, the Commissioner may require production of the computer on which the
information is stored, and impound and retain the computer for as long as is necessary to copy the information
required.
(4) For the purposes of this section, the Commissioner shall have the same powers as are vested in a Court, in
respect of the following matters, namely:
(a) enforcing the attendance of any person and examining the person on oath or affirmation;
(b) compelling the production of any accounts, records, computer-stored information, or computer;
(c) receiving evidence on affidavit; or
(d) issuing commissions for the examination of witnesses.
(5) This section shall have effect notwithstanding any law or rules relating to privilege or the public interest in
relation to the production of accounts, documents, or computer-stored information or the giving of information.
25. Receipts for amounts paid [Section 220]
The Commissioner Inland Revenue shall give a receipt for any tax or other amount paid or recovered under this
Ordinance.
28. Recovery of tax from persons assessed in Azad Jammu and Kashmir [Section 146]
Where any person assessed to tax for any tax year under the law relating to income tax in the Azad Jammu and
Kashmir has failed to pay the tax and the income tax authorities of the Azad Jammu and Kashmir cannot recover the
tax because -
(a) the person's residence is in Pakistan; or
(b) the person has no movable or immovable property in the Azad Jammu and Kashmir,
the Deputy Commissioner Inland Revenue in the Azad Jammu and Kashmir may forward a certificate of recovery to
the Commissioner Inland Revenue and, on receipt of such certificate, the Commissioner Inland Revenue shall
recover the tax.
A certificate of recovery under as above shall be in the prescribed form specifying -
(a) the place of residence of the person in Pakistan;
(b) the description and location of movable or immovable property of the person in Pakistan; and
(c) the amount of tax payable by the person.
29. Initiation, validity, etc., of recovery proceedings [Section 146A]
Any proceedings for the recovery of tax may be initiated at any time. The Commissioner Inland Revenue may, at any
time, amend the certificate issued, or recall such certificate and issue fresh certificate, as he thinks fit.
It shall not be open to a taxpayer to question before the District Officer (Revenue) the validity or correctness of any
certificate issued or any such certificate as amended or any fresh certificate.
The several modes of recovery shall be deemed to be neither mutually exclusive nor affect in any way any other law
for the time being in force relating to the recovery of debts due to the Government and the Commissioner Inland
Revenue may have recourse to any such mode of recovery notwithstanding that the tax due is being recovered from
a taxpayer by any other mode.
30. Tax arrears settlement incentives scheme [Section 146B]
The Board may make scheme in respect of recovery of tax arrears or withholding taxes and waiver of default
surcharge or penalty levied thereon. The Board may make rules u/s 237 for implementation of such scheme.
31. Refunds [Section 170 and Rule 71]
A taxpayer who has paid tax in excess of the amount which the taxpayer is liable to pay under ITO, 2001 may apply
to the Commissioner Inland Revenue for a refund of the excess.
Where any advance or loan u/s 2(19)(c) is repaid by a taxpayer, he shall be entitled to a refund of the tax, if any, paid
by him as a result of such advance or loan having been treated as dividend as stated above.
An application for a refund as above shall be -
(a) made in the prescribed form;
(b) verified in the prescribed manner; and
(c) made within two years of the later of -
(i) the date on which the Commissioner Inland Revenue has issued the assessment order to the taxpayer
for the tax year to which the refund application relates; or
(ii) the date on which the tax was paid
Where the Commissioner Inland Revenue is satisfied that tax has been overpaid, the Commissioner
Inland Revenue shall-
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;
(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to
pay other taxes; and
(c) refund the remainder, if any, to the taxpayer.
The Commissioner Inland Revenue shall, within 60 days of receipt of a refund application as stated above serve on
the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of
being heard.
A person aggrieved by-
(a) an order passed as above; or
(b) the failure of the Commissioner Inland Revenue to pass an order within the time specified as above, may
prefer an appeal.
33. Application of Chapter XIV [Rule 84] This chapter applies for the purposes of section 223, which provides for the
registration and regulation of income tax practitioners.
34. Application for registration as an income tax practitioner [Rule 85]
(1) A person satisfying the requirements in rule 86 and desiring to be registered as an income tax practitioner
shall make an application to the Director-General, Regional Tax Office in the form specified in Part X of the
First Schedule to these rules.
(2) Every application under this rule shall be accompanied by -
(a) a Treasury receipt for five hundred rupees required to be deposited as a non-refundable application fee
in any Government Treasury; and
(b) such documents, statements and certificates as specified in the form.
35. Prescribed qualification for registration as an income tax practitioner [Rule 86]
(1) For the purposes of the definition of "income tax practitioner" in section 223(11), a person applying for
registration as an income tax practitioner shall:-
(a) possess one of the following qualifications, namely:-
(i) a degree in Law at least in the second division, a degree in Commerce (with Income Tax Law and
Accounting or Higher Auditing as subjects or parts of subjects, whether compulsory or optional)
or a degree in Business Administration or Business Management (with Accounting and Income
Tax law as subject or parts of subjects, whether compulsory or optional) conferred by a
prescribed institution; or
(ii) a pass in a prescribed accounting examination.
(b) have worked for a continuous period of one year as an apprentice under the supervision of a chartered
accountant, cost and management accountant, legal practitioners entitled to practice in a civil court in
Pakistan or a registered income tax practitioner and having been registered as a chartered accountant,
cost and management accountant, legal practitioner and income tax practitioner for a period of not less
than 10 years.
(2) For the purposes of sub-clause (i) of clause (a) of sub-rule (1), a degree conferred by a prescribed institution
that is a foreign university or institution shall only qualify if the degree is equivalent to a degree conferred by a
Pakistani university and is recognized as such by a Pakistani university.
(3) In this rule,
(a) "Institute of Chartered Accountants of Pakistan" means the Institute of Chartered Accountants of
Pakistan constituted under the Chartered Accountants Ordinance, 1961;
(b) "foreign institution" means any institution in a foreign country authorized to grant a degree under the
laws of the country;
(c) "foreign university" means any university in a foreign country incorporated by law, or accredited or
affiliated by any association of universities or college in the country or by any authority formed for that
purpose under the laws of that country;
(d) "prescribed accounting examination" means any of the following examinations, namely:-
(i) an examination equivalent to the intermediate examination conducted by the Institute of
Chartered Accountants of P
(ii) an examination equivalent to the intermediate examination conducted by any foreign institute of
chartered accountants and recognised by the Institute of Chartered Accountants of Pakistan as
equivalent to its intermediate certificate;
(iii) an examination equivalent to the final examination conducted by the Association of Chartered
Certified Accountants, United Kingdom; or
(iv) Part-III of examination for Cost and Management Accountants conducted by the Institute of Cost
and Management Accountants under the Cost and Management Accountants Act, 1966;and
(v) Certified public accountants of USA.
(e) "prescribed institution" means a university incorporated by any law in force in Pakistan or Azad
Kashmir, a foreign university or a foreign institution.
36. Registration of income tax practitioners [Rule 87]
On receipt of an application under rule 85, the Director General, Regional Tax Office may make such further
enquiries and call for such further information or evidence as may be considered necessary.
If the Director General, Regional Tax Office is satisfied that an applicant qualifies to be registered as an
income tax practitioner, the Director General, Regional Tax Office shall cause the applicant's name to be
entered in a register to be maintained for the purpose in the office.
The name of a person entered on the register of income tax practitioners shall be notified to the Commissioner
and the Appellate Tribunal.
The Director General, Regional Tax Office shall notify the applicant, in writing, of the decision on the
application.
Where the Director General, Regional Tax Office decides to refuse an application for registration, the notice
referred above shall include a statement of reasons for the refusal.
37. Duration of registration [Rule 88] Registration of a person as an Income Tax Practitioner shall remain in force until
any of the following occurs, namely;-
the person surrenders the registration by notice in writing to the Director General, Regional Tax Office.
the person dies; or
the person's registration is terminated by the Director General, Regional Tax Office.
38. Cancellation of registration [Rule 89]
(1) Any person (including an income tax authority) who considers that an income tax practitioner is guilty of
misconduct in a professional capacity may file a complaint in writing with the Director General, Regional Tax
Office.
(2) A complaint filed under sub-rule (1) shall be accompanied by affidavits and other documents as necessary to
sustain the complaint.
(3) On receipt of a complaint in writing under sub-rule (1), the Director General, Regional Tax Office shall fix a
date. hour and place which shall be no later than 21 days from the receipt of the complaint for enquiry into the
complaint.
(4) Within 7 days of receipt of the complaint, the Director General, Regional Tax Office shall serve a notice of the
complaint on the Income Tax Practitioner to whom the complaint relates and such notice shall -
(a) inform the practitioner of the date, hour and place of the enquiry; and
(b) be accompanied by a copy of the complaint and any affidavits and other documents accompanying the
complaint.
(5) If, at the date fixed for enquiry, it appears that the notice and accompanying documents referred to in sub-rule
(4) have not been served as provided for in that sub-rule, the Director General, Regional Tax Office shall
adjourn the enquiry to a date then to be fixed and may direct that the notice and accompanying documents
shall be served by registered post or such other means as the Director General, Regional Tax Office sees fit.
(6) Not less than two days before the date or adjourned date fixed for the enquiry, the income tax practitioner
concerned shall file with the Director General, Regional Tax Office a signed explanation in writing and any
affidavit in reply intended to be used in the enquiry.
(7) On the date or adjourned date of the enquiry, the complainant shall file time to affidavits in reply intended to be
used at the enquiry.
(8) The Director General, Regional Tax Office may adjourn the enquiry from time to time to a date and place to be
fixed at the time of adjournment and may make such orders and give such directions in regard to the enquiry
and all matters relating thereto as the Director General, Regional Tax Office may think fit.
(9) On the date or adjourned date fixed for the enquiry, the Director General, Regional Tax Office may-
(a) hear and determine the complaint upon the affidavit and other documents, if any, filed and may allow
the complainant and income tax practitioner to be cross-examined on their affidavits; or
(b) hear and determine the complaint upon oral evidence.
(10) If the Director General, Regional Tax Office decides to hear oral evident, the procedure generally and as far as
practicable shall be that which is followed at the hearing of suits by Civil Courts, provided that the record of
oral evidence shall be kept in such manner as the Director General, Regional Tax Office may direct and, if a
shorthand writer is employed to take down evidence, the transcript of the writer's notes shall be a record of
deposition of the witnesses,
(11) If the Director General, Regional Tax Office decides that the income tax practitioner to whom the complaint
relates is guilty of professional misconduct, the Director General, Regional Tax Office shall cancel the
practitioner's registration.
(12) The Director General, Regional Tax Office shall give the complainant and the income tax practitioner to whom
the complaint relates notice, in writing, of the Director General, Regional Tax Office's decision on the
complaint.
39. Appeal to Federal Board of Revenue [Rule 90]
(1) The appeal against the decision of the Director General, Regional Tax Office shall lie with the FBR. However,
the FBR on filing of an appeal may, pending decision of appeal, allow the ITP to represent cases pending,
before decision is made by the Director General.
(2) The FBR shall decide the case of the ITP within 60 days of the filing of the appeal.
IMPORTANT NOTES:
1. The tax deducted or collected by the Federal Government or Provincial Government shall be deposited U/R 43(a) on the day the tax was collected or
deducted AND U/R 43(b) within 7 days in other cases from the end of each week ending on every Sunday.
2. The tax deducted or collected under section 236M and 236N other than by the companies quoted on stock exchange and not quoted on stock
exchange respectively shall be deposited within fifteen days of the 1st day of the closure of the books.
3. The advance tax under this chapter (covering sections 231A to 236T) shall not be collected in the case of withdrawals made by,-
(a) the Federal Government or a Provincial Government;
(b) a foreign diplomat or a diplomatic mission in Pakistan; or
(c) a person who produces a certificate from the Commissioner that his income during the tax year is exempt.
SECTIO
N NATURE OF PAYMENT/ EXEMPTION STATUS OF DEDUCTION / TIME OF
TRANSACTION TAX RATE LIMIT PAYMENT OR COLLECTING DEDUCTION /
DEDUCTION AUTHORITY COLLECTION
1 2 3 4 5 6 7
FILER NON-FILER
148 Collector of At the same time
A foreign produced film imported for the 12% of value of customs and manner as the
custom duty is
purposes of screening and viewing goods assessed Nil Adjustable
payable in respect
of the goods
imported
iii. Persons importing urea; and and tax and (a) Raw material,
federal federal plant,
iv. Manufacturers covered under excise excise machinery,
Notification No. S.R.O. 1125(I)/2011 duty. duty. equipment and
dated 31-12-2011 parts by an do do
v. Persons importing Gold; and industrial
undertaking for
its own use; do do
iv. Persons importing Cotton (b) Fertilizer by
manufacturer of do do
iv. Designated buyers of LNG on behalf fertilizer;
of Govt of Pakistan to import LNG (c) Cars in CBU
condition by
manufacturer of do do
Persons importing pulses 2% of the 3% of the cars; and
import import (d) Large import
value as value as house;
increased increased Tax required to be
by by custom- collected on the
Custom- duty, sales import of edible oil
duty, sales tax and and packing
tax and federal
material shall be
federal excise
excise duty duty. Nil
minimum tax.
Commercial importers covered under 3% of 4.5% of the
Notification No. S.R.O. 1125(I)/2011 dated import import
31-12-2011. value as value as
increased increased
by custom- by custom-
duty sales duty , sales
tax and tax and
federal federal
excise excise duty
duty.
Nil do do
Ship breakers on import of ships 4.50% 6.5 Nil do do
Industrial undertakings not covered under S. 5.50% 8%
Nos. 1 to 4
Nil
Companies not covered under S. Nos. 1 to 5 5.50% 8%
Nil do do
Persons not covered under S. Nos. 1 to 6 6% 9% Nil
Important Notes:
1. "Large import house" means who fulfill all the conditions (i) have paid up capital of exceeding Rs. 250 (M) (ii) have imports exceeding Rs. 500 million during
the Tax year (iii) own total assets exceeding Rs. 350(M). (iv) is single object company; (v) maintain computerized records of import and sale of goods (vi)
maintains a system for issuance of 100% cash receipts on sales. (vii) present accounts for tax audit every year. (viii) is registered under the Sales Tax Act,
1990. (ix) makes sales of industrial raw material of manufacturer registered under the Sales Tax Act, 1990.
2. "Value of goods" means the value of the goods as determined under the Customs Act, 1969, as if the goods were subject to ad valourem duty increased by
the custom duty, federal excise duty and sales tax, if any, payable in respect of the import of goods.
3. "Edible oil" includes crude oil, imported as raw material for manufacture of ghee or cooking oil.
4. The Board may specify any goods or class of goods or person or class of persons importing such goods on which tax shall not be collected at import
stage.[148(2)]
5. The Finance Act, 2015 withdrew" [by omitting section 148(2)] the FBR's power to specify any goods or class of goods or person or class of persons importing
such goods on which tax shall not be collected at import stage.
6. Notwithstanding omission of section 148(2), the notifications issued under that sub-section and for the time being in force, shall continue to remain in force,
unless specifically rescinded through a notification issued for this purpose.
7. Tax required to be collected on import of edible oil and packing material for a tax year shall be the minimum tax. [148(8)]
8. Tax collected at the time of import of ships by ship-breakers shall be final tax. [148(8A)]
9. The manufacturer of cooking oil or vegetable ghee shall be chargeable to tax @ 2% on purchase of locally produced edible oil. Tax so charged shall be final
tax in respect of income accruing from locally produced edible oil.
NON APPLICABILITY OF PROVISIONS REGARDING TAX AT SOURCE U/S 148 U/C 56 and 60 OF PART IV OF SECOND SCHEDULE TO THE ITO, 2001:
1. U/C 56(i) Goods classified under PCT falling under chapters 86 and 99 except PCT Heading 9918.
(ia) Petroleum oils and oils obtained / import made by various petroleum products distribution companies (including oil refineries).
(ii) Goods imported by direct and indirect exporters covered under SRO 450(I)/2001 dated June 18, 2001.
(iii) Goods temporarily imported into Pakistan for subsequent exportation and which are exempt from custom duty and sales tax under SRO
1065(I)/2005 dated October 20, 2005.
(iv) Manufacturing Bond as prescribed under SRO 450(I)/2001 dated June 18, 2001.
(v) mineral oil imported by a manufacturer or formulator of pesticides which is exempt from customs duties under customs SRO 857/(I)/2008 dated
August 16, 2008.
2. U/C 60 Fully as well part designed / assembled cypher devices, for use within the country as are verified by Cabinet Division (NIBS) with reference to design,
quality and quantity.
Directorship fee for attending board meetings etc. 20% nil Same as above Same as above Same as above
IMPORTANT NOTES:
The employer while deducting tax at source, authorized to make necessary adjustment for any excess deduction or deficiency arising out of any previous deduction or failure to
make a deduction during the year and tax credits available under section 61 to 64 and tax at source on motor vehicle u/s 234, telephone bills, cash withdrawal from banks and
registration of new car.
Tax Shall be deducted on the gross amount of
150 dividend paid. For filers is 12.5% Nil Final discharge Person paying dividend Payment
For non filers is 17.5%
Money
Market Fund,
Income Fund,
REIT Scheme
Collective investment, REIT Scheme or mutual Stock or any other
funds. Fund fund Nil do do do
Individual 10% 10%
Company 10% 25%
AOP 10% 10%
IMPORTANT NOTES:
Every person (including non- resident company) paying a dividend shall deduct tax from the gross amount of the dividend paid at the rate specified. Tax deducted @
10% under this section will be final discharge of liability, whereas in the case of companies, it will be adjustable.
Rate of tax on dividend received from such a Developmental REIT Scheme which is set up by 30-06-2018 with the object (development and construction of residential
buildings shall be reduced by 50% for 3 years from 30-06- 2018. (Part-III Division I of First Schedule).
NON APPLICABILITY OF PROVISIONS OF TAX AT SOURCE U/S 150 UNDER VARIOUS CLAUSES OF PART IV OF 2ND SCHEDULE TO THE ITO, 2001:
U/C 11C The provisions of this section are not applicable to inter-corporate dividend within the group companies entitled to Group Taxation.
U/C 38A A Venture Capital Company.
U/C 38B Islamic Development Bank.
U/C 47B Any person making payment to NIT, a collective Scheme, a modaraba, approved pension fund, approved income payment plan, a REIT Scheme, a private
equity and venture capital fund, a recognized provident fund, and approved superannuation fund or an approved gratuity fund.
IMPORTANT NOTES:
Tax deducted under this section shall be final tax on profit on debt arising to taxpayer other than a company or a profit on debt that is taxable u/s 7B.
The rate of tax for a non filer shall be 10% if the yield or profit paid is equal or less than Rs. 500,000.
Tax rate is applied on the gross amount of Yield as reduced by Zakat paid.
NON APPLICABILITY OF PROVISIONS OF TAX AT SOURCE U/S 151 UNDER VARIOUS CLAUSES OF PART IV OF SECOND SCHEDULE TO THE ITO, 2001:
U/C 36A Any amount paid as yield or profit on investment in Bahbood Saving Certificates or Pensioners Benefit Account.
U/C 38 Special purposes vehicle (SPV)for the purposes of securitization.
U/C 38A A Venture Capital Company.
U/C 38C Islamic Development Bank
U/C 47B Any person making payment to NIT, a collective Scheme, a modaraba, approved pension fund, approved income payment plan, a REIT Scheme, a private
equity and venture capital fund, a recognized provident fund, and approved superannuation fund or an approved gratuity fund.
U/C 59(i) Profit or interest paid on TFC's issued by Prime Minister's Housing Development Company (Pvt.) Ltd. (PHDCL).
U/C 59(ii) Any payment as profit or interest on Prime Minister's Housing Development Company which has been issued on or after 01-07-1999.
U/C 59(iii) Income of a resident individual from Saving Accounts scheme of Directorate of National Savings, if monthly installment is up to Rs. 1,000.
U/C 72 Payments made to The ECO Trade and Development Bank.
6% of gross
152(1A) Payment to non-resident for amount paid Nil Final discharge do do
construction, services or
advertisement control.
5% of gross
152(1AA) Payment of insurance premium amount paid Nil Final discharge do do
or re-insurance premium
152(2) All other payment to non-resident 20% of the gross Nil Adjustable do do
amount
paid
Non-
Filer Filer
152(2A)(i) Payment by way of advance to a permanent establishment
in Pakistan of a non-resident person
i) For sale of goods At the time of
In case of company 4% 6% Prescribed person making making the
In any other case 4.5% 6.5% Rs. 25,000 FTR / Adjustable the payment payment
Non-
Filer Filer
iv) Execution of contracts:
i) In case of sport person 10% 10%
ii) In the case of Companies : 7% 10% Same as
152(2A)(iii) iii) In the case of other than companies Taxpayers 7.5% 10% above FTR do do
IMPORTANT NOTES
IMPORTANT NOTES:
1. Any payment made to a non resident by a person who is liable to tax as agent of such non resident shall not be liable to deduction under section 152(3).
2. Before making payment, the agent shall file a declaration that he is the agent of the non resident.
3. On payments that are subject to deduction of tax under section 149, 150, 153, 156 or 233
4. With the written approval of the CIR, that is taxable to PE in Pakistan of the non resident person.
5. Any payment made to a non resident by a person who is liable to tax as agent of such non resident shall not be liable to deduction u/s 152(3)
6. Where the non-resident person is not chargeable to tax in respect of the income.
7. Before making a payment, the agent shall file a declaration that he is the agent of the non -resident.
8. Where a person intends to make a payment to a non resident person without deduction of tax under this section (other than payments liable to reduced rate
under relevant agreement for avoidance of double taxation/ the person shall before making the payment, furnish to the CIR a notice in writing by stating
therein the name and address of the non-resident person and the nature and amount of the payment.
9. The commissioner may, on application made by the recipient of the payment referred above and after making such an inquiry as he thinks fit, may allow in the
cases where the tax deductible as above is adjustable, by order in writing, any person to make the payment, without deduction of tax or deduction of tax at a
reduced rate. [152(4A)]
10. The information required in note 6 above shall not apply to a payment on account of an import of goods where title to the goods passes outside Pakistan
and is supported by import documents, except an import that is part of an overall arrangement for the supply of goods, their installation, and any commission
& guarantees in respect of the supply where
a. the supply is made by the head office outside Pakistan of a person to a PE of the person in Pakistan;
b. the supply is made by a PE of the person outside Pakistan to a PE of the person in Pakistan;
c. the supply is made between associates; or the supply is made by a resident person or a Pakistan PE or a non-resident person; or educational and
medical expenses remitted in accordance with the regulations of the SBP.
(U/C 5A of Part-II of Second Schedule) the rate of tax to be deducted u/s 152(2), in respect of payment from profit from debt payable to a non resident person having
no PE in Pakistan, shall be 10% of the gross amount paid.
Provided that the tax deducted on profit on debt on instrument, government securities including treasury bills and Pakistan Investment Bonds shall be final tax on profit
on debt payable to a non resident person having no permanent establishment in Pakistan and the investments are exclusively made through a special rupees
convertible account maintained with the bank in Pakistan.
NON APPLICABILITY OF PROVISIONS OF TAX AT SOURCE U/S 152 UNDER VARIOUS CLAUSES OF PART IV OF 2ND SCHEDULE TO THE ITO, 2001:
Same as
a) Sales of edible oils to manufacturers 2% of the gross above do do
of cooking oil or vegetable ghee U/C amount.
13C
Same as
153(2) Payments made by every exporter or 1% of the gross above do Every exporter or do
an export house to a resident person amount export house
or PE in Pakistan on account of
rendering of services of stitching,
dying etc u/c 13 of Part III of Ist
Schedule.
IMPORTANT NOTES:
1.
Prescribed person making a payment may be a part, full or advance payment.
2.
Supply of goods making payments on account of goods by the payer.
3.
All exporters of goods making payments on account of goods exported are exempted from deduction of tax.
4.
Tax at source shall be deducted from gross amount of sale of goods.
5.
Provision of this section is not applicable to the following:
(i) Sales made by importer of the goods if he has paid the tax u/s 148 at the time of the import and the goods are sold in the same condition.
(ii) Payments to traders of yarn specified in the zero-rated regime of sales tax
(iii) refund of any security deposit
(iv) Payment made by the government or a local government to a contractor for construction materials supplied to the contractor by the
government or local government
(v) A cotton ginner who deposits in the government treasury, an amount equal to the amount of the tax deductible on the payment being made to
him
(vi) Purchase (by a modaraba, leasing company, banking company or financial institution) of an asset under a lease and buy back agreement.
(vii) Any payment for securitization of receivables by a SPV to the originator.
(viii) PE of a non-resident person.
6. Tax deducted u/s 153 shall be final tax on the income of a resident person from the following transactions:
(i) Sale of goods
(ii) Rendering or providing of service
(iii) Execution of contracts and
(iv) Rendering of services of stitching, dying, printing, embroidery, washing, sizing and weaving to an exporter or export house
7. For companies rendering or providing of services, tax deducted shall not be treated as final tax.
8. Tax deducted u/s 153 shall not be treated as final tax in respect of payment received on account of:
(i) Advertisement services, by owner of newspaper and magazines.
(ii) Sale of goods and execution of contracts by a public company listed on registered stock exchange in Pakistan; and the rendering or providing
services.
(iii) Tax deducted while making payment for services u/s 153(1)(b) shall be the minimum tax.
EXEMPTIONS FROM SPECIFIC PROVISIONS U/S 153 UNDER VARIOUS CLAUSES OF PART IV OF SECOND SCHEDULE TO THE INCOME TAX ORDINANCE,
2001:
1% of the
Realization of the goods to an exporter under an inland back - proceeds of the export of
154(3) to-back letter of credit export Nil Final discharge Banking Company goods
1% of the
Export of the goods by an industrial undertaking located in proceeds of Export processing zones
154(3A) EPZ export Nil Final discharge authority if made by an
undertaking in
EPZ
1% of the Direct export and export
proceeds of the house registered under
154(3B) Making payment for a firm contract to an indirect export export Nil Final discharge DTRE Rules 2001
1% of the
proceeds of
154(3C) Commission on clearing of the goods export Nil Final discharge Collector of customs Do
exported
IMPORTANT NOTES:
154(5) The tax deducted u/s 154 shall be treated as final tax in respect of such income. However, it shall not be final tax in case of a person who opts that such income
not be subject to final taxation. This option shall be available from the tax year 2015 and shall be exercised every year at the time of filing of return u/s 114. Under such
a case the tax deducted shall be treated as minimum tax.
NON APPLICABILITY OF PROVISIONS OF TAX AT SOURCE U/S 154 UNDER VARIOUS CLAUSES OF PART IV OF 2ND SCHEDULE TO THE ITO, 2001:
U/C 47C An exporter in respect of cooking oil or vegetable ghee exported to Afghanistan from whom tax u/s 148 has been collected on import of edible oil.
Given in slab
155 Rent (including rent of furniture and for rate of tax Adjustable Payment
fixture) and services relating to
property.
Federal Govt.
Provincial Govt.
(a) For individual & AOP
Local authority or
company, non-profit
Upto Rs 150,000 Nil organization or a charitable
institution, diplomatic
10% of amount mission
exceeding Rs. of a foreign state and any
Exceeding Rs. 150,000 to Rs. 1,000,000 150,000 other person notified
by FBR.
Rs. 85,000 + a private educational
15% of amount institution, a boutique, a
exceeding beauty parlor, a hospital, a
Exceeding Rs. 1,000,000 Rs.1,000,000 clinic or a maternity home;
IMPORTANT NOTES
Where the prize is not in cash, then the person giving the prize shall collect the amount of tax due on the prize FMV.
156B Making
Withdrawal of balance under Yes Adjustable Pension Fund payment
Withdraw pension fund see note Manager from individual
al of
balance Average rate of
under tax
pension based on three
fund proceeding tax pension
years account
IMPORTANT NOTES
IMPORTANT NOTES:
1. Pension Fund Manager will deduct tax only if the amount is withdrawn
(i) Before the retirement age; or
(ii) In excess of 50% of his accumulated balance, if withdrawn at or after the retirement age
2. Tax shall not be deducted under the following cases:
The balance in the eligible persons individual pension account is invested in an approved income payment plan of a pension fund manager; or
paid to a life insurance company for the purchase of an approved annuity plan; or
is transferred to another individual pension account of the eligible person; or
the survivor pension account in case of death of the eligible person maintained with any other pension fund manager as specified by in the voluntary pension
system rules, 2005.
231A At the time of
Cash Rs: 50,000 Adjustable Banking company withdrawal of
Withdraw
al from a Payment of cash withdrawal exceeding Rs, 50,000/- in a
Bank day Filer 0.3%
Non filer 0.6% per day cash
IMPORTANT NOTES:
U/C (28B) of Part II of 2nd Schedule: An Exchange company duly licensed and authorized by the SBP is subject to a reduced rate of 0.15% only on such
transactions which are exclusively dedicated for its authorized business related transactions. This reduced rate is subject to the condition that CIR has issued a
certificate for a financial year mentioning therein the details and particulars of its Bank Account being used entirely for business transactions.
NON APPLICABILITY OF PROVISIONS REGARDING TAX AT SOURCE U/S 231A UNDER VARIOUS CLAUSES OF PART IV OF 2ND SCHEDULE TO THE ITO,
2001:
U/C 61 Any cash withdrawal from a bank made by an earthquake victim against compensation received from Govt. of Pakistan.
Filer Non-
1. Sale against cash of any instrument including Filer
demand draft, payment order, CDR, STDR, RTC, 0.3% 0.6% At the time of
any other instrument of bearer nature or on receipt Rs. 25,000 Adjustable Every banking company sale of
of cash on cancellation of any of these per day non banking financial instrument
231AA instruments institution , exchange
Advance company or any authorized
tax on 2. Transfer of any sum against cash through online dealer of foreign exchange
transactio transfer, telegraphic transfer mail transfer or any 0.6% 0.6%
n in bank other mode of electronic transfer
Rs. Rs.
Upto 850cc - 5,000
851cc -1000cc 5,000 15,000
1001cc - 1300cc 7,500 25,000
1301cc - 1600cc 12,500 65,000
1601cc - 1800cc 18,750 100,000
1801cc - 2000cc 25,000 135,000
2001cc - 2500cc 37,500 200,000
2501cc - 3000cc 50,000 270,000
above 3000cc 62,500 300,000
Same as point
c) Sale of vehicle by manufacturer (a) Nil Adjustable do do
IMPORTANT NOTES
IMPORTANT NOTES:
1. Tax u/s 231B on private motor cars shall not be collected if purchase is made by the Federal Government, a Provincial government, a foreign diplomat or a
diplomatic mission in Pakistan
2. Tax on registration of motor vehicle shall not be payable if the person produces evidence that tax has been paid u/s 231 B(3) in case of locally manufactured
vehicle or u/s 148 in the case of imported vehicle.
3. Rate of tax to be collected shall be reduced by 10% each year from the date of first registration in Pakistan.
4. Provisions of section 231 B shall not apply to the following persons;
(i) The Federal Government;
(ii) A Provincial Government;
(iii) A local Government;
(iv) A foreign diplomat; or
(v) A diplomatic mission in Pakistan. .
5. 'Date of first registration' means -
(i) The date of issuance of broad arrow number in case a vehicle is acquired from the Armed Forces of Pakistan;
(ii) The date of registration by the Ministry of Foreign Affairs in case the vehicle is acquired from a foreign diplomat or a diplomat mission in Pakistan;
(iii) The last day of the year of manufacture in case of acquisition of an unregistered vehicle from the Federal or Provincial Government; and
(iv) In all other cases the date of first registration by the Excise and Taxation Department.
6. 'Motor vehicle' includes car, jeep, van, sports utility vehicle, pick-up trucks for private use, caravan automobile, limousine, wagon and any other automobile
used for private purpose.
Brokerag
Federal Government,
e&
Provincial Government,
Commissi Non- At the time of
Local authority, Company
on Filer Filer payment
AOP constituted by or
a) In case of advertising agent 10% 15% Nil Final discharge under any law.
d) any other agent 12% 15% Nil Final discharge
IMPORTANT NOTES
IMPORTANT NOTES:
If the agent retains commission or brokerage from any amount remitted by him to the principal, it shall be deemed that the commission has been paid to him by the
principal and the principal shall collect tax from the agent.
NON APPLICABILITY OF PROVISIONS REGARDING TAX AT SOURCE U/S 233 UNDER VARIOUS CLAUSES OF PART IV OF 2ND SCHEDULE TO THE ITO,
2001:
U/C 47B Any person making payment to NIT, a collective Scheme, a modaraba, approved pension fund, approved income payment plan, a REIT Scheme, a private
equity and venture capital fund, a recognized provident fund, an approved superannuation fund or an approved gratuity fund.
IMPORTANT NOTES:
IMPORTANT NOTES:
Any person at the time of collecting motor vehicle tax shall also collect
advance tax
1. If the motor vehicle tax is collected in installments, the advance tax may also be collected in installments.
2. In respect of motor cars used for more than 10 years in Pakistan, no advance tax shall be collected after a period of 10 years.
3. In respect of a passenger transport vehicle with registered seating capacity of 10 or more persons, advance tax shall not be collected after a period of 10
years from the first day July of the year of make of the vehicle.
4. For goods transport vehicle with registered laden weight less than 8120 kg, advance tax shall not be collected after a period of 10 years from the date of first
registration in Pakistan.
5. 'Motor vehicle' shall have the same meanings as are assigned to it in section 231B(7).
234A Payment of
CNG Sales of CNG to CNG stations 4% of the gas Nil Final discharge Person preparing gas gas
Station consumption
charges consumption bill bill
Adjustable only in
235 Electricity commercial and industrial If exemption case Person preparing Payment of
Electricit certificate
y consumer with amount of bill. from of companies. electricity electricity bill
CIR is For all other person consumption bill
produced. it
shall be minimum
a) Upto Rs. 400 Rs. 0 tax on
income of the
b) Rs 401 to Rs. 600 80 person, if the
bill is upto
c) Rs 601 to Rs. 800 100 Rs.30,000 per
d) Rs 801 to Rs. 1,000 160 month.
e) Rs 1,001 to Rs. 1,500 300
f) Rs 1,501 to Rs. 3,000 350
g) Rs 3,001 to Rs. 4,500 450
h) Rs 4,501 to Rs. 6,000 500
i) Rs 6,001 to Rs. 10,000 650
j) Rs 10,001 to Rs. 15,000 1000
k) Rs 15,001 to Rs. 20,000 1500
10% commercial
Exceeding Rs.20000 consumer
5% for industrial
consumer
IMPORTANT NOTES
IMPORTANT NOTES:
U/C 66 The exporters cum manufacturers of carpets, leather and articles thereof including artificial leather footwear, surgical goods, sports goods and textile and
articles thereof.
7.5% of monthly
electricity bill
where such bill is
235A equal or more than Rs. 74,999 Person preparing electricity On preparing
Electricity Domestic electricity consumption Rs. 75,000 (monthly bill) Adjustable bill bill
235B
Tax on In the manner
Steel Tax from Every Steel Melters, Steel Re-rollers, Rs, 1 per Unit of electricity
Melters, Composite Steel Units registered for the purpose of Electricity The person preparing consumption
Re-rollers Chapter IX of Sales Tax Special procedure Rules, 2007. consumed electricity consumption bill charges or
etc. Nil Non - Adjustable charged.
sales of
Diplomatic prepaid
mission in
Pak, person cards.
produces
exemption
certificate
issued
14% of amount of
Mobile and prepaid cards bill or by CIT Adjustable do
price of internet
prepaid card or
price of telephone
prepaid card or
sale of unit through
CD or whatever
form
236A
Sale by Collection of advance tax at the time of sale by public 10% of the gross At the time of
auction auction or auction by a tender of any property or goods. sale price Nil Adjustable Person making sale sale
236B
Advance
tax on
purchase
of Air Collection of advance tax on purchase of domestic air 5% of the gross At the time of
Ticket ticket. amount of air ticket Nil Adjustable Person making sale sale
IMPORTANT NOTES
For the purpose of this section:
Advance tax on purchase of air tickets shall not apply to routes of Baluchistan coastal belt, Azad Jammu and Kashmir, FATA, Gilgit-Baltistan and Chitral.
IMPORTANT NOTES:
1. "Function" includes any wedding related event, seminar, a workshop, a session, an exhibition, a concert, a show, a party or other gathering held for such purpose.
2. "Prescribed person" includes the owner, lease-holder, an operator or a manager of a marriage hall, marque, hotel, restaurant, commercial lawn, club, community
place or other place used for such purpose.
3. Where the foods, services or any other facility is provided by any other person, the prescribed person shall also collect advance tax on payment for such food,
service or facility at the prescribed rate.
IMPORTANT NOTES:
"cable television operator", "DTH", "Distribution Service", "electronic media", "IP-TV, "loop holder". "MMDS", "Mobile TV" shall have the same meanings as are
assigned in the Pakistan Electronic Media Regulatory Authority Ordinance, 2002. In the case of IPTV, FM Radio, MMDS, Mobile TV, Mobile Audio, Satellite TV
Channel and Landing Rights the rate of tax shall be 20% of the permission fee or renewal fee. as the case may be.
Advance tax on cable operators and other electronic
media
License category Tax on license Tax on Renewal
H 7,500 10,000
H-I 10,000 15,000
H-II 25,000 30,000
R 5,000 30,000
B 5,000 40,000
B-1 30,000 50,000
B-2 40,000 60,000
236F B-3 50,000 75,000
Advance B-4 75,000 100,000
Tax on B-5 87,500 150,000
Cable B-6 175,000 200,000
Operators B-7 262,500 300,000
& other B-8 437,500 500,000 At the time of
Electronic B-9 700,000 800,000 Varying Rs. 7,500 Pakistan Electronic Media issuance of
s B-10 875,000 900,000 to Rs. 900,000 Nil Adjustable Regulatory Authority license
236G
Advance
Advance tax has to be collected from wholesaler , Nil
Tax on
distributor & dealers at the time of sales made to them. 0.7% 1.4% at the time of
sales to From the distributors,
sale to
distributor dealers and wholesales to
i) Fertilizers Adjustable distributors,
s, dealers whom such sales have
dealers and
& been made
ii) Other than Fertilizer 0.1% 0.2% Nil wholesalers
wholesale
r
Every manufacturer,
distributor, dealer,
wholesaler or commercial
236H
importer of electronics,
Advance 0.5% of the gross
Advance tax has to be collected from retailers at the time sugar, cement, iron, and at the time of
Tax on amount of goods Nil Adjustable
of sales made to them steel products, fertilizer, sale to retailers
sales to sold
motorcycles, persticides,
Retailers
cigarettes, glass textile,
beverages, paint or foam
sector,
236I
Collection
of
Advance 5% of the amount At the time of
Educational Institution Rs.200,000 Adjustable
Tax by of fee fee collection
Education
al Educational institution
Institution
IMPORTANT NOTES:
Provisions of section 236I shall not apply to a non-resident person if: [236I(6)]
i) His stay in Pakistan is less than 183 days on the basis of copy of passport furnished to the educational institution;
ii) He furnishes a certificate that he has no Pakistan-source income; and
iii) Fee is remitted directly from abroad through normal banking channels to the bank account of the educational institution.
IMPORTANT NOTES:
"Market Committee" includes any committee or body formed under any provincial or local law made for the purposes of establishing, regulating or organizing
agricultural, livestock and other commodity markets.
Advance tax on purchase or transfer of immovable
property
At the time of
i) Where value of Immovable property is Upto 3 0% Person responsible for
registering or
million Rs.3 million registering or attesting
Adjustable attesting the
236K transfer
transfer
ii) Where the value immovable property is more than
1% 2%
3 million
IMPORTANT NOTES:
1. Provisions of section 236K do not apply to a scheme introduced by Government (Federal, Provincial) or an Authority established by Government for expatriate
Pakistanis with a condition that mode of payment shall be in the foreign exchange remitted from outside Pakistan through normal banking channels.'
2. Provided that the mode of payment by the expatriate Pakistanis in the said scheme or schemes shall be in the foreign exchange remitted from outside Pakistan
through normal banking channels;
3. Rate of tax for Non-Filer shall be 1% up to the date appointed the FBR through a notification in the official Gazette.
Advance tax on purchase of international Air tickets Rs. 16,000 per person Every airline, issuing ticket At the time of
(i) First/ Executive class
236L Nil Adjustable for journey originating from issuance of
(ii) Others excluding Economy Rs. 12,000 per person
Pakistan ticket
(iii) Economy
Rs.0
On 1st day of
5% of the bonus closure of
Bonus shares issued by Companies quoted on stock shares price on 1st Every company quoted on books to be
236M Nil Final discharge
exchange day of closure of stock exchange deposited within
books 15 days of tax
deduction
IMPORTANT NOTES:
1. While issuing bonus shares the listed company shall withhold 5% of the bonus shares to be issued as a security for payment of tax due on bonus shares.
2. Tax to be collected from the shareholder shall be 5% of the value of the total bonus shares issued to the shareholder. After payment of the tax, bonus shares
withheld shall be issued to the shareholder.
3. The value shall be determined on the basis of day-end price on the first day of closure of books.
4. Tax shall be collected by the company within 15 days of the first day of closure of books.
5. The shares withheld shall be deposited with the Central Depository Company or any other prescribed entity if tax on bonus shares have not been paid or collected
6. The shares so deposited shall be disposed of in the prescribed mode and manner and the proceeds shall be deposited to the Commissioner by way of credit to
Federal Government.
7. Issuance of bonus shares shall be deemed as income of the shareholder and tax paid/collected/deposited to Commissioner shall be treated as payment of tax on
behalf of the shareholder.
8. Tax paid shall be treated as final tax on income of shareholder arising from issuance of bonus shares.
On 1st day of
closure of
5% of the bonus
books to be
Bonus shares issued by Companies not quoted on stock shares price on 1st Every company not quoted
236N Nil Final discharge deposited
exchange day of closure of on stock exchange
within 15 days
books
of tax
deduction
IMPORTANT NOTES:
1. Irrespective of the fact that the company has or has not collected the tax from the shareholder, it shall deposit the tax on bonus shares within 15, days of closure of
books.
2. Company shall be entitled to collect and recover the tax deposited on behalf of the shareholder before issuance of bonus shares.
3. Where a shareholder has neither paid the tax deposited by the company nor collected the bonus shares within a period of three months from the date of such
issuance, the company may dispose of so much bonus shares of such shareholder as are sufficient to recover the amount of tax paid by the company.
4. Tax shall be computed by applying the rate to the value of the total bonus shares issued to the shareholders. The value of bonus shares shall be the value on the
first day of closure of books.
5. Issuance of bonus shares shall be deemed as income of the shareholder and tax paid for such shares shall be treated as payment of tax on behalf of the
shareholder.
0.6% (from
236P (i) Every Banking Company shall collect Advance tax 01/07/2015 to
Advance from non-filers on sale of instruments, including demand 10/07/2015 and
tax on draft , pay order , special deposit receipt, cash deposit from 01/10/2015 to
Transaction At the time of
banking receipt, short term deposit receipt, call deposit receipt & onwards)
upto Rs. Every Banking Company sale of such
transactio rupee travelers cheque. (0.3% from Adjustable
50,000 in a instruments
n other 11/07/2015 to
day.
than ii) Every Banking Company shall collect advance tax 31/10/2015)
through from non filers on transfer of any sum through cheaque
cash or clearing, interbank or interbank transfers through
cheaque, online / telegraphic / mail transfer.
IMPORTANT NOTES:
236Q
Payment
to
(i) Payments for the right to use Industrial, Commercial,
resident
and scientific , equipment 10% Every prescribed person
for use of At the time of
Nil Final Discharge (As per (7) of 153
machiner payment
(ii) payments on account of rent of Machinery, Industrial, 10%
y&
and Commercial and Scientific equipment
equipmen
t
IMPORTANT NOTES:
IMPORTANT NOTES:
Education related expenses includes tuition fees, boarding and lodging expenses, any payments for distant learning to any institution or university in a foreign
country and any other expense related or attributable to foreign education.
236S
Dividend Same provisions will be applicable here as are applicable above in this chart under section 150.
in Specie
236T
Collection
of Tax by PMEX shall collect advance tax on;-
At the time of
Pakistan a) On Purchase of future commodity contract. 0.05% Nil Adjustable
Pakistan Mercantile purchase
Mercantil
Exchange Limited (PMEX) At the time of
e b) On Sale of future commodity contract. 0.05% Nil Adjustable
sales
Exchange
Limited
(PMEX)
(c) 150,000
(d) None of the above
Q.9. The amount of tax demanded should be paid from the date of service of notice within_______.
(a) 30 days
(b) 15 days
(c) 10 days
(d) 60 days.
Q.10 The amount of tax deducted at source shall be so deducted when the amount ______.
(a) becomes payable
(b) becomes receivable
(c) actually paid
(d) none of above
Q.11 Tax shall not be deducted if ____________ is presented.
(a) exemption certificate
(b) refund is due
(c) Income tax return
(d) sales tax return
Q.12 The Board is authorized to amend the rates of withholding tax by issuing a notification in the _______.
(a) newspaper
(b) official gazette
(c) ITO, 2001
(d) all of above
Q.13 Generally amendments are effective ________ the date of such amendment.
(a) after
(b) before
(c) from
(d) all of above
Q.14 Where a person responsible to deduct or deposit the tax fails to deduct or collect the tax at source or fails to deposit
within the prescribed time shall be __________.
(a) personally liable
(b) required to file income tax return
(c) none of above
Q.15 The amount of tax shall not be recovered from the person failing to deduct or deposit the tax where the person from
whom it was to be deducted has ________.
(a) close down his business
(b) already paid tax
(c) left Pakistan
(d) all of above
Q.16 A person in default of tax deduction shall pay _______ where the person from whom it was to be deducted has
already paid the amount of tax.
(a) extra tax
(b) default surcharge
(c) minimum tax
(d) all of above
Q.17 If the person has not deducted tax at source and has made the payment of tax then _______.
(a) he may recover from other person
(b) he cannot recover from other person
(c) he shall be punished with fine
(d) all of above
Q.18 The certificate giving evidence of the deduction and collection of tax at source is issued by the ____.
(a) tax authorities
(b) person who has deducted tax
(c) person whose tax was deducted
(d) all of above
Q.19 A company shall pay turnover tax as advance tax ________ the quantum of its income.
(a) irrespective of
(b) with respect to
(c) none of above
Q.20 The last date to pay the advance tax by a Company related to the period from January to 31st March is __________.
(a) 25th March
(b) 31st March
(c) 1st January
(d) all of above
Q.21 While computing advance tax, turnover tax payable by the company shall be ________.
(a) ignored
(b) taken into account
(c) none of above
Q.22 If the latest assessed taxable income of an individual is Rs. ______ or more he is required to pay advance tax.
(a) 200,000
(b) 300,000
(c) 400,000
(d) 500,000
Q.23 Taxpayer may make adjustment of tax paid / deducted at source under NTR during the ______ of which advance tax
is payable.
(a) year
(b) month
(c) century
(d) quarter
Q.24 Taxpayer shall furnish the estimate to Commissioner Inland Revenue if he is of the opinion that his tax liability for the
current year will be ________ the previous year.
(a) less than
(b) more than
(c) equal to
(d) Both (a) and (b)
Q.25 The amount of tax paid in advance shall be adjusted against the _______ as per return of the taxpayer.
(a) preceding year tax payable
(b) refund of preceding tax year
(c) tax payable
26 (a)
Q.NO.3 August 2014 The Finance Bank Limited (FBL) has remitted Rs. 700,000 as a commission to Pakistan Branch of
M/s. Technocom Inc., a non-resident Singapore based company. Although in the agreement it is clearly mentioned that the
applicable income tax can be deducted from the payment, but FBL remitted full amount without any deduction of tax under
Section 152(2) of the Income Tax Ordinance, 2001.
Required:
Elaborate the provisions contained in section 152 (3) of the Income Tax Ordinance, 2001 which may allow the payment
made by FBL without any deduction of tax.
Q. NO.2(b) February 2014 Macro Trading (MT) is a sole proprietorship owned by Mr. Waheed. He is engaged in the
manufacturing and supplying of herbal products for last many years. His taxable income for the year ended June 30,
2013 was Rs.1,000,000. Mr. Waheeds Tax Advisor apprised him to pay advance tax for the tax year ended June 30, 2014.
Required Keeping in view his Tax Advisors advice, Mr. Waheed need explanation with regards to the following queries as
per the Income Tax Ordinance, 2001:
(i) How the amount of advance tax liability would be calculated for the tax year ended June 30, 2014?
(ii) What would be the period of quarter and last date for payment of advance tax under each of the
following quarter namely:
Serial No. Quartered Ended Period of Quarter Last Date for Payment of Advance Tax
1 September ? ?
2 December ? ?
3 March ? ?
4 June ? ?
(iii) As amount of advance tax is calculated on the basis of the assessed tax liability of the latest tax year, which
sources of income shall not be included while computing taxable income and tax liability of the latest tax year?
If Mr. Waheed is of the opinion that his tax liability for the current year is less than the previous year, then how will he adjust
the amount of his advance tax installments?
Q. No. 2(a) February 2013 As per section 170 of the Income Tax Ordinance, 2001 who is entitled to claim refunds and
when does an application for a refund become due?
Q. No. 3(a) February 2013 Write short answers of the following questions:
(i) What is the condition for an 'individual' and 'association of persons' to qualify as a 'prescribed person' for the purpose of
making deduction at source while making payment under the provisions of section 153 of the Income Tax Ordinance, 2001?
Q.3 (b) (i) APRIL 2012 In the light of Rule 87 of the Income Tax Rules, 2002 describe the procedure for the registration of
income tax practitioners.
(iii) What is the duration of the registration of a person as an Income Tax Practitioner under rule 88 of the Income Tax Rules,
2002?
Q. NO. 3 (c) (i) SUMMER 2011 List down any three prescribed qualifications for registration as an income tax practitioner
under Rule 86 of the Income Tax Rules, 2002.
Q. NO. 3 (c) (ii) SUMMER 2011 Discuss the situations causing an end of the duration of registration of an income tax
practitioner under Rule 88 of the Income Tax Rules, 2002.
Q. NO. 2 (a) SUMMER 2008 What is the prescribed time limit for payment to the Commissioner Inland Revenue on account
of tax collected or deducted by the withholding agent?
Q. NO. 3 (b) WINTER 2007 What are the provisions of section 162 of the Income Tax Ordinance, 2001 regarding recovery
of tax from the person from whom tax was not collected or deducted?
Q. NO. 2 (a) WINTER 2006 Discuss the following under Income Tax Ordinance, 2001;
(i) Provisions for additional payments for delayed refunds under section 171
Q. NO. 4 (a) SUMMER 2005 Under what circumstances a person is liable to pay additional tax under section 205 of the
Income Tax Ordinance, 2001? and at what rate?
Q. NO. 4 (b) SUMMER 2005 Under what circumstances additional tax levied under section 205 of Income Tax Ordinance,
2001 can be reduced?
Q. NO. 4 (c) SUMMER 2005 When does additional payment for delayed refund become payable by the department to the
assessee under ITO-2001
Q. NO. 8 (a) SUMMER 2005 Discuss the provisions contained in Section 137 of the Income Tax Ordinance, 2001 related to
due date of payment.
Q. NO. 2 (b) SUMMER 2004 How Quarterly Advance tax is calculated in respect of
1- A company
2- An Association of persons, and
3- An individual?
The firm's turnover under normal and final tax regime, up to third quarter of the tax year 20X4 was Rs. 450 million and Rs.
140 million respectively.
Required:
Compute the advance tax payable for the fourth quarter pertaining to tax year 20X4.
Q. No. 4 (a) Autumn 2013 State the procedure to be followed when a person intends to make payment to a non-resident
person without deduction of tax.
Q. No. 6 (a) Spring 2013 Explain the term ' Value of Goods' in the context of collection of advance tax from an importer of
goods under the Income Tax Ordinance, 2001.
(b) Under the Income Tax Ordinance, 2001 the amount of tax required to be collected by the collector of customs from an
importer of goods at the specified rate shall be the final tax. What are the exceptions to this provision of the Ordinance?
(c) Details of income chargeable to tax for the last tax year, relating to four taxpayers are tabulated below;
Other sources
Name of taxpayers Salary property Business Total income
(Dividend)
RUPEES
Mr. Brilliant - 60,000 375,000 80,000 515,000
Miss Educated 250,000 350,000 - 200,000 800,000
Motivated & co (An AOP) - - 150,000 - 150,000
Confident services Limited - 240,000 245,000 35,000 520,000
Required:
In respect of each of the above taxpayers, explain whether they are required to pay advance tax under the Income Tax
Ordinance, 2001.
Q.4 (a) Spring 2012 Under the Income Tax Ordinance, 2001 every prescribed person is liable to deduct tax while making
payments on account of sale of goods, rendering of services and execution of contracts.
Required: State six exceptions to the above rule.
Q.3 (a) Spring 2012 On 1 January 2012, Peetal Limited (PL) signed an annual contract with Mr. Heera for the maintenance
of IT equipment for Rs. 20,000, payable on the 7th day of each month. The payments for January and February were made
as per the agreement.
On 01-03- 2012, PL received a notice from the Commissioner Inland Revenue to pay income tax of Rs. 300,000 which is
due from Mr. Heera.
Required: Discuss PLs position in respect of the notice issued by the Commissioner Inland Revenue.
Q.4 (a) Spring 2011 The tax collected on imports by large import houses is considered as a final tax unless they fulfill
certain conditions specified under the Income Tax Ordinance, 2001. You are required to list those conditions.
Q.NO. 4(b) Spring 2011 Every taxpayer whose income was charged to tax for the latest tax year is liable to pay advance tax
in the manner prescribed under the Ordinance, Specify the incomes which are not considered for the purpose of
ascertaining advance tax, under the Income Tax Ordinance, 2001.
Q.NO. 4(c) Spring 2011 Mr. Laiq is an accountant in an association of persons and wants to pay advance tax for the first
quarter of the year. Under the provisions of Income Tax Ordinance, 2001 advise him about the method of computing the
amount of advance tax.
Q.NO. 4(b) Spring 2010 Hanif Limited (HL) has commenced its commercial business operations with effect from January 1,
2010. Since no assessment of HL has yet been finalized, the management is of the view that HL is not required to pay any
quarterly advance tax.
Required:
(i) Discuss the managements point of view under the Income Tax Ordinance, 2001.
(ii) What are the consequences of non-payment of advance tax?
Q.NO. 4(c) Spring 2010 On February 15, 2010 Income Tax Department initiated proceedings against Zaman Enterprises
(Private) Limited (ZEL) for monitoring of withholding taxes. After examining the statements filed up to January 2010 and the
information submitted by ZEL, the Commissioner Inland Revenue has issued a show cause notice in respect of the
following:
(i) No tax was deducted on payments of Rs. 5.5 million made to Shahid and Co. who is one of the main suppliers of
packing materials to ZEL. Shahid and Co. imports and sells the imported products in local market in the same
condition in which they are imported.
(ii) ZEL deducted withholding tax from the payments made to Mansoor Sons against supplies of various accessories.
However, withholding tax was deducted on amount excluding sales tax of Rs. 192,000.
(iii) Rs. 50,000 was paid to Mujahid Engineering as advance against services but no tax was deducted at the time of
payment.
(iv) ZEL deducted tax at the rate of 10% from payment of commission to its sales staff.
Required: With respect to each of the above transactions, comment on ZELs position including consequences (if any) in
the light of ITO, 2001.
Q.NO. 6(b) Autumn 2009 List the prescribed persons as specified by the Income Tax Ordinance, 2001 who are required to
deduct tax while making payment for supply of goods.
Q.NO. 3(a) Spring 2009 Advance tax collected by the Collector of Customs is considered as final tax on the income of the
importer arising from imports except in certain situations. You are required to list such exceptions.
Q.NO. 3(a) Spring 2008 AAS (Pvt.) Ltd was incorporated on July 1, 2006 and commenced commercial operations in the
same month. It suffered losses in the first year of its operations. Briefly explain how the company should determine the
amount of advance tax to be paid (if any) in the tax year 2008.
Q.NO. 5(b) Autumn 2008 Quarterly advance tax payable under section 147 is computed on the basis of estimated taxable
income. Prepare a list of various types of income which are not taken into consideration while calculating the amount of
advance tax.
Q.NO. 3(b) Autumn 2007 Every prescribed person is required to deduct tax while making payments on account of sale of
goods, rendering of services and execution of contracts. Specify any seven exceptions to this rule.
Every tax payer, whose income was charged to tax for the latest tax year, is liable to pay advance tax in accordance with the
ITO, 2001. You are required to list down the incomes which are excluded for the purpose of calculating advance tax.
Q.NO. 3 Autumn 2005 What is understood by the term, own estimate in the context of quarterly advance tax payment by
an assessee. Explain the implications of an incorrect estimate by the assessee.
Q.NO. 4(c) Spring 2004 Please mention the period for which advance tax is payable and the dates by which such advance
tax is payable.
Q.NO.4(d) Spring 2004 What would be the withholding tax rate on the payment of Rs. 50 million by a company to a resident
person for the execution of a turnkey contract. Please also explain the taxability of income from such turnkey contract in the
hands of resident person.
Q.NO.5 Autumn 2003 List down the taxes deducted/collected at source which are treated as full and final discharge of tax
liability?
Q.NO. 2 Spring 2003 Explain the provisions relating to payment of advance tax by an individual.
Q. NO. 6(a) Spring 2003 Briefly explain the salient features of deduction/collection of income tax at source on the following:
1. Payment of dividend to a corporate shareholder
2. Payment of rent
3. Imports
Q.7 Spring 2002 What are the requirements for advance payment of tax by an individual under the Income Tax Ordinance,
1979?
Q.8 Spring 2002
(a) What are the consequences for non-payment or short payment of advance tax?
(b) What powers are provided in the Income Tax Ordinance, 1979 for recovery of tax if an assessee fails to voluntarily
pay the assessed tax liability?
Q.8 Autumn 2002 Explain whether income tax authorities can rectify their orders, if so, under what circumstances and is
there any limitation of time for doing so?
Q.10 Autumn 2002 Explain the law applicable in special case for recovery of income tax from a defaulted partner of a firm.
Q.7 (a) Autumn 2002 Elaborate the provision of Section 50(1) relating to withholding of tax on Salary.
Q.9 Autumn 2002 How would you make deduction of tax at source on payment of dividend to A resident individual
a. Public company listed in Pakistan
b. A non-resident individual
c. A non-resident company
Q.NO. 1 March 2000 who is required to withhold or collect tax under the following cases? Are there any exception
available?
(i) commission and brokerage
(ii) at the stage of import
(iii) at the time of payment of dividend
Q.NO. 1 Sep 2000 Discuss the provisions regarding recovery of tax.
Q.NO. 1 Sep 2000
(a) who is required to pay advance tax;
(b) how advance tax is computed;
(c) what are the dates for payment of advance tax
Q.NO. 7 Sep 2000 describe briefly the provisions of withholding tax in respect of:
(a) Payment of interest of profit on an account or deposit with a bank.
(b) Payment for services rendered by a resident person
(c) commission or brokerage
(d) payment of rent of property
Q.NO. 6 March 1999 briefly develop a write up for you clients in corporate as well as non-corporate sector advising them
about the provisions of section 53 (now section147) of the Income Tax Ordinance relating to advance tax before
assessment.
Q.NO. 5 Sep 1999 what are the provisions of the Income Tax Ordinance relating to withholding tax in respect of the
following payments?
i. payment to residents in respect of supply of goods, services and execution of contracts
ii. fee for technical services to non-resident
iii. collection of tax on casual income ( prize bond, lottery etc)
Q.NO. 6 May 1997 write short notes on advance payment of tax.
Q.NO. 8 May 1997 what are the provisions relating to tax withholding in respect of the payment of rent, salary, brokerage/
commission and fee for technical services to non-resident.
May 1994 the monetary limit for non-deduction of tax at source in respect of payment on account of services is rupees:
(a) 5,000 (b) 10,000
(c) 15,000 (d) 25,000
Q.NO. 9 Nov 1994 answer the following statements considering the keys given therein:
Advance tax on quarterly basis is payable:
(a) Before income year (b) at the start of income year (c) during income year
Chapter
Topic covered
Section
(For CA Mod F & ICMAP students)
114, 115, 116 & 165 Penalty for Failure to Income tax return, statements and wealth reconciliation
174 Penalty for Failure to Issue cash memo, invoice or receipt
181 Penalty for Failure to Apply for Registration and Failure to Notify a Change of Material Nature
182 Offences and penalties for various defaults
137 Failure to Deposit the amount of tax or any part thereof
174 Failure to Maintain Records
176 Failure to furnish information
177 Failure to non-compliance with the provisions of total audit
209 & 210 Penalty for Obstruction in Performance of Duties
183 Exemptions from penalty and default surcharge
191 Prosecution for non-compliance with certain Statutory Obligations
192 Prosecution for false statement in verification
192A Prosecution for concealment of income
193 Prosecution for failure to maintain records
194 Prosecution for improper use of National Tax Number Card
195 Prosecution for making false or misleading statements
196 Prosecution for obstructing an income tax authority
197 Prosecution for disposal of property to prevent attachment
198 Prosecution for unauthorized disclosure of information by a public servant
199 Prosecution for abetment
200 Offences by companies and association of persons
201 Institutions of prosecution proceedings without prejudice to other action
202 Power to compound offences
203 Trial by Special Judge
203A Appeal against the order of a Special Judge
204 Power to tender immunity from prosecution
MCQs with solutions
ICMAP past papers theoretical questions
1. PENALTIES
Default Penalty Section
1. Where any person fails to furnish a return 0.1% of the tax payable in respect of that tax 114 & 118
of income within the due date year for each day of default subject to a
maximum penalty of 50% of the tax payable
provided that if the penalty worked out as
aforesaid is less than Rs. 20,000 or no tax is
payable for that tax year such person shall
pay a penalty of Rs. 20,000
1A. Where any person fails to furnish a Rs. 2,500 for each day of default subject to a 115, 165 and 165A
statement as required within the due date minimum penalty of Rs. 10,000 (SRO no.
978(I)/2013 dated 13-11-2013)
1AA Where any person fails to furnish wealth Higher of 0.1% of the taxable income per 114, 115 and 116
statement or wealth reconciliation week or Rs. 20,000.
statement.
2. Penalty for Failure to Issue cash memo, Higher of Rs.5,000 or 3% of the amount of 174 and Chapter VII of
invoice or receipt the tax involved the Income Tax Rules
3. Penalty for Failure to Apply for Rs. 5,000 181
Registration and Failure to Notify a
Change of Material Nature
4. Failure to Deposit the amount of tax or any (a) For the first time default, 5% of the 137
part thereof amount of the tax in default.
(b) For the second default, an additional
penalty of 25% of the amount of the tax
default.
(c) For the third and subsequent default, an
additional penalty of 50% of the amount
of tax in default.
5. Repetition of erroneous calculation in the Higher of Rs. 5,000 or 3% of the tax 137
return for more than 1 year resulting in involved.
lesser amount of tax paid
6. Failure to Maintain Records under the Higher of Rs. 10,000 or 5% of the amount of 174
Ordinance and Rules tax on income.
7. Failure to Furnish Information Rs.5,000 for the first default and Rs.10,000 176
for each subsequent default.
8. Failure to non-compliance with the (a) Such person on first notice shall be liable 177
provisions of total audit to pay a penalty of Rs.25,000.
(b) If he fails after the second notice also,
the amount of penalty shall be Rs.
50,000.
(c) Failure to produce the record on the third
notice will result in a penalty of Rs.
100,000.
9. Failure to furnish the information required Rs.25,000 for the first default and Rs.50,000 176
or to comply with any other term of the for each subsequent default.
notice served
10. Penalty for Making a False Statement etc. Higher of Rs. 25,000 or 100% of the amount 114, 115, 116, 174,
of resulting tax shortfall. Provided where the 176, 177 and general
taxpayer can prove that his intention was not
to defraud the authorities the penalty may be
reduced or decreased accordingly.
11. Penalty for Obstructing Tax Officials to Higher of Rs. 25,000, or 100% of the amount 175 and 177
Access to Premises etc. of tax involved.
12. Penalty for Concealment of income, Higher of Rs. 25,000 or an amount equal to 182
furnishing of inaccurate particulars or the tax which person sought to evade.
claiming of any deduction not actually However, if a person proves that he made
incurred or any act referred to in u/s 20, claim of exemption or expenditure
111 and general unknowingly the penalty will not be imposed.
Provided that where the taxpayer admits his
default he may voluntarily pay the amount of
penalty due under this section.
13. Penalty for Obstruction in Performance of Rs. 25,000 209, 210 and general
Duties
14. General Higher of Rs. 5,000 or 5% of the amount of
If a person contravenes any of the tax involved.
provision of ITO, 2001, for which no
penalty has, specifically, been provided
15. Failure to Collect or Deduct Tax u/s 148, Higher of Rs. 25,000 or 10% of the amount 182
149, 150, 151, 152, 153, 153A, 154, 155, of tax.
156, 156A, 156B, 158, 160, 231A, 231B,
233, 233A, 234, 234A, 235, 236 and 236A
16. Any person who fails to display NTN Such person shall pay a penalty of Rs. 5,000 181C
Certificate at the place of business as
required under this Ordinance or the rules
made there under.
All the above penalties shall be levied in a consistent manner after passing an order in writing by the Commissioner Inland
Revenue, Commissioner Inland Revenue (Appeals) or the Appellate Tribunal. Moreover, it is necessary that person on
whom the penalty is being imposed, is provided an opportunity of being heard.
If subsequently an order is revised by an income tax authority due to which the amount on which the penalty was based is
reduced, the penalty will also be reduced accordingly.
Exemption from penalty and default surcharge [U/s 183]
The Federal Government (by notification) and the Board (by order) through official Gazette in writing may exempt any
person or class of persons from payment of the whole or part of the penalty and default surcharge on such conditions
and limitations as may be specified therein.
2. PROSECUTION
Where a person, without reasonable excuse, Shall further punishable with fine of
fails to - Rs.50,000 or imprisonment for a term
(a) comply with a notice to file the income tax not exceeding 2 years, or both.
return or wealth statement,
(b) pay advance tax,
(c) comply to collect or deduct tax and pay the
tax,
(d) comply to a notice to regarding recovery of
tax on holding money on behalf of a
taxpayer or in providing information or
evidence required by tax department,
(e) comply with the requirements of u/s 141(3)
or (4),or
(f) provide reasonable facilities and assistance
to the CIR in effective exercise of the right
to access and search premises,
3. Prosecution for concealment of income to the Imprisonment up to 2 years or with fine 192A
extent that has impact on revenue of or both.
Rs.500,000 or more
4. Prosecution for failure to maintain records (a) where the failure was deliberate, a 193
fine not exceeding Rs.50,000 or
imprisonment for a term not
exceeding 2 years, or both; or
(b) in any other case, a fine not
exceeding Rs.50,000.
5. Prosecution for improper use of National Tax Fine not exceeding Rs.50,000 or 194
Number Card imprisonment for a term not exceeding
2 years, or both.
6. Prosecution for making false or misleading 195
statements
A person who -
(a) makes a statement to an income tax (i) where the statement or omission
authority that is false or misleading in a was made knowingly or recklessly,
material particular; or with a fine or imprisonment for a
(b) omits from a statement made to an term not exceeding 2 years, or both;
income tax authority any matter or thing (ii) in any other case, with a fine.
without which the statement is misleading
in a material particular.
7. Prosecution for obstructing an income tax Fine or imprisonment for a term not 196
authority exceeding1 year, or both.
8. Prosecution for disposal of property to prevent Fine up to Rs.100,000 or imprisonment 197
attachment for a tern not exceeding three years, or
both.
9. Prosecution for unauthorized disclosure of Fine not below Rs. 500,000 or 198 and 216
information by a public servant imprisonment for a term not exceeding
one year, or both.
10. Prosecution for abetment Fine or imprisonment for a term not 199
exceeding 3 years, or both.
3. Offences by companies and association of persons [U/s 200]
Where an offence as stated above is committed by a company, every person who, at the time the offence was
committed, was -
(a) the principal officer, a director, general manager, company secretary or other similar officer of the company; or
(b) acting or purporting to act in that capacity,
shall be guilty of the offence and all the provisions of this Ordinance shall apply accordingly.
Where an offence as stated above is committed by an AOP, every person who, at the time the offence was
committed, was a member of the association shall be, guilty of the offence and alt the provisions of this Ordinance
shall apply accordingly.
4. Institutions of prosecution proceedings without prejudice to other action [U/s 201]
Notwithstanding anything contained in any law for the time being in force, a prosecution for an offence against this
Ordinance may be instituted without prejudice to any other liability incurred by any person under the Income tax
Ordinance, 2001.
5. Power to compound offences [U/s 202]
If a person has committed any offence, the Chief Commissioner may, with the prior approval of the Board, either
before or after the institution of proceedings, compound such offence on payment of tax due along with default
surcharge and penalty under the Income tax Ordinance, 2001.
6. Trial by Special Judge [U/s 203]
(1) The Federal Government may, by notification in the official Gazette, appoint as many special judges as it may
consider necessary, and where it appoints more than one Special judge, it shall specify in the notification the
territorial limits within which each of them shall exercise jurisdiction;
Provided the Federal Government may, by notification in official Gazette, declare that a special Judge
appointed under section 185 of the customs Act, 1969 shall have jurisdiction to try offences under this
Ordinance.
(1A) A Special judge shall be a person who is or has been a Sessions Judge and shall, on appointment, have the
jurisdiction to try exclusively an offence punishable under this Part other than an offence referred to in u/s 198.
(1B) The provisions of the Code of Criminal Procedure shall apply to the proceedings of the court of a Special judge
the court of Special judge shall be deemed to be a Court of Sessions trying cases, and a person conducting
prosecution before the court of a Special judge shall be deemed to be a Public Prosecutor.
(2) A Special judge shall take cognisance of, and have Jurisdiction to try, an offence try only upon a complaint in
writing made by the Commissioner Inland Revenue.
(3) The Federal Government may, by order in writing, direct the transfer, at any stage of the trial, of any case from
the court of one Special judge to the court of another Special Judge for disposal, whenever it appears to the
Federal Government that such transfer shall promote the ends of justice or tends to the general convenience
of parties or witnesses.
(4) In respect of a case transferred to a Special judge by virtue of sub-section (1) or under sub-section (3), such
Judge shall not, by reason of the said transfer, be bound to recall and rehear any witness who has given
evidence in the case before the transfer and may act on the evidence already recorded by or produced before
the court which tried the case before the transfer,
7. Appeal against the order of a Special Judge [U/s 203A]
An appeal against the order of a special Judge shall lie to the respective High Court of a Province within 30 days of
the passing of the order and it shall be heard as an appeal under the Code of Criminal Procedure 1898 by a single
Judge of the High Court.
8. Power to tender immunity from prosecution [U/s 204]
(1) The Federal Government may, for the purpose of obtaining the evidence of any person appearing to have
been directly or indirectly concerned in, or privy to the concealment of income or to the evasion of tax, tender
to such person immunity from prosecution for any offence under this Ordinance or under the Pakistan Penal
Code or under any other Federal Law on condition of the person making full and true disclosure of the whole
circumstances related to the concealment of income or evasion of tax.
(2) A tender of immunity made to, and accepted by, the person concerned shall render the person immune from
prosecution for any offence in respect of which the tender was made and to the extent specified in the
immunity.
(3) If it appears to the Federal Government that any person to whom immunity has been tendered under this
section has not complied with the conditions on which the tender was made or is concealing anything or giving
false evidence, the Federal Government may withdraw the immunity, and any-such person may be tried for the
offence in respect of which the tender of immunity was made or for any other offence of which the person
appears to have been guilty in connection with the same matter.
(c) 75
(d) 100
Q.9. In case of repetition of erroneous calculation in the return for more than one year resulting lesser amount of tax paid,
penalty is higher of Rs. _________.
(a) 10,000 or 3%
(b) 1,000 or 1%
(c) 5,000 or 3%
(d) 20,000 or 5%
Q.10. Penalty for failure to maintain records under the Ordinance and rules is higher of Rs.______.
(a) 10,000 or 5%
(b) 1,000 or 5%
(c) 5,000 or 3%
(d) 20,000 or 5%
Q.11. Penalty for non-compliance with the provisions of total audit after first notice shall be Rs.____.
(a) 6,000
(b) 25,000
(c) 7,000
(d) 8,000
Q.12. Penalty for non-compliance with the provisions of total audit after second notice shall be Rs.____.
(a) 50,000
(b) 15,000
(c) 20,000
(d) 25,000
Q.13. Penalty for non-compliance with the provisions of total audit after third notice shall be Rs.____.
(a) 50,000
(b) 75,000
(c) 100,000
(d) 125,000
Q.14. Penalty for failure to furnish information for first default is Rs. ______.
(a) 1,000
(b) 5,000
(c) 2,000
(d) 3,000
Q.15. Penalty for failure to furnish information for subsequent default is Rs. ______.
(a) 10,000
(b) 15,000
(c) 12,000
(d) 13,000
Q.16. Penalty for obstructing tax officials to access to premises shall be higher of Rs. _________ of the amount of tax
involved
(a) 10,000 or 10%
(b) 20,000 or 20%
(c) 25,000 or 100%
(d) 30,000 or 100%
Q.17. Penalty for concealment of income shall be higher of Rs. ______ or an amount equal to the tax which person sought
to evade.
(a) 10,000
(b) 15,000
(c) 20,000
(d) 25,000
Q.18. Penalty for obstruction in performance of duties shall be Rs. _________.
(a) 10,000
(b) 15,000
(c) 20,000
(d) 25,000
Q.19. If a person contravenes any of the provision of ITO, 2001, for which no penalty has, specifically, been provided he
shall pay a penalty higher of Rs. _______ of the amount of tax involved.
(a) 10,000 or 5%
(b) 1,000 or 5%
(c) 5,000 or 5%
(d) 20,000 or 5%
Q.20. Penalty for failure to deduct or collect tax is higher of Rs __________ of the amount of tax.
(a) 10,000 or 5%
(b) 1,000 or 5%
(c) 5,000 or 5%
(d) 25,000 or 10%
Q.21. The __________ (by notification) and the Board (by order) through official Gazette in writing may exempt any person
or class of persons from payment of the whole or part of the penalty and default surcharge on such conditions and
limitations as may be specified therein.
(a) Federal Government
(b) Provincial Government
(c) Appellate Tribunal Inland Revenue
(d) all of above
Q.22. Any person who makes a statement in any verification in any return or other document furnished under this
Ordinance which is false and which the person knows or believes to be false, the person shall be punishable with a
fine up to Rs._______ or imprisonment or both.
(a) 200,000
(b) 100,000
(c) 400,000
(d) 50,000
Q.23. Where any person, in the course of any income tax proceedings, concealed income or furnished inaccurate
particulars of such income to the extent that has impact on revenue of Rs.______or more shall punishable with
imprisonment up to two years or with fine or both.
(a) 500,000
(b) 100,000
(c) 400,000
(d) 50,000
Q.24. A person who knowingly or recklessly uses a false National Tax Number Certificate on a return or other document
prescribed shall punishable with a fine not exceeding Rs.__________or imprisonment for a term not exceeding two
years, or both.
(a) 500,000
(b) 50,000
(c) 100,000
(d) 10,000
Q.25. Where the owner of any property sells the property after the receipt of a notice from the CIR to prevent the CIR from
attaching it, shall punishable with a fine up to Rs.__________or imprisonment for a tern not exceeding three years, or
both.
(a) 500,000
(b) 50,000
(c) 100,000
(d) 10,000
Q.26. Where a person knowingly and will-fully aids, abets, assists, incites or induces another person to commit an offence
under the Income Tax Ordinance, 2001 the first mentioned person shall punishable with a fine or imprisonment for a
term not exceeding ________years, or both.
(a) 3
(b) 2
(c) 4
(d) 5
Q.27. Where an offence is committed by a company, _______ shall be guilty of the offence.
(a) principal officer
(b) director
(c) general manager or secretary
(d) all of above
Q.28. Where an offence is committed by an AOP, _______ shall be guilty of the offence.
(a) employee
(b) members
(c) legal representative
(d) all of above
ANSWERS
1 (a) 2 (b) 3 (a) 4 (a) 5 (b)
6 (c) 7 (a) 8 (b) 9 (c) 10 (a)
11 (b) 12 (a) 13 (c) 14 (b) 15 (a)
16 (c) 17 (d) 18 (d) 19 (c) 20 (d)
21 (a) 22 (b) 23 (a) 24 (b) 25 (c)
26 (a) 27 (d) 28 (b)
Chapter
25 INSURANCE BUSINESS
Topic covered
S. No.
(For CA Mod F & ICMAP students)
PART I
1 Definition
2 Categories of insurance
3 Taxability of insurance business
4 Computation of the surplus
5 General insurance
6 Mutual insurance association
7 Practical example
8 MCQs with solutions
Definition
Insurance is defined in the Insurance Ordinance 2000 in the following words:
Insurance means the business of entering into and carrying out policies or contracts, by whatever, name called, whereby,
in consideration of a premium received, a person promises to make payment to another person contingent upon the
happening of an event, specified in the contract, on the happening of which the second name person suffers loss and
includes reassurance and retrocession. Provided that a contract of life insurance shall be deemed to be a contract of
Insurance notwithstanding that it may not comply with the definition set out in this clause.
Categories
The Insurance is divided into two broad categories i.e. Life and General Insurance, General Insurance includes Fire,
Accidental, Marine, medical Insurance etc. The reporting pattern of financial statements of the Insurance Companies is
different from normal Accounts. A life Insurance Business is required to prepare 9 reports as a part of financial statements.
Whereas General business related companies are required to prepare 10 reports.
Taxability
Although normal rates of tax are applicable to Insurance companies, however, method for determination of taxable income is
different and section 99 deals with this issue in the following way:
Special provisions relating to insurance business: The profits and gains of any insurance business shall be computed in
accordance with the rules in the Fourth Schedule.
Rule 1-3 of the Fourth Schedule are applicable to Life Insurance Business. The said rules stipulate the provisions regarding
computation of profit and gains on the life Insurance business in the following manner:
The profits and gains of a taxpayer carrying on life insurance business chargeable under the head "Income from Business
shall be computed separately from the taxpayer's income from other business.
The income from life insurance business is liable to tax under income from business and the said income will be worked out
in the manner laid down hereunder:
The profits and gains of a life insurance business shall be the current years surplus appropriated to profit and loss account
prepared under the Insurance Ordinance, 2000, as per advice of the Appointed Actuary, net of adjustments under sections
22(8), 23(8) and 23(11) of the Insurance Ordinance, 2000 so as to exclude from it any expenditure other than expenditure
which is, under the provisions of Part IV of Chapter III, allowed as a deduction in computing profits and gains of a business
to the extent of the proportion of surplus not distributed to policy holders.
From the accounting perspective, it is important to place on record that a life insurance contract is invariably a long term
contract, indeed a long term investment contract. Therefore, at the date of balance sheet, the liability in respect of future
claims has to be given due consideration. This is so because in future years, the premium to be received against ongoing
policies would be much less than the claims which may become payable against those policies. This difference is known as
net liability. It then follows that unless a life insurance company has reserves equal to the net liability, the company would
be considered to have made no profit.
However, under the tax law, the formula to compute the Profit and gains of life insurance business is as under:
Profit and gains of a life Insurance Business = Annual Average of surplus
Less adjustment of surplus or deficit disclosed by actuarial valuation made for the last inter valuation period ending before
the tax period
Add surplus or deficit included therein which was made in any earlier inter valuation period and expenditure allowed as a
deduction
Computation of the surplus
The following provisions shall apply in computing the surplus:
(a) The amounts
paid to,
or reserved for,
or expended on behalf of policy-holders
Shall be allowed as a deduction;
However:
(a) in the first computation of the surplus, no account shall be taken of amounts to the extent to which they are
paid out, or in respect of any surplus brought forward from a previous inter-valuation period; and
(b) if any amount reserved for policy-holders ceases to be so reserved, and is not paid to, or expended on behalf
of policy-holders, the sums previously allowed as a deduction under this Ordinance shall be treated as part of
the respective statutory fund for the tax year in which the amount ceased to be so reserved.
The transfer of any amount to reserve although allowed as deduction in computing the surplus. However, in case the
said reserve is not utilized for the purpose intended, then, the whole of the sum set apart for reserve and allowed as
deduction previously will be added in the surplus of the prevailing tax year of that time.
(b) Any amount
either written off or
reserved in the accounts, or
through the actuarial valuation balance sheet to meet depreciation, or loss on the realization of investments
shall be included in the surplus
However, any sums taken credit for in the accounts or actuarial valuation balance sheet on account of appreciation or
gains on the realization of investments shall be allowed as deduction; and
if it appears to the CIR, after consultation with the Securities and Exchange Commission of Pakistan (SECP), that the
rate of profit on debt or other factors employed in determining the liability in respect of outstanding policies is
inconsistent with the valuation of investments so as artificially to reduce the surplus, the CIR may make such
adjustment to the allowance for depreciation, or in respect of appreciation, of such investment as the CIR thinks
reasonable
The term investment is defined in the following manner:
"investments " includes all forms of shares, debentures, bonds, deposits and other securities, derivative instruments, and
includes immovable property whether or not occupied by the insurer;
In view of the aforesaid provision of the schedule, it clearly transpires that gain / loss due to appreciation / diminution in the
value of shares is allowable deduction for the insurance business. The said rules further states that:
(b) profit on debt accrued in the inter-valuation period in respect of any securities of the FG which have been issued or
declared to be income tax-free shall not be excluded, but shall be exempt from tax.
Rule 6A states that the capital gains on the sale of shares etc. shall not be included in the taxable income of the an
insurance company
In computing income under this Schedule, there shall not be included capital gains , being income from the sale of
modaraba certificates or any instrument of redeemable capital as defined in the Companies Ordinance, 1984, listed on any
stock exchange in Pakistan or shares of a public company (as defined in section2(47) and the PTC issued by the
Government of Pakistan, derived up to tax year ending on the thirtieth day of June, 2010.
General insurance
Rule 5 of the Fourth Schedule deals with the General Insurance Business. The said Rule states that:
The profits and gains of any business of insurance (other than life insurance) shall be taken to be the balance of the profits
disclosed by the annual accounts required under the Insurance Ordinance, 2000, to be furnished to the Securities and
Exchange Commission of Pakistan (SECP) subject to the following adjustments:
(a) any expenditure or allowance, or any reserve or provision for any expenditure, or the amount of any tax deducted at
source from dividends or profit on debt received which is not deductible in computing the income chargeable under
the head Income from Business shall be excluded;
(b) subject to the provisions of rule 6A, any amount of investment written off shall be allowed as a deduction, but any
amount taken to reserve to meet depreciation of investments shall not be allowed as a deduction, and any sums
taken credit for in the accounts on account of appreciation of investment shall not be treated as part of the profits and
gains, unless these have been crystallized as gains or losses on the realization of investments; and
(c) no Reduction shall be allowed for any expenditure, allowance, reserve, or provision in excess of the limits laid down
in the Insurance Ordinance, 2000, unless the excess is allowed by the Securities and Exchange Commission of
Pakistan (SECP) and is incurred in deriving income chargeable to tax; and
(d) no deduction shall be allowed for any expenditure incurred on account of insurance premium or re-insurance
premium paid to an overseas insurance or reinsurance company or a local agent of an overseas insurance company
until tax at the rate of 5% is withheld on the gross amount of insurance or re-insurance premium.
Although simple manner of computation of tax on income of Insurance companies is to apply applicable rate to the
accounting profit of the company irrespective of the fact what are the components of the income and what are their
respective classification. No estimation / additions u/s 21, 22, 23, 24 or otherwise can be made except for provisions and
reserves which are inadmissible under the law e.g. provision for bad debts, etc.
Mutual insurance association
Rule 6: These rules shall also apply to the assessment of the profits and gains of any business of insurance carried on by a
mutual insurance association and such profits and gains shall be chargeable to tax under head "Income from Business".
(6A) Exemption of Capital Gains from the sale of shares [Omitted through Finance Act, 2015]
(6B) Capital Gains on disposal of shares of listed companies, PTC vouchers, modaraba certificate or instruments of
redeemable capital and derivative products shall be taxed at the following rates;
Company paid lease rental amounting to Rs. 655,000 to the leasing companies. The Accounting depreciation
on leasehold assets is Rs. 235,000 and lease financial charges aggregates to Rs. 175,000.
The income includes loss due to decline in the value of investments on the date of balance sheet amounting to
Rs. 325,000.
The company claimed a loss due to impairment of fixed assets amounting to Rs. 195,000.
Dividend Income of the company was Rs 2,000,000 during the year.
You are provided with above information for computation of taxable income and tax liability for the tax year 2015.
Solution
Arshad Insurance Company Ltd
Computation of taxable income and tax liability
For the tax year 2016 Rs.
Accounting Profit for the Year 21,000,000
Add
Impairment loss on fixed assets 195,000
Inadmissible legal and professional charges 750,000
Loss due to depreciation in value of investment 325,000
Depreciation on leasehold assets 235,000
Lease finance charges 175,000
Provision for bad debts 500,000
2,180,000
Less
Lease rentals 655,000
Taxable Income 22,525,000
Computation of tax liability
Tax on Taxable income Rs 22,525,000 @ 32% 7,280,000
Total Tax 7,280,000
Example:
ABC and Company Ltd. deals in life and General Insurance business. Followings are brought from accounting
records.
Accounting profit before tax Rs. 42.390 m
Dividend income Rs. 1.5 m
Provision for claims Rs. 5 m
Accounting depreciation Rs. 8.586 m
Tax depreciation Rs. 9.380 m
Profit on debt from securities of Federal Government Rs. 0.312 m
Claims are paid out of provisions but not claimed as deduction Rs. 2 m
Amount of provision for claims ceases to be so reserved Rs. 0.998 m
Remuneration exp of chief executive Rs.0.840 m
Remuneration of chief executive disallowed by SECP Rs. 0.199 m
Payment of re-insurance premium to an overseas re-insurance company without
the deduction of with-holding Tax (@ 5%) Rs. 1.75 m
Capital gain from sale of PTC vouchers issued by the Govt. of Pakistan
(where the holding period of such vouchers is 7 months) Rs. 0.897 m
Loss on disposal of Modaraba certificates Rs. 0.543
Solution:
ABC Insurance Company Ltd.
Computation of taxable income and tax liability
For the tax year 2016
Income from business Rs.
Profit before Taxation as per P and L Account 42,390,000
Tax liability
32% tax on business and other income (44,543,000 x 32%) 14,253,760
15% tax on Capital Gain (354,000 x 15%) 53,100
Total tax liability 14,306,860
NOTES:
N-1 Dividend Income falls under normal tax regime.
N-2 Provision for claims is allowed as a deduction u/c (a) of sub-rule (1) of rule 3 of 4th schedule.
N-3 Profit on debt from securities of Federal Government is exempt from tax.
N-4 Payment of claims, paid out of provisions, shall not be allowed as deduction u/c (a) of sub-rule (2) of rule 3 of 4th
schedule.
N-5 As with-holding tax @ 5% is not deducted so payment of re-insurance premium to an overseas re-insurance company
is inadmissible.
N-6 Loss on Modaraba certificates can be set off against Capital gain.
(a) 2013
(b) 2012
(c) 2011
(d) 2010
Q.9. Loss on disposal of securities shall be set off only against the gain from any other securities chargeable to tax under
Rule 6B and unadjusted loss shall _______.
(a) carried forward for 10 years
(b) carried forward for 6 years
(c) not be carried forward
(d) carried forward subject to certain conditions
Q.10. Investments include all forms of ________:
(a) shares
(b) debentures
(c) bonds
(d) all of above
ANSWERS
Chapter
Topic covered
Section
(For CA Mod F & ICMAP students)
Special provisions relating to the production of oil and natural gas & exploration & extraction of other
100
mineral deposits
th
5 Schedule Rules for the computation of the profits & gains from the exploration & production of petroleum PART I & II
Practical example
MCQs with answers
Special provisions relating to the production of oil and natural gas, and exploration and extraction of other mineral
deposits [Sec. 100]
(1) Rues in Part I of 5th schedule shall apply in calculating the profits and gains from the exploration and production of
petroleum including natural gas, from refineries set up at Dhodak and Bobi fields, the pipeline operations of
exploration and production companies, the manufacture and sale of liquefied petroleum gas or compressed natural
gas and in calculating tax payable thereon.
(2) Sub section (1) shall only apply after 24th day of September, 1954 and onward.
(3) Rues in Part II of 5th schedule shall apply in calculating the profits and gains from the exploration and extraction of
such mineral deposits of a wasting nature (not being petroleum or natural gas) as may be specified by the Federal
government, carried on by the person in Pakistan.
The Fifth Schedule
Part I
Rules for the computation of the profits and gains from the exploration and production of petroleum
1. Exploration and production of petroleum as a separate business
Where any person carries on, or is treated as carrying on, under an agreement with the Federal Government, any
business which consists of, or includes, the exploration or production of petroleum in Pakistan or setting up refineries
at Dhodak and Bobi fields, income of exploration and production companies from pipeline operations, and
manufacture and sale of liquefied petroleum gas or compressed natural gas, such business or part thereof, as the
case may be, shall be, for the purposes of this Ordinance, treated as a separate business undertaking and the profits
and gains of such undertaking shall be computed separately from the income, profits, or gains from any other
business, if any, carried on by the person.
2. Computation of profits
(1) The profits and gains shall be computed in the manner applicable to income, profits and gains chargeable
under the head Income from Business.
(2) Where such person incurs any expenditure on searching for or discovering and testing a petroleum deposit or
winning access thereto but the search exploration, enquiry upon which expenditure is incurred is given up
before the commencement of commercial production, the expenditure allocable to a surrendered area or to the
drilling of a dry-hole shall be treated as lost at the time of the surrender of the area or the completion of the
dry-hole, as the case may be.
(3) Where the agreement provides that any portion of expenditure treated as lost (referred to as the said loss)
shall be treated in any of the following ways:
(a) The said loss shall be set off against any income (other than income from dividend) chargeable under
any head of that year and where the said loss cannot be fully set off then the unadjusted loss can be
carried forward up to the maximum of 6 years.
(b) The said loss in any year shall be set off against the income of such undertaking of the tax year in which
commercial production has commenced and where the loss cannot be wholly set off against the income
of such undertaking of that year, the portion not set off against the income, if any, of such undertaking of
that year, and if it cannot be wholly so set off the amount of loss not so set off shall be carried forward
for more than 10 years.
(4) After the commencement of commercial production, all the expenditure incurred prior thereto and not [treated
as] lost under sub-rule (2) and not represented by physical assets in use at the time the commercial production
shall be allowed as a deduction, so, however, that the portion of such deduction to be so allowed in any year
shall be such amount not exceeding 10% of the aggregate amount deductible in respect of onshore areas, and
not exceeding 25% for offshore areas, as may be selected by taxpayer.
(4A) Notwithstanding anything contained in this Schedule, a person, for tax year 2012 and onward, may opt to pay
tax at the rate of 40% of the profits and gains, net of royalty, derived by a petroleum exploration and
production undertaking:
Provided that this option shall be available subject to withdrawal of appeals, references and petitions on the
issue of tax rate pending before any appellate forum:
Provided further that the outstanding tax liability created under this Ordinance up to tax year 2011 is paid by
the 30th June, 2012:
Provided also that this option is available only for one time and shall be irrevocable.
(5) Any expenditure, including a royalty paid to the Federal Government by an onshore petroleum exploration and
production undertaking on, or after, the 1st July 2001 (not being in the nature of capital expenditure or personal
expenses of the taxpayer) laid out or expended after the commencement of commercial production wholly and
exclusively for the purpose of the business of production and exploration of petroleum carried on by such
undertaking shall be allowed as a deduction, provided that
(a) No deduction shall be allowed in respect of such expenditure incurred in the acquisition of depreciable
assets to which section 22 applies or in the acquisition of an intangible to which section 24 applies;
(b) Deductions u/ss 22, 23 and 24 shall be admissible in respect a assets referred to in clause (a);
(c) A depreciation deduction shall also be allowed u/s 22 in respect of such expenditure incurred on the
acquisition of the physical assets acquired before the commencement of commercial production and
were being used such undertaking on and after that date, as if such assets had been acquired at the
time of the commencement of commercial production at their original cost, by the amount of
depreciation deduction, if any, previously allowed to be deducted under this Ordinance.
(6) If, in any year, the deduction allowed Part IV of Chapter III and sub-rules (3) and (4) exceed the gross receipts
from the sale of petroleum produced in Pakistan, such excess shall be set off against other income (not being
dividends) and carried forward in the manner subject to the limitations in section 57, so however that no
portion of such excess shall be carried forward for more than six years.
(6) The limitation of six years specified in [sub-rule] (6) shall not apply to deprecation allowed to a person carrying
on the business of offshore petroleum exploration and production, in respect of any machinery, plant or other
equipment used in such exploration or production.
(7) For the purpose of the section 22, where any asset used by a person in the exploration and production of
petroleum is exported or transferred out of Pakistan, the person shall be treated as having made a disposal of
the asset for a consideration received equal to the cost of the asset as reduced by any depreciations allowed
under this Ordinance (other than an initial allowance u/s 23).
3. Depletion allowance:
The depletion allowance shall be allowed up to the 15% of gross receipts, not exceeding 50% of profits or gains
before deduction of such allowance, for any year ending after the date on which commercial production has
commenced.
4. Limitation on payment to federal government and taxes
(1) The aggregate of the taxes on income and other payments excluding a royalty as specified in the Pakistan
Petroleum (Production) Rules, 1949 or the Pakistan Petroleum (Exploration and Production) Rules, 1986 and
paid by an onshore petroleum exploration and production undertaking on or after 1.7.2001 to the Government
in respect of the profits or gains derived from such undertaking for a tax year shall not exceed the limits
provided for in the agreement, provided the said aggregate shall not be less than 50% of the profits or gains
derived by an onshore petroleum exploration and production undertaking and 40% of the profits or gains
derived by an offshore petroleum exploration and production undertaking, before deduction of the payment to
the Federal Government.
(2) In respect of any tax year commencing on or after 1.7.2002, the aggregate referred to in sub-clause (1) shall
not be less than 40% of the profit or gains derived by an onshore petroleum exploration and production
undertaking before the deduction of payment excluding royalty paid by an onshore petroleum exploration and
production undertaking to the Federal Government.
(3) If, in respect of any tax year, the aggregate of the taxes on income and payments to the Federal Government
is greater or less than the amount provided for in the agreement, an additional amount of tax shall be payable
by the taxpayer, or an abatement of tax shall be allowed to the taxpayer, as the case may be, so as to make
the aggregate of the taxes on income and payments to the Federal Government equal to the amount provided
for in the agreement.
(4) If, in respect of any year, the payments to the Federal Government exceed the amount provided for in the
agreement, so much of the excess as consists of any tax or levy referred to in sub-clause (b) of clause (3) of
rule 6 shall be carried forward and treated, for the purposes of this rule, as payments to the Federal
Government for the succeeding year, provided that the whole of the payments to the Federal Government
exceeding the amount provided for in such agreement may be carried forward if so provided for in any
agreement with a taxpayer made before the first day of 1970.
5. Decommissioning cost:
With effect from the Tax Year 2010. "Decommissioning Cost" as certified by a Chartered Accountant or a Cost
Accountant, in the manner prescribed, shall be allowed over a period of ten years or the life of the development and
production or mining lease whichever is less, starting from the year of commencement of commercial production or
commenced prior to the 1 July, 2010, deduction for decommissioning cost as referred earlier shall be allowed from
the Tax Year 2010 over the period of ten years or the remaining lift of the development and production or mining
lease, whichever is less.
The provisions of section 4B shall apply to the taxpayers under this Part and taxed at the rates specified in Division
IIA of Part I of the First Schedule.
6. Provision relating to rules:
The Federal Board of Revenue may make rules for the purposes of any matter connected with, or incidental to the
operation of this Part.
7. Definitions
(1) Agreement means an agreement entered into between the Federal Government and a taxpayer for the
exploration and production of petroleum in Pakistan.
(2) Commercial Production means production as determined by Federal Government.
(3) Payment to Federal Government means amounts payable to the Federal Government or to any Federal
Government authority in Pakistan-
(a) in respect of royalties as specified in the Pakistan Petroleum (production) Rules, 1949 or the Pakistan
Petroleum (Exploration and Production) Rules, 1986.
(b) In respect of any tax or levy imposed in Pakistan peculiarly applicable to oil production or to extractive
industries or any of them and not generally imposed upon oil industrial and commercial activities.
(4) Petroleum means crude oil, natural gas and case-head petroleum spirits as defined in the Pakistan
Petroleum (Production) Rules 1949 or the Pakistan Petroleum (Exploration and Production) Rules 1986 but
does not include refined petroleum products.
(5) Surrender means the termination of rights with respect to an art including the expiration of rights according
to the terms of an agreement.
(6) Surrendered area means an area with respect to which the rights of the person have terminated by
surrender or by assignment or by termination of business.
(7) Taxes on Income and Tax includes income tax, but does not include payments to the Federal
Government.
(8) Well-head Value shall have the meaning assigned to it in the agreement between the Federal Government
and the taxpayer and in the absence of any such definition in the agreement, the meaning assigned to it in
Pakistan Petroleum (production) Rules, 1949 or the Pakistan Petroleum (Exploration and Production) Rules,
1986.
Part II
Rules for the computation of the profits and gains from the exploration and production of mineral deposits
(Other than petroleum)
(1) Subject to the provisions of this Part, the profits and gains of such undertaking shall be computed in the
manner applicable to income, profits and gains chargeable under the head "Income from Business".
(2) All expenditure on prospecting and exploration incurred by such undertaking up to the date of commercial
production shall be, to the extent to which it cannot be set off against any other income of such undertaking,
treated as a loss.
(3) The loss referred to in sub-rule (2) shall be carried forward and set off against the income of such undertaking
after the commencement of commercial production, so, however, that if it cannot be wholly set off against the
income of such undertaking of the tax year in which the commercial production had commenced, the portion
not so set off shall be carried forward to the following year and so on, but no such loss shall be carried forward
for more than ten years beginning with the year in which commercial production commenced.
(4) After the commencement of commercial production, depreciation in respect of machinery and plant for
extracting the ore shall be allowed as a deduction from the profits and gains of the tax year in which they are
used for the first time in an amount equal to the original cost of such asset and the provisions of section 22
shall apply accordingly.
Under Rule 2A
The provisions of section 4B shall apply to the taxpayers under this Part and taxed at the rates specified in
Division IIA of Part I of the First Schedule.
3. Depletion allowance
(1) In determining the profits and gains of such undertaking for any year an additional allowance (hereinafter
referred to as the "depletion allowance") shall be made equal to 20% of the taxable income of such
undertaking (before the deduction of such allowance).
(2) No deduction under sub-rule (1) shall be made unless an amount equal to the depletion allowance is set apart
and left as a reserve to be utilised for the development and expansion of such undertaking.
(3) Where a depletion allowance is made in any tax year and subsequently it is utilized for any purpose contrary to
the provisions of sub-rule (2), the amount originally allowed under this Ordinance shall be treated as having
been wrongly allowed and the Commissioner may, notwithstanding anything contained in the Ordinance, re-
compute the taxable income of the taxpayer for the relevant tax years and the provisions of section 122 shall
apply, so far as may be, thereto, the period of five years specified in the section being reckoned from the end
of the tax year in which the amount was so utilised.
Tax Exemption of Profits from Refining or Concentrating Mineral Deposits
(1) Where such undertaking is also engaged in the business of refining or concentrating in Pakistan the mineral
deposits extracted by it in Pakistan, so much of the profits and gains (hereinafter referred to as the "said
amount") derived from such business as does not exceed 10% of the capital employed in such business (such
capital being computed in accordance with such rules as may be made by the Board for the purposes of this
rule) shall be exempt from tax.
(2) Where the profits and gains of such business computed for any tax year cover a period which is less or more
than one year, the amount of profits and gains exempt under sub-rule (1) shall be the amount which bears the
same proportion to the said amount of profits as the said period bears to a period of one year.
(3) The profits and gains of the business to which this rule applies shall be computed in accordance with Part IV of
Chapter III.
(4) Nothing contained in this rule shall apply to an undertaking formed, by the splitting up or reconstruction or
reconstitution of business already in existence or by the transfer to a new business of any building, machinery,
or plant used in a business which was carried on before 1.7.1975.
(5) The provisions of this rule shall apply to the tax year in which commercial production is commenced or the loss
or allowance, if any, under sub-rules (3) or (4) of rule 2, as the case may be, has been set off or deducted in
full, whichever is the latter, and for the next following four years.
4. Provisions relating to rules
The Board may make rules for the purposes of any matter connected with, or incidental to the operation of this Part.
5. Definitions
(1) Commercial Production means production as determined by the CIR; and
(2) Petroleum means crude oil, natural gas and case-head petroleum spirits as defined in the Pakistan
Petroleum (Production) Rules 1949 or the Pakistan Petroleum (Exploration and Production) Rules 1986 but
does not include refined petroleum products.
Example:
ABC Ltd signed a concession agreement with Pakistan for oil exploration in District Dadu. You are provided with the
following data and are requested to compute tax:
(i) ABC Ltd. incurred expenditure Rs. 200,000 on oil exploration however no commercial production commenced during
year 1. Further no exploration was either abandoned or the area was surrendered by exploratory during the first year.
(ii) During year 2 expenditures on exploration were incurred to the tune of Rs. 400,000. The commercial production this
year again could not commence but the company decided to abandon one of the dry holes. The expenditure
attributable to dry hole was Rs. 200,000.
(iii) The company commenced commercial production during year 3. The expenditure up to commencement of
commercial production amounted to Rs. 1,000,000. This includes expenditure of Rs. 600,000 incurred upto year 2
and also includes Rs. 200,000 represented by physical asset in use at the time of commencement of commercial
production.
You are provided with following further information
(i) Expenditure amount to Rs. 400,000 incurred after the commercial production also includes Rs.100,000 which
represent physical assets in use.
(ii) The gross revenue from sale of crude oil was Rs.1,200,000.
(iii) Royalty @ 12.5% was payable.
Required: On the basis of the foregoing information please compute taxable income, tax payable and / or royalty refundable
or capable of being c/f.
Solution
Onshore area Offshore area
Rs. Rs. Rs. Rs.
Sale of crude oil 1,200,000 1,200,000
Royalty @ 12.5% (not admissible for offshore area) (150,000) -
Expenditure after CCP 400,000 400,000
(a) 40
(b) 50
(c) 60
(d) 70
Q.17. The aggregate of taxes on income paid on or after 1.7.2001 shall not be less than ___% of the profits or gains derived
by an offshore petroleum exploration and production undertaking
(a) 40
(b) 50
(c) 60
(d) 70
Q.18. In respect of any tax year commencing on or after 1.7.2002 the aggregate of taxes on income paid on or after
1.7.2001 shall not be less than ___% of the profits or gains derived by an onshore petroleum exploration and
production undertaking
(a) 40
(b) 50
(c) 60
(d) 70
Q.19. With effect from the Tax Year 2010. "Decommissioning Cost" as certified by a Chartered Accountant or a Cost
Accountant shall be allowed over a period of ___ years or the life of the development and production or mining lease
whichever is less.
(a) 12
(b) 11
(c) 10
(d) 15
Q.20. Where an undertaking along-with Part I of 5th Schedule is also engaged in the business of refining or concentrating in
Pakistan the mineral deposits extracted by it in Pakistan, so much of the profits and gains derived from such business
as does not exceed 10% of the capital employed in such business shall be ____________.
(a) taxable at 10%
(b) taxable at 20%
(c) fully taxable
(d) exempt from tax
Q.21. Where the profits and gains of refining and concentrating business computed for any tax year cover a period which is
less or more than one year, the amount of profits and gains exempt shall be the amount which bears the same
proportion to the said amount of profits as the said period bears to a period of ____.
(a) one year
(b) two years
(c) last three years
(d) six months
ANSWERS
1 (a) 2 (a) 3 (d) 4 (a) 5 (b)
6 (a) 7 (c) 8 (b) 9 (b) 10 (d)
11 (a) 12 (d) 13 (c) 14 (b) 15 (a)
16 (b) 17 (a) 18 (a) 19 (c) 20 (d)
21 (a)
Chapter
27 BANKING BUSINESS
Topic covered
Section
(For CA Mod F & ICMAP students)
100A Special provisions relating to banking business
th
7 Schedule Rules for the computation of the profits & gains of banking company & tax payable thereon
Practical example
MCQs with solutions
1) Rules in 7th schedule shall apply in calculating the income, profit and gain of a banking company
2) Sub-section (1) shall apply form tax year 2009 and onward.
3. When the shares of listed company are disposed of within 1 year from the date of acquisition and results in
loss then the loss can be adjusted against the Business Income. Un-adjusted loss shall be carried forward to
the following tax year and set off against capital gain. Loss shall be carried forward for maximum of 6 years.
(3) Treatment for Shariah compliant banking
1. Any special provisions or rules by State Bank of Pakistan for Shariah Compliant Banking shall not be taken
into account for income tax purposes.
2. A statement, certified by the auditors of the Bank, shall be attached to the return of income to disclose the
comparative position of transaction as per Islamic mode of financing and as per normal accounting principles.
Adjustment to the income of the company on this account shall be made according to the accounting income
for purpose of this schedule.
(4) Head office expenditure
1. In case of foreign banks head office expenditure shall be allowed as deduction as per the following formula,
Gross receipt of permanent establishment in Pakistan / World gross receipts x Total Head Office expenditure.
2. The head office expenditure u/s 105(3) means any expenditure executive or general administration
expenditure incurred by non-resident person outside Pakistan for the permanent establishment of the person,
including
(a) Any rent, local rates and taxes excluding any foreign income tax, current repairs, or insurance against
risks of damage or destruction outside Pakistan;
(b) Any salary paid to an employee employed by the head office outside Pakistan;
(c) Any travelling expenditures of such employee; and
(d) Any other expenditure which may be prescribed.
Section 105(4) states that no deduction shall be allowed in computing the income of a permanent
establishment in Pakistan of a non-resident person chargeable under the head Income from Business for
(a) Any profit paid or payable by the non-resident person on debt to finance the operations of permanent
establishment; and
(b) Any insurance premium paid or payable by the non-resident person in respect of such debt.
3. The head office expenditure shall only be allowed if it is charged in the books of accounts of the permanent
establishment and a certificate from external auditors is provide to the effect that the claim of such
expenditure;
(i) has been made in accordance with the provision of this rule; and
(ii) is reasonable in relation to operation of the permanent establishment in Pakistan.
(5) Advance tax:
1. The banking company shall be required to pay advance tax for the year in 12 equal installments payable by
15th of every month.
2. Provisions of withholding tax shall not apply.
(6) Tax on income computed
income computed shall be chargeable to tax under the head Income from Business at the rate applicable in Division
II of Part I of the First Schedule.
(7A) The provisions of Minimum tax on the Income of certain person (section 113) shall apply to banking company.
(7B) From Tax year 2015 and onwards, Income from Dividend and income from Capital Gains shall be taxed at the rate
specified in Division II of Part II of the First Schedule.
(7C) The provisions of section 4B shall apply to the taxpayers under this schedule and taxed at the rates specified in
Division IIA of Part I of the First Schedule.
(8) Exemptions
(1) Exemptions and tax concessions under the 2nd schedule shall not apply to banking company.
(1A) The accumulated loss under the head "Income from Business" (not being speculation business losses) of an
amalgamating banking company or banking companies shall be set off or carried forward against the business
profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately
succeeding the tax year in which the loss was first computed in the case of amalgamated banking company or
amalgamating banking company or companies.
(2) If both the holding and subsidiary companies are banking companies then Group Relief (section 59B) shall
apply. Chartered Accountants firm on the panel of the State Bank of Pakistan shall approve the accounts of
group companies. Approval from State Bank of Pakistan is required for surrender and claim of loss.
(3) Group taxation (section 59AA) shall apply for the 100% owned group of banking companies with the approval
of State Bank of Pakistan.
(9) Transitional Provisions
1. The provisions of bad debts (sec. 29) and Provision regarding consumer loans (sec. 29A) shall apply.
Amounts provided before or for tax year 2008 as irrecoverable or doubtful advances, neither claimed not
allowed as tax deductible in a tax year, shall be allowed only when such advances are actually written off
against such provision.
2. Amounts provided before or for tax year 2008 as irrecoverable or doubtful advances, which were neither
claimed not allowed as tax deductible in a tax year but were written off in accounts, are written back in the tax
year 2009 and thereafter in any tax year in accounts, shall be excluded in computing the taxable income.
3. If a banking company give or acquire any asset at finance lease up to the tax year 2008 then the provisions of
this schedule shall not apply. The banking company shall recognize the income and deduction in respect of
asset leased on finance in accordance with the provisions of Ordinance as if this schedule has not come in to
force:
Provided that the un-absorbed depreciation in respect of such asset shall be allowed to be set-off against the said
lease rental income only.
(10) Provisions of Ordinance to apply: The provisions of the Ordinance not specifically dealt with in the aforesaid rules
shall apply as it is to the banking company.
(11) The federal government may, from time to time, by notification in official Gazette, amend the schedule so as to add,
modify or omit any entry therein.
Example: Finance manager of XYZ banking company has provided you the following information for the computation of
taxable income and tax liability of the company for the tax year 2016.
Rs. In 000
Profit before taxation as per P and L account 48,000
Accounting depreciation 9,000
Admissible depreciation by the taxation authority 10,500
Bad debts 750
Provision for bad debts 999
Total advances shown in balance sheet 66,600
Outstanding liability not paid over last 3 years ending on 2013 1,500
Amount paid for outstanding liability in 2015 which was become overdue
in 2012 and was added back to the taxable income in 2014 875
Un-adjusted loss on sale of shares of listed company is brought forward this year 150
Head Office expenditure charged to the branch (in accounts) 3,855
Total head office expenditure 12,850
Gross receipts of branch in Pakistan 320,000
Total world gross receipts 1,280,000
Total advance tax paid for the tax year 2016 16,500
Solution:
XYZ Banking Company
Computation of taxable income and tax thereon
for the tax year 2016
Income from business Rs. (in 000)
Profit before Taxation as per P and L Account 48,000
Add: Accounting depreciation 9,000
Bad debts (N-1) 750
Provision for bad debts (N-2) 999
Outstanding liability not paid over last 3 years ending on 2013 1,500
Head Office expenditure charged to the branch (in accounts) 3,855
Total 64,104
Less: Admissible depreciation by the taxation authority 10,500
Provision for bad debts (N-2) 666
Amount paid for outstanding liability 875
Admissible Head Office expenditure (N-3) 3,212.5
Total business income 48,850.5
Tax liability
35% tax on business and other income (48,850,500 x 35%) 17,097.675
Less: Advance tax 16,500
Total tax liability 597,675
NOTES:
N-3 Head Office shall be allowed as deduction according to the following formula
Head Office expenditure = (A / B) x C
= (Gross receipts of branch in Pakistan / World gross receipts) x Total Head Office expenditure
= Rs. (320,000 / 1,280,000) x 12,850
= Rs. 3,212.5
N-4 Loss on sale of shares of listed company shall be adjusted against business income in the 1st year the loss was
occurred. The un-adjusted loss on sale of shares of listed company brought forward from first year shall be adjusted
against Capital gain only.
Q.8. Where the deduction allowed for any expenditure, remains unpaid for 3 years from the tax year in which the
deduction was allowed, shall be added in taxable income in the ___ tax year following the end of above said years
(a) 4th
(b) 3rd
(c) 2nd
(d) 1st
Q.9. When the shares of listed company are disposed of within ___ from the date of acquisition and results in loss then the
loss can be adjusted against the Business Income
(a) 1 year
(b) 2 years
(c) 3 years
(d) 4 years
Q.10. Un-adjusted loss on disposal of shares of listed company within 1 year from date of acquisition shall be carried
forward to the following tax year and set off against _______.
(a) Capital gains
(b) income from business
(c) income from other sources
(d) all of above
Q.11. Un-adjusted loss on disposal of shares of listed company within 1 year from date of acquisition shall be carried
forward for maximum of _______.
(a) 5 years
(b) 6 years
(c) 3 years
(d) 10 years
Q.12. In case of foreign banks head office expenditure shall be allowed as deduction as per the following formula:
Gross receipt of PE in Pakistan /_____ x Total Head Office expenditure.
(a) World gross payments
(b) World gross receipts
(c) World net payments
(d) Net receipts
Q.13. Banking company shall be required to pay advance tax for the year in ___ equal installments.
(a) 4
(b) 8
(c) 12
(d) 16
Q.14. Capital gain on the sale of shares of listed companies disposed of after one year shall be taxed at ___%.
(a) 5
(b) 6
(c) 35
(d) 10
Q.15. Provisions of section 113 shall _______ to a banking company.
(a) Apply
(b) not apply
(c) none of above
ANSWERS
Chapter
28
SOLVED PAST PAPERS INCOME TAX NUMERICALS OF
ICMAP STAGE IV - (2003 TO 2015)
Note: All the following questions have been solved under the Income tax Ordinance, 2001 effective from July 01,
2015
Q.NO.4 March 2015 Mr. Hassan has been working as an Accounts Executive in Prime Limited which is a public limited
company. In addition to his salary, other perks and allowances are also provided to him by his employer. He has various
other sources of income as well. Assume you are income tax consultant and Mr. Hassan has submitted the following
information for the tax year ended on June 30, 2015 for calculation of is taxable income and tax liability:
Rupees
Basic salary per annum 500,000
Perquisites and allowances paid by the employer:
House rent allowance 110,000
Utilities 25,700
Entertainment allowance 13,000
Reimbursement of medical expenses 7,750
Two cars have been provided to Mr. Hassan and maintained by the company. One car is used wholly for the companys
business purposes having cost of Rs. 300,000 and the other one is used for his family exclusively costing to Rs. 350,000.
Other information:
Mr. Hassan paid annual premium of Rs. 12,000 for life insurance policy and Rs. 4,000 for health insurance policy.
Required:
Calculate the taxable income and tax liability of Mr. Hassan for the tax year 2015. Provide all necessary notes to support
your calculations.
Solution
Notes - 1
Car provided by the employer which was wholly used for business purpose will not be added
in the income of Mr. Hassan as the same was used for the discharge of offical duties.
Q.NO. 4 August 2014 Prime Leather Works (Pvt.) Limited has provided following information for the tax year
2014 to calculate its taxable income and tax liability:
1 Total sales include sales of Rs. 20 million which are subject to final taxation.
Solution
Mr. Samiullah has been working as Assistant Manager-Marketing for last 15 years in M/s. Moonlight Limited, a public limited
company. In addition to salary, perks and allowances given to him by the company, he has various other sources of income.
Assume that Mr. Samiullah is 62 years and has been retired from the company services on June 30, 2014. You are his Tax
Consultant. He has submitted the following information for the tax year ended June 30, 2014 in order to seek your advice in
respect of the calculation of his taxable income and tax liability.
Rupees
Bonus 80,000
Entertainment allowance 10,000
Dearness allowance 180,000
House rent allowance 225,000
Gratuity (scheme approved by FBR) 625,000
Encashment of leave preparatory to retirement 120,000
B. Property Income:
Mr. Samiullah rented his house @ Rs. 12,000 per month w.e.f 1st Jul y, 2013. He received a deposit of
Rs.150,000 not adjustable against rent, out of which he refunded Rs.75,000 to previous tenant, who vacated the
house after 3 years' occupancy. Tenant also paid property tax of Rs. 6,000 as per lease agreement. Assume that
Mr. Samiullah claimed the following expenditure for the year ended 30th June, 2014:-
Rupees Rupees
C. Other information
Share from unregistered firm (AOP) 20,000
Required:
(a) Calculate the taxable income and tax liability of Mr. Samiullah for the year ended June 30, 2014.
(b) Mr. Samiullah is 62 years. Can he claim a tax rebate @ 50% available to senior citizens? Why or why not? State
the reasons in support of your answer.
Solution: (a)
1/5th repair allowance (Rent chargeable to tax Rs. 162,750 x 1/5) = (32,550)
Interest on borrowed capital (7,000)
Insurance premium paid to cover the risk for property damage (10,000) 113,200
(B)
Share from unregistered firm (AOP) (Assumed under NTR and after tax) (C) 20,000
(Included for rate purposes)
Total income (A + B +C) 1,673,200
As taxable salary is more than 50% of the total taxable income, hence the taxpayer is a salaried person and accordingly his
tax liability is computed as under.
Total income taxable under NTR (including share from AOP) 1,665,200
Solution: (b)
Although Mr. Samiullah has met one condition of age of 60 years or more on the first day of the tax year however because
his taxable income exceeds Rs.1(M) therefore 50% reduction in tax liability under clause 1A of Part III of 2nd Schedule to the
Income Tax Ordinance, 2001 as senior citizen shall not be allowed.
Spring 2013 Q. 4
M/s. Golden Gate Limited (GGL) is a private limited company. The company manufactures and supplies consumer goods.
GGL sells its product through various distributors in Karachi, Lahore and Islamabad. The following is the profit and loss
account of GGL for the year ended on June 30, 2013:
Required:
Calculate the taxable income and tax liability of the company for the tax year 2013 from the above data.
Solution
Alternative Corporate tax U/S 113C [Accounting profit under NTR x 17%] (A) 13,757,420
[Rs. 80,926,000 x 17%]
Tax liability under corporate tax under NTR @ 32% (B) 34,543,040
1. It is assumed that tax on dividend income has duly been deducted and deposited, hence credit of the same has
been claimed against tax liability under final tax regime (FTR).
2. It is assumed that loss on sale of furniture and bad debts are in accordance with the provisions of sections 22
and 29 of the Income Tax Ordinance, 2001.
3. It is assumed that company is resident and although minimum tax under section 113 is applicable, however the
same has not been computed in the absence of turnover and accordingly no comparison with tax under normal
tax regime (NTR) has been made.
4. It is assumed that the preliminary expenses are in accordance with the provisions of section 25 of the Income
Tax Ordinance, 2001.
Global International Limited engaged in the manufacturing and trading of FMCG in the country . The shares of the
company are listed on all the stock exchanges of Pakistan. Following information has been extracted from the profit and
loss account of the company for the year ended 30th June, 2012.
Rupees
Sales 55,300,000
Cost of sales 22,120,000
Gross profit 33,180,000
Add:
Dividend received 300,000
Less
Director's sal aries 7,500,000
Staff salaries 12,150,000
Contribution to employees provident fund (a) 1,320,000
Administrat ive and selling expenses 2,550,000
Depreciation (b) 1,100,000
Entertainment expenses (c) 950,000
Insurance (d) 900,000
Fees (e) 650,000
Total expenses 27,120,000
Net income 6,360,000
Note:
(a) Employees' Provident Fund Trust is revocable at the option of Managing Director of the company and an application for
approval has been filed with the relevant tax authority.
(b) Depreciation includes Rs .300,000 for plant & machinery. Depreciation on all assets is charged on rates for normal
depreciation given in the Third Schedule to the Income Tax Ordinance, 2001. Written down value of plant & machinery for
the purpose of calculating tax depreciation is Rs.1,350,000 which includes addition during the year of new machinery of the
value Rs.650,000.
(c) Entertainment expenses include Rs.200,000 reimbursed to a director of the company for which no support is available.
(e) The company has paid fees to the tax consultant for defending taxpayer's appeal in Income Tax Appellate Tribunal.
Required:
Compute the taxable income and the tax liability of the Global International Limited. Give proper comments where any given
information has not been utilized in the computation.
Corporate Tax
Tax on Rs. 7,859,375 x 32% (B) 2,515,000
N-2: In the abscence of information it has been assumed that tax on dividend has duly been deducted & deposited.
N-3: As the legal fee for defending taxpayer's appeal in Income tax Appellate Tribunal is admissble expense hence the
same has no effect on the taxable income.
February - 2013 Q. 4
Mr. Noor has been working as a senior Manager in Karachi Terminal Limited, Assume he has proivded following
information about his income pertainig to year ended June 30, 2013:
Other Information :
Zakat paid 10,000
Note: It is assumed that literary work was started and completed during the tax year.
Required:
Being a tax consultant you are required to calculate Mr. Noor's taxable income and his income tax liability
for the tax year 2013.
Solution
1,444,000
CAPITAL (LOSS) U/S 37 (N-5) -
NOTES:
Nothing will be included in total income of the tax payer as the contribution is within the exemption limit.
Salary for provident fund purposes mean basic salary plus dearness allowance (i.e. Rs. 840,000 + 84,000).
No treatment of employee contribution as the same is already included in taxable salary of the
employee.
(N - 4) Rs.
Interest credited to a provident fund is exempt upto the higher of one-third of salary or amount on
interest calculated @ 16% p. a. As the rate of interest is not given hence 1/3rd of salary has been taken
as exempt.
(N - 5) Capital gain on sale of shares of listed companies is taxable as a separate block of income. Loss on such
shares may be set- off by a person against gain on securities chargeable to tax. There is no treatment of
the said loss as there is no gain on sale of securities.
(N - 6) Profit on PLS bank account received are taxable under Final Tax Regime hence are not included in total
income. Tax deducted is treated as fina discharge of tax liability for such income.
APRIL - 2012 Q. 5
Mr. Abdul Rehman is Chief Accountant in a multinational company. He is assumed to have received the following
perks during the tax year 2012:
Income from Salary: Rs.
Mr. Abdul Rehman has been provided with a 1300cc car which cost Rs.1,250,000 to the company. The car is
used for both personal and official purposes.
Capital Gain: Rs.
Capital gain on buying and selling of shares of an unlisted company
(shares were held for eight months). 52,000
Income from Property:
Four years ago he rented out his house for a monthly rent of Rs.24,000. At that time he also received Rs.120,000
from the tenant as deposit which is not adjustable against monthly rent. During the current tax year he received
Rs.288,000 as rent.
Required:
Compute taxable income and tax liability of Mr. Abdul Rehman for the tax year 2012.
Solution:
Note 1 In the absence of information only 1/5th repair allowance has been claimed against income from property.
From the following compute the amount of "Income from Property" chargeable to tax for the year ending June 30, 2010
Rupees
Rent of the property 50,000 (per month)
Solution:
Name of taxpayer
Computation of taxable income and tax liability
For the Tax year 2016
Rs.
INCOME FROM PROPERTY U/S 15
Less 1/5th repair allowance of rent chargeable to tax before any deduction (140,000)
(Ignore maintenance expenses that may be less or more than 1/5th allowance)
Rent chargeable to tax for taxability purposes 560,000
(N - 1) No treatment of refundable security has been made as the same shall autocatically transferred to rental income
on expiry against which advance rent has been given.
Summer - 2011 Q. 5
Mr. Hussain Ahmad is an officer in a public listed company. He derived the following salary income during the tax
year ended June 30, 2010:
Rs.
Basic salary 50,000 (per month)
House rent allowance 22,500 (per month)
Utility allowance 5,000 (per month)
Medical allowance 6,000 (per month)
Leave encashment 50,000
(i) Company also provide him with a 800CC car valuing Rs. 600,000 as per books of accounts. The car is used for
official and personal purposes.
(ii) He has paid Zakat of Rs. 25,000 to an approved institution.
(iii) He paid a donation of Rs. 20,000 to a charitable institution for which a tax credit is allowed u/s 61.
(iv) He paid donation of Rs.10,000 to an approved institution specified u/c (61) of part 1 of second Schedule.
(v) He received a pension amounting to Rs. 7,000 p.m from his past employment in the government.
Required: Compute the amount of taxable income and tax liability of Mr. Hussain for the tax year 2010.
Solution:
Mr. Hussain Ahmad (Resident)
Computation of taxable income and tax liability
For the Tax year 2016
Rs. Rs.
INCOME FROM SALARY U/S 12
As the person is having only salary income hence tax liability for a salaried person is computed as under:
(Note 1) Basic salary, utility allowance, house rent allowance and leave encashment are totally taxable.
Summer - 2010 Q. 5
The Trading & Profit and Loss Account of M/s. Arshad Limited for the year ended on 30th June, 2009 is as under;
(ii) Un-vouched and un-detailed expenses included in the entertainment amounted to Rs. 350,000.
(iii) Depreciation allowable as per the Income Tax Law is Rs. 66,000,000.
(iv) Salaries and wages include payment of Rs. 250,000 without deducting tax at source.
(v) Salary paid amounting to Rs. 240,000 in cash.
(vi) Donation Rs. 500,000 paid to an approved institution specified in Clause (61) of part I of second schedule.
(vii) Donation Rs. 400,000 paid to an approved institution but not specified u/c (61) of part I of second schedule.
(viii) Pre-paid insurance Rs. 250,000.
Required: Compute the taxable income and tax liability of the Company for the tax year 2009.
Solution:
M/s Arshad Limited
Computation of taxable income and tax liabiltiy:
For the Tax year 2016
Rs. Rs.
INCOME FROM BUSINESS U/S 18 (000) (000)
Profit as per accounts 129,100
Add: Inadmissible items
Winter - 2009 Q. 4
Following is the Profit and Loss account of M/s Fast Track Company (Pvt.) Ltd for the year ended on 30-06-2009
Rs. Rs.
Sundry expenses 8,000 Gross Profit 840,000
Office salaries 104,000 Casual income 2,000
Rent, rates and taxes 32,000 Premium on issue of debentures 40,000
Income tax 10,400 Recovered bad debts
Legal charges 7,200 (allowed in the past) 1,600
Advertisement 20,000 Dividend 8,000
Auditor's fees 24,000
Cost of issue of debentures 20,000
Loss on sales of furniture 8,000
P. F. contribution 28,000
Bad debts 16,000
Vehicle expenses 32,000
Fire insurance premium 28,000
Communication 3,600
Provision for taxes 36,000
Provision for bad debts 16,000
Liquidated damages 12,000
Depreciation 160,000
Net Profit 326,400
891,600 891,600
Required:
Compute the net taxable income of the company for the tax year 2010 from the above data after keeping in view
the following notes:
(i) Sundry expenses include Rs.1,600 paid to an institution not recognized u/s 61.
(ii) Office salaries include Rs.20,000 paid to one of the directors.
(iii) Provident Fund is recognized by the Income Tax Department.
(iv) Vehicle expenses are not vouched and verifiable to the extent of Rs.6,000.
(v) Actual depreciation works out to Rs.136,000 only.
Solution:
M/s Fast Track Company (Pvt) Limited
Computation of taxable income
For the tax year 2016 Rs. Rs.
Add:
Income tax 10,400
Provision for taxes 36,000
Provision for bad debts 16,000
Unvouched vehicle expenses 6,000
Donation to unapproved institution 1,600
Accounting depreciation 160,000 230,000
Less:
Tax depreciation 136,000
Dividend (excluded to calculate income from business) 8,000 144,000
412,400
INCOME FROM OTHER SOURCES U/S 39
Dividend income (Not to include in taxable income as fully covered under final tax regime) -
Taxable income 412,400
Notes:
1. Cost on issue of debenture and premium on issue of debenture expenses alongwith casual income, preimum on
issue of debentures and recovery from already allowed bad debts have no impact on taxable income hence the
same has been ignored.
2. In the abscence of sales no turnover tax has been computed, however where the turnover tax is higher than the
tax as compared to the tax under normal tax regime and alternative corporate tax U/S 113C of the Ordinance
then the same is to be paid by the Company.
Mr. Ali Hassan a professor and Irani citizen entered into an employment contract with a government university in Pakistan for
teaching and research work. The university is incorporated u/s 42 of the Companies Ordinance, 1984 as a non-profit
organization.
The employment contract was effective from November 01, 2007. However, Mr. Ali Hassan arrived in Pakistan on November
02, 2007. Since November 03, 2007 was Sunday therefore he could not join his office. On Monday November 04, 2007 he
became ill and had to be hospitalized for the next five days and joined office on November 09, 2007. Due to his continuous
illness he took sick leave and went back to Iran on November 10, 2007.
Mr. Ali Hassan came back to Pakistan on January 03, 2008 and remained in Pakistan for the purpose of his employment till
June 30, 2008.
Required:
(i) State the provisions applicable to .Resident Individual. under Rule 14 of the Income Tax Rules, 2002, to
determine the number of days an individual is present in Pakistan.
(ii) Determine the residential status of Mr. Ali Hassan with reasons in accordance with Rule 14 of the Income Tax
Rules, 2002.
Solution:
(i)
The following rules apply in computing the number of days an individual is present in Pakistan in a tax year:
(a) A part of a day that an individual is present in Pakistan (including the day of arrival in, and the day of departure
from, Pakistan) counts as a whole day of such presence;
(b) the following days in which an individual is wholly or partly present in Pakistan count as a whole day of such
presence:
(c) a day or part of a day where an individual is in Pakistan solely by reason of being in transit between two different
places outside Pakistan does not count as a day present in Pakistan.
(ii)
Days
As his stay in Pakistan has met the condition of minimum 183 days, therefore he is resident individual under Rule 14 of the
Income Tax Rules, 2002.
Summer - 2009 Q. 4
Mr. Jamshaid is an executive in a group of companies. He derived following incomes during tax year 30-06-2008.
Particulars
(i) Salary Income (per month):
Rs.
Basic Salary 20,000
House rent allowance 8,000
Utility allowance 1,000
Medical allowance 1,000
Expenses on children books 400
He is also provided with a 1000cc car, which is partly used for company business. As per books of accounts, the cost of the
car is Rs.650,000. He has also been granted with a housing loan of Rs.500,000 on which no profit/ interest has been
charged.
In addition to above, he also received gratuity of Rs.70,000 from his previous employer during the year. The gratuity fund is
not approved by the Commissioner Income Tax or Federal Board of Revenue.
(iv) Gain on sale of shares of KayToo Ltd., a public listed company 55,000
Required: As a tax consultant you are required to compute Mr. Jamshaids total income and his income tax liability for the tax
year 2008.
Solution
Mr. Jamshaid
Computation of taxable income and tax liability:
For the tax year 2016
Rs. Rs.
INCOME FROM SALARY U/S 12
As the taxable salary income of the indiviual constitute more than 50% of the total taxable income hence tax under salary
slab is computed as under.
Solution
Mr. Shahbaz
Computation of taxable income tax liability
For the tax year 2016
Rs. Rs.
INCOME FROM SALARY U/S 12
Salary 210,000
Bonus 10,000
Reward on passing an examination required by the terms of his employment 35,000
House allowance (totally taxable) (Rs. 10,000 x 12 months) 120,000
Conveyance allowance (assumed not for discharge of official performance) (Rs. 1,500 x 12) 18,000
Medical allowance (Actual expenses shall be ignored) 20,000
Less: Exempt upto 10% of basic salary U/C 139 21,000 -
Entertainment allowance (assumed not for discharge of official performance) 12,000
Leave encashment 25,000
Flying allowance (Note 2) 60,000 -
430,000
INCOME FROM PROPERTY U/S 15
Income from property (including furniture & fixtures) 120,000
Less: rent of furniture and fittings (Rs. 2,000 x 12 months) 24,000
Rent chargeable to tax 96,000
(Note 1) Birthday present, insurance policy on maturity, expenses on childern education and professional books
purchased have no impact on computation of taxable income and tax thereon.
(Note 2) Flying allowance received as Officers other than as Pilot shall not be included in taxable income as the same is
taxable as a SBI @ 2.5% upto basic pay u/c (1) of Part III of 2nd Schedule to the Income Tax Ordinance, 2001. If
the flying allowance is more than the basic pay then the balance shall be included in the taxable income under
NTR of the individual.
If the flying allowance and other allowances shall be received as Pilot of any Pakistani Airline the same shall be
included in the taxable income under NTR upto basic pay. If the flying and other allowances are more than the
basic pay then the balance shall be taxable as a SBI @ 7.5% u/c (1AA) of Part III of 2nd Schedule to the ITO,
2001.
Required: Calculate the amount of tax paid by ABC (Pvt) Limited u/s 149 of the Income Tax Ordinance, 2001 on account of
salary on account of salary and the amount of salary paid to Mr. Naseer.
Solution
Salary ?
Tax @ 14% ? x 14%
Total amount paid 1,535,000
? + (? x 14%) = 1,535,000
1.14? = 1,535,000
? = 1,535,000 / 1.14
? = 1,346,491
Salary paid (as calculated above) = 1,346,491
Tax paid (1,535,000-1,346,491) = 188,509
Summer - 2008 Q. 4
Company Zaighm Chemicals (Pvt) Ltd . was incorporated on 1st January, 2006 and started its production and services
activities from 15th January 2006. Company has total 150 employees. Its paid-up capital and reserves as on 30-06- 2006
were as under:-
Rs.
Paid-up capital 21,000,000
Losses carried forward (taxable loss) (155,000)
General reserves -
20,845,000
During the financial year ended 30-06-2007, its books of accounts show the following balances:
i) Raw Material
a Imported value (before custom duty and taxes) 55,000,000
a Local purchases 4,500,000
ii) Other manufacturing / trading expenses 6,500,000
iii) Selling and admin expenses 12,600,000
78,600,000
Additional information:
1) To sell its products, the company's value addition is 30% of the cost of goods sold.
2) Both the raw material and finished goods are subject to following levies:
i) Sales Tax @15 %.
ii) Additional Sales Tax @ 2 % on imports.
iii) Special Federal Excise Duty @ 1 % on imports and goods sold.
iv) Customs duty on import value @ 25%.
v) Income Tax @ 6% on import value plus customs duty and Sales Tax.
3) Manufacturing expense includes Rs. 5,000,000 on account of depreciation charged on plant and machinery and Rs.
80,000 charged on computers in selling and administration expenses. The rate of depreciation charged by company on both
types of assets is 25%.
4) A laptop purchased for Rs. 80,000 for use by the Chief Executive was charged to profit and loss expenses.
5) Utilites bills amounting to Rs.760,000 charged to profit and loss expense include Rs. 86,000 of withholding income tax and
Rs. 134,000 sales tax.
7) Applicable tax depreciation: @15% on machinery and @ 30% on computer and laptop respectively (ignore initial tax
depreciation)
Required:
a) Under what category this company falls for Income Tax purposes?
b) Workout company's sales.
c) Workout its net profit chargeable to income tax for the tax year 2007 (ignore initial depreciation).
d) What are company's tax and duties liabilities under the:
i) Customs Act, 1969. ii) Sales Tax Act, 1990
iii) Federal Excise Act, 2005 iv) Income Tax Ordinance, 2001
Solution
a) Under what category this company falls for Income Tax purposes?
Being as manufacturer the income of the company is fully covered under Normal Tax Regime u/s 153 of the Income tax
Ordinance, 2001 and being as small company the rate of tax shall be 25%.
d) (iv)
COMPUTATION OF TAX LIABILITY:
Less:
Tax required to be on imports
[ { (55,000,000 + 13,750,000) x 1.17 } x 5% ] 4,021,875
Advance tax paid with electricity bill 86,000
4,107,875
Balance tax refundable (750,375)
d) (i)
Duty payable under Custom Act, 1969.
Imported value (before custom duty and taxes) 55,000,000
Custom duty @ 25% 13,750,000
d) (ii)
Tax payable under Sales Tax Act, 1990.
3% additional sales tax is not applicable on imports to be used for own use.
Output tax:
Sales tax on sales (103,675,000 x 17%) 17,624,750
Input tax:
Sales tax on purchases [ (55,000,000 + 13,750,000) x 17%] 11,687,500
Sales tax payable 5,937,250
d) (iii)
Tax payable under Federal Excise Act.
No amount is payable under this Act in tax year 2016 as SED is no more applicable.
Required: Compute the income, if any, chargeable under the following heads of income:
(i) Salary income; and (ii) Capital gain
Solution
Mr. Habib
Computation of taxable income
FMV of shares under employee shares scheme (1,000 x 45) Note 1 45,000
Less: cost of shares (1,000 x 25) 25,000
20,000
Note 1: It is assumed that shares were issued to employees without any restriction on their sale or transfer.
Note 2: As shares have not been sold by Mr. Habib, hence nothing shall be taxable under head capital gain.
Winter - 2007 Q. 4
Mr. Arif, Baqar and Umer are member of an Association of Persons (AOP) "FRIENDSCO" and share the profit &
loss in the ratio of 1:2:3 respectively. They wanted to know their tax liability for the tax year, 2008. Accountant of
M/s FRIENDSCO., has prepared the following profit and loss account:
(Rupees)
Sales 6,400,000
Cost of sales 3,200,000
Gross profit 3,200,000
Selling and admin expenses 2,400,000
Net profit before tax 800,000
Additional Information:
1. It is a wholesale business and sales include supplies of Rs. 800,000 to government departments subject to
withholding tax.
2. Expenses include:
(i) Accounting depreciation of Rs. 75,000 on vehicle with W.D.V., of Rs. 500,000
(ii) Provision for bad debts of Rs. 50,000 has been made, whereas actual bad debts are Rs. 80,000.
(iii) Commission of Rs. 120,000 has been paid to Mr. Arif for promotion of sales
(iv) Utility bills amounting to Rs. 80,000 charged to expenses include Rs. 15,000 income tax withheld on
these bills.
3. Mr. Baqar is a sleeping partner. He is working as full time teacher in a university and receives monthly pay and
allowances as under:
5. The accounting depreciation on vehicle is also charged @ 15% of W.D.V., which coincides with the statutory
rate of depreciation.
Solution
M/s FRIENDSCO
AOP
Computation of taxable income and tax liability
For the tax year 2015
Rs. Rs. Rs.
Total NTR FTR
Add:
Accounting depreciation 75,000 65,625 9,375
Provision for bad debts 50,000 43,750 6,250
Commission paid to partner (Mr. Arif) 120,000 105,000 15,000
Income tax withheld on utility bills 15,000 13,125 1,875
260,000 227,500 32,500
Less:
Tax depreciation (Rs. 500,000 x 15%) = 75,000 65,625 9,375
Taxable income of AOP 985,000 861,875 123,125
AOP income from FTR has been ignored for divisiable income among the partners.
Note: Share from AOP has not been included in income of Arif and Umer as they have no other income
chargeable to tax under NTR.
As the salary income of Mr. Baqar constitute more than 50% of the total income hence tax under salary slab is
computed as under.
Note: In the absence of information it has been assumed that the property income is after allowable expenses.
Summer - 2007 Q. 4
Colonel (Retired) Ahmed Ali is the Managing Director of a listed public company and has provided the following details of his
expected income and expenses for the year ending June 30, 2007:
Salary income:
Managing Director is not entitled for any reimbursement of actual expenses of hospitalization or medical
treatment.
4. The company disbursed on July 1, 2006 to Colonel Ahmed Ali, Rs. 3 million interest free loan to be recovered
from the final dues on retirement. The bench mark rate for the year 2007 is 7% as notified by Federal
Government
5. Company has paid Rs. 850,000 as annual rent for the accommodation provided to Managing Director.
6. He has been provided with a company maintained car for business and personal use. The purchase price of car
is 1.2 million. Company also pays salary to driver @ Rs. 8,000 per month
7. Colonel Ahmed Ali is receiving pension from Army @ Rs. 10,000 per month
Property income:
Colonel Ahmed Ali owns a flat, which has been let out @ Rs. 45,000 per month. He has incurred following
expenses to date on flat during the year.
Other Income:
1. Colonel Ahmed Ali has also received Rs. 500,000 as his share u/s 92(1) of Income Tax Ordinance, 2001 being
the member of an AOP, where the AOP has paid the tax.
2. Colonel Ahmed Ali has won a cash prize of Rs. 200,000 from a company which offered the prize for promotion
of sales u/s 156 of Income Tax Ordinance.
Required: Compute the expected total income, taxable income and income tax thereon for the tax year 2007.
Solution
As the salary income of the indiviual constitute more than 50% of the total income hence tax under salary slab is
computed as under.
Note: Although no information has been provided however the aforesaid liability shall be reduced by Rs. 40,000 tax
Winter - 2006 Q. 5
You are engaged in the Income Tax Consultancy services. One of your clients Mr. A.B Malik, an employee of M/s. Excellent
Airlines, Peshawar, asks you to determine his total income, taxable inocme and income tax payable by him for tax year, 2007
on the basis of the following information:
Basic salary Rs. 22,500/- (in pay scale of Rs. 15,000 - 750 - 26,250)
Dearness allowance Rs. 1,500/-
Special relief allowance @ Rs. 15% of basic salary.
Flying allowance Rs. 15,000/-
Entertainment allowance Rs. 500/-
Medical allowance @ 5,000/- No free medical facility of hospitalization or re-imbursement of medical charges is provided by
the employer.
Accommodation is provided by the employer. Mr. A. B. Malik is entitled to house rent allowance @ 60% of the minimum of
pay scale, had the accommodation not been provided.
A 800cc vehicle is provided by the employer partly for official and partly for private use. The cost of the vehicle to the
employer is Rs. 450,000/-
Property Income
Mr. A. B. Malik owns a house which is on rent @ Rs. 16,000 per month.
Solution
Mr. A.B. Malik
Computation of taxable income and tax liability
For the tax year 2016
(Note 1)
Flying allowance received as Officers other than as Pilot shall not be included in taxable income as the same is taxable as a
SBI @ 2.5% upto one basic pay u/c (1) of Part III of 2nd Schedule to the Income Tax Ordinance, 2001. If the flying allowance
is more than the basic pay then the balance shall be included in the taxable income under NTR of the individual.
If the flying allowance and other allowances will be received as Pilot of any Pakistani Airline the same shall be included in the
taxable income under NTR upto basic pay. If the flying & other allowances are more than basic pay then the balance shall be
taxable as a SBI @ 7.5% u/c (1AA) of Part III of 2nd Schedule to the Income Tax Ordiannce, 2001.
Summer - 2006 Q. 4
Mr. Asghar Abbas is assistant manager in an engineering organization. He has engaged you as his tax consultant and
provided you with the following information of his estimated incomes and expenses for the year ending 30th June, 2006:-
Mr. Asghar owns and maintains a car, which he uses partly for his personal and partly for business use of his employer. In
January, 2006 he remained admitted in the hospital for 10 days and the employer reimbursed hospitalization charges of Rs.
25,000.
Property Income (per month)
He owns 5 shops, which are rented out. His income and expenses in this behalf are as under:
Rs.
Annual rent of 4 shops 96,000
Shop No. 5 remained occupied for 7 months at a rent of Rs. 1,200 per month.
It was vacated through court order for which Mr. Asghar incurred Rs. 6,000 as
legal expenses
Ground rent 2,000
Collection charges paid 6,000
Property tax (This amount includes Rs. 5,000 of last year's tax not paid 10,000
2005.)
Agricultural Income 60,000
Dividend received on investment in shares of a public limited company (gross) 20,000
The employer has deducted tax at source from salary amounting to Rs. 12,000.
Required: You being a tax consultant of Mr. Asghar Abbas, calculate his taxable income and tax payable along
with this payable along with his tax return.
Solution
Mr Asghar Abbas
Computation of taxable income and tax liability
For the tax year 2016
Agricultural income (exempt u/s 41 & assumed tax paid under provincial law) 60,000 -
Taxable income 571,920
As the salary income of the indiviual constitute more than 50% of the total income hence tax under salary slab is
computed as under.
Tax liability under NTR:
Tax on Rs. 571,920 [2,000 + 2% x (571,920 - 500,000)] 5,596
Tax liability under SBI as FTR
(Note-1) If the medical reimbursement of medical expeses to employee are provided alongwith medical allowance as per
terms of employment then the 10% exemption for medical allowance shall not be allowed however the medical re-
imbursement shall be totally exempt from tax provided the hospital / clinic NTN and bills are provided by the employee.
Winter - 2005 Q. 5
Following are the details of Mr. Shakeel for the financial year ended June 30, 2005 who is employed with the Institute of
Computer Sciences as Professor. He joined the Institute on July 1, 2004. Previously he worked with Institute of computer
studies. He was required to give 3 months' notice to his previous employer to terminate his employment. He served notice
period for 1 month and his current employer paid the notice pay equivalent to 2 months' salary to the previous employer
amounting to Rs. 150,000. Other details for the year are as follows:
Salary Income
Rs. per month
Pay 90,000
House rent allowance 40,500
Utilities 9,000
No company maintained car was provided to him. However, 175 litres petrol per month was given to him @ Rs. 50
per litre.
Investments
House loan
Required: Compute taxable income and tax liability of Mr. Shakeel for tax year 2005. Prepare and present all
necessary workings.
Solution
Summer - 2005 Q. 5
Following are the details of income of Mr. A. Rehman for the financial year ended June 30, 2004, who is employed with a
company as Senior Manager.
Salary income:
Pay Rs. 60,000 per month
House rent allowance Rs. 27,000 per month
Utilities Rs. 8,000 per month
He was provided with a company maintained car of 800 cc, partly for business and partly for his personal use. The cost of
the car to the company was Rs. 500,000.
Rental income:
Rs.
Annual letting value of property 372,000
(including Rs. 120,000 for furniture and fixtures).
During the year property remained vacant for 4 months 8,000
Ground rent paid 200,000
Business income 200,000
Capital gains:
Cost of shares of unlisted companies (bought in 1986) 500,000
Sale proceeds of shares 600,000
Investments:
Investment in shares of listed companies 180,000
Premium paid for life annuity eligible u/s 63 45,000
Required:
Compute taxable income & tax liability of Mr. A. Rehman for the year. Prepare & present all necessary workings.
Solution
Mr. A. Rehman - Resident
Computation of taxable income and tax liability
Tax year 2016
Rs. Rs.
INCOME FROM SALARY U/S 12
Pay (Rs. 60,000 x 12 months) 720,000
House rent allowance (Rs. 27,000 x 12 months) 324,000
Utilities (Rs. 8,000 x 12 months) 96,000
Conveyance (500,000 x 5%) U/R 5 25,000
1,165,000
INCOME FROM BUSINESS (asumed under NTR) U/S 18 200,000
As the salary income of the indiviual constitute more than 50% of the total income hence tax under salary slab is
computed as under.
Rs.
Sales 4,500,000
Gross profit 1,800,000
Selling and admin expenses 1,520,000
1. An asset, which has a written down value of Rs. 100,000 on July 1, 2003 was disposed of for Rs. 150,000 on May 30,
2004. Neither depreciation nor gain on its disposal was recorded in the books of accounts (Assets are depreciated at rates
given in the third schedule to the Income Tax Ordinance, 2001).
2. Interest on capital employed and commission on sales were properly recorded in the books of accounts and paid to Mr.
(A) Mr. Baqar received salary of Rs. 300,000 (inclusive of house rent allowance of Rs. 120,000) from another company
during the year. The employer deducted Rs. 21,000 tax at source from salary. He also earned profit of Rs. 20,000 on his
bank deposits on which 10% tax was withheld by the bank.
(B) Mr. Hadi in addition to his commission and share of AOP income has also received agricultural income of Rs. 120,000
during the year. His income from his own buniness for the year ended June 30, 2004 was Rs. 100,000.
(C) Mr. Mikdad during the year supplied goods to government departments worth Rs. 1,500,000 on which Income Tax @
3.5% was withheld by those departments
Required:
Work out the following:
(i) Taxable income of M/s BHM Associates (AOP), for the year, 2004.
(ii) Taxable income of each of its members and their tax liabilities for the tax year, 2004.
Solution
M/s BHM Associates - Resident AOP
Computation of taxable income and tax liability
For the tax year 2016 Rs.
Sales 4,500,000
Cost of sales 2,700,000
Gross profit 1,800,000
Selling and admin expenses 1,520,000
Net profit before tax 280,000
Add:
Interest on capital to Mr. Baqar ( Rs. 1,000,000 x 5% ) 50,000
Commission to Mr. Hadi ( Rs. 4,500,000 x 1% ) 45,000
Gain on sale of fixed assets ( 150,000 - 100,000 ) 50,000
( no depreciation shall be charged in the year of disposal)
Provision for bad debts (6% of sales) 270,000
415,000
Taxable income of AOP 695,000
Share 3 1 1 1
Commission 45,000 45,000
Interest on capital employed 50,000 50,000
Balance (divided in partners) 573,500 191,167 191,167 191,167
668,500 241,167 236,167 191,167
Computation Of Taxable Income and Tax Liability Of Members
Mr. Baqar Mr. Hadi Mr. Mikdad
INCOME FROM SALARY U/S 12
Salary 300,000 - -
The company disbursed funeral expenses of his parents in the amount of Rs. 20,000 and also medical costs on birth of his
twin sons in the sum of Rs. 100,000 latter being as per employment terms.
The company has also provided him with free furnished accommodation costing Rs. 200,000 per annum. The company also
paid his tax liability of Rs. 20,000.
He was decorated with the President's Award, in August 2002 and March 2003 worth Rs. 500,000.
He earned capital gains on sale of listed shares (Rs. 20,000) and on sale of land (Rs. 100,000).
Tax deducted from salary Rs. 40,000
He paid following amounts evidenced by receipts bearing payees N.T.Ns, wherever, applicable:
1. School fees @ Rs. 3,000 per month, for each of his two daughters.
2. Fee to personal silicitor and tax adviser Rs. 20,000.
3. Prior year income and penalties Rs. 50,000.
4. Donation to approved institutions Rs. 500,000.
5. Purchase of second car for Rs. 1,000,000 for family use.
Required: As a tax consultant you are required to calculate total income, and tax liability of Mr. Qais Mansoor for tax year
2003.
Solution
Mr. Qais Mansoor - Resident
Computation of taxable income and tax liability
For the tax year 2016
Rs. Rs.
INCOME FROM SALARY U/S 12
Basic salary (Rs. 20,000 x 12 months) 240,000
Bonus (20,000 x 3) 60,000
House rent allowance (Rs. 8,333 x 12 months) 99,996
Utility allowance (Rs. 2,000 x 12 months) 24,000
Medical allowance (taxable as medical re-imbursment separately provided) (Rs. 2,000 x 12) 24,000
Reimbursement of official expenses (exempt) -
Special merit reward (20,000 x 2) 40,000
Personal expenses paid by company (Funeral expenses) 20,000
Accommodation:
Higher of Rs. 200,000, or
45% of B.S i.e. Rs.108,000 200,000
Tax liability paid by employer 20,000
727,996
CAPITAL GAINS U/S 37
As the salary income of the indiviual constitute more than 50% of the total income hence tax under salary slab is
computed as under.
Tax on Rs. 727,996 [2,000 + 5% x (727,996 - 500,000)] 13,400
Particulars Rs.
Per month
(i) Salary income
Basic salary 20,000
House rent allowance 8,000
Utility allowance 1,000
Medical allowance 1,000
He is also provided with a 1,000 cc Car, which is partly used for company's business. He has also been granted with a
housing loan of Rs. 500,000 on which no profit/interest has been charged.
In addition to above, he also received gratuity of Rs. 75,000 from his previous employers during the year. The gratuity fund is
not approved by the Commissioner of Income Tax or CBR.
He received a deposit of Rs. 200,000, not adjustable against rent, out of which he refunded Rs. 100,000 to previous
tenant, who vacated the house after 3 years' tenancy.
Required:
As a tax consultant you are required to compute Mr. Musaddique's total income and his income tax liability for the tax year
2003.
Solution
Mr. Musaddiqe Noor - Resident
Computation of tax liability
For the tax year 2016
Rs. Rs.
INCOME FROM SALARY U/S 12
Basic salary (Rs. 20,000 x 12 months) 240,000
As the salary income of the individual constitute more than 50% of the total income hence tax under salary slab
is computed as under.
Tax liability under NTR
Tax on Rs. 495,880 [0 + 2% x (495,880 - 400,000)] 1,918
(vi) A foreign patient, being satisfied with Hospital's best quality care gave a cash gift of Rs. 150,000 for further improving the
Hospital's services. This amount has not been accounted for so far.
(vii) A surgical equipment costing Rs. 100,000 was accidentally burnt out, while dacoits took away Rs. 50,000 from the safe-
lockers. Both items are fully insured and the claim has been fully admitted by the insurance Company.
(viii) The Hospital has added 10 renowned companies to the panel with expected increase of Rs. 2,000,000 in future
revenue.
(ix) Salaries include excess perquisites of Rs. 80,000.
Required: Work out Hospital's total income and tax liability for tax year 2003.
Solution
Akeel Hospital - Resident AOP
Computation of taxable income and tax liability
The tax liability shall be higher of tax on taxable income or Minimum tax under 153.
Tax on Rs. 1,170,000
[32,000 + 15% x (1,170,000 - 750,000)] (A) 95,000
Less proportionate tax on receipts covered under minimum
tax liability Rs. 95,000 / 1,170,000 x 1,070,000 (Related to (B) (86,880) 8,120
income from services) (Balance tax related to sale of scrap)
OR
Minimum tax liability u/s 153
Gross receipts 3,000,000
10% of gross receipts (C) 300,000
Hence higher of (B) or (C) is to be added under NTR, hence 300,000
308,120
Less: Tax withheld by corporate clients 300,000
Balance tax payable 8,120
Notes
1. It is assumed that tax depreciation and accounting depreciation are same.
2. Interest on loan and donation have not been accounted for as the same are liability for the hospital to construct
Special Cancer Ward and return the loan from friend. Assumed both were being received through cross
cheques otherwise the same shall be treated as income u/s 39.
3. As loss incurred by burning of surgical equipments and by theft was fully insured, hence no gain or loss has
been considered for the purpose of computation of taxable income.
4. There is no treatment of excess perquisites included in salaries, as this concept is no more applicable.
5. There is no impact of reveune to be increased in future due to new clients induction.
6. Sale of scrap has not been shown as income from other sources as already included in the net profit.
7. No trunover tax has been computed as the revenue of the AOP's turnover does not exceeds Rs.50 million.
Summer - 2003 Q. 4
Being a tax consultant you have been provided with the following information in respect of Mr. A.D Chughtai, a senior
manager of a local company for the period 1st July, 2002 to 30th April, 2003 (Tax year, 2004):
Rs.
Solution
Mr. A.D. Chughtai
Computation of taxable income and tax liability
Tax year 2016
Rs. Rs.
INCOME FROM SALARY U/S 12
Basic pay / wages 210,000
House rent 115,500
Medical allowance 4,800
Less: exempt upto 10% of basic salary U/C 139 21,000 -
Cost of living allowance 7,860
Utilities 31,500
Orderly / Servant allowance 30,000
Bonus / ex-gratia 70,000
Company car 1300 cc (5% of assumed value of Rs. 1,200,000) U/R 5 60,000
Leave fare assitance 17,500
Employer contribution provident fund 21,786
Less: exempt upto lower of:
Rs. 100,000, OR
10% of (basic salary + dearness allowance) i.e 21,000 21,000 786
Employer's contribution to pension fund (assumed not maintained by employer) 27,300
570,446
INCOME FROM OTHER SOURCES U/S 39
Professional fee 10,000
Total income 580,446
Less Zakat paid on profit on PLS account and dividend receipts (Rs. 250 + 520) 1,770
Taxable income 578,676
As the salary income of the individual constitute more than 50% of the total income hence tax under salary slab
is computed as under.
Required:
Compute the income for the relative tax year and tax thereon after taking into account the following facts:
Note-1 The question has been solved on the assumption that no tax on consultation fee has been deducted during the year
othewise the same shall constitute as minimum tax liability U/S 153 of the Income Tax Ordinance, 2001.
Note - 2 Investment in DSC's shall be accounted for in the personal wealth statement of the taxpayer.
Chapter
1 PRELIMINARY
a
100 a
Provided that in respect of sub-clause (a), (b) or (c), where any part payment is received,
(i) for the supply in a tax period, it shall be accounted for in the return for that tax period; and
(ii) in respect of exempt supply, it shall be accounted for in the return for the tax period during which the
exemption is withdrawn from such supply;
61. Trust [u/s 2(44A)] (Same as given in Income Tax Chapter 1)
62. Unit trust [u/s 2(44AA)] (Same as given in Income Tax Chapter 1)
63. Value of supply [u/s 2(46)]
value of supply means:-
In respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any,
which the supplier receives from the recipient for that supply but excluding the amount of tax:
The Board has the power to fix the value of any imported goods or taxable supplies. However, if the import or supply
is made at a value higher than the value fixed by the Board then the actual value shall be considered.
64. Whistleblower [u/s 2(46A)]
means whistleblower as defined in section 72D of the Sales Tax Act, 1990.
65. Wholesaler [u/s 2(47)]
'wholesaler' includes a dealer and means any person who carries on, whether regularly or otherwise, the business of
buying and selling goods by wholesale or of supplying or distributing goods, directly or indirectly, by wholesale for
cash or deferred payment or for commission or other valuable consideration or stores such goods belonging to others
as an agent for the purpose of sale; and includes a person supplying taxable goods to a person who deducts income
tax at source under the Income Tax Ordinance, 2001; and
66. Zero rated supply [U/s 2(48)]
'zero-rated supply' means a taxable supply which is charged to tax at the rate of zero percent u/s 4.
Difference between Exempt Supply and Zero-Rated Supply
Under Sales tax Act, a person is not required to pay tax on exempted and zero rated supplies, however both differ
with each other on the following points.
S. No. Point of Distinction Exempt Supply Zero-Rated Supply
4. Maintenance of records under the Sales Tax Act Not required Compulsory
(b) associates
(c) third party
(d) representative
Q.9. _________means a person appointed by a manufacturer, importer or any other person for a specified area to
purchase goods from him for further supply and includes a person who in addition is also engaged in supply of goods
as a wholesaler or a retailer;
(a) supplier
(b) vendor
(c) distributor
(d) creditor
Q.10. ______ includes any electronic data, computer programmes, computer tapes, computer disks, micro-films or any
other medium for the storage of such data
(a) voucher
(b) ledger
(c) report
(d) document
Q.11. 'Due date' in relation to the furnishing of a return u/s 26 and section 26AA means the ____ day of the month following
the end of the tax period, or such other date as the Board may specify;
(a) 15th day
(b) 20th day
(c) 10th day
(d) none of above
Q.12. ______ means a person appointed for filing of electronic returns and such other documents as may be prescribed by
the Board from time to time, on behalf of a registered person.
(a) tax house
(b) inspector
(c) e-intermediary
(d) Chief Commissioner Inland Revenue
Q.13. _____________ means an undertaking, firm or company, whether incorporated or not, an association of persons or
an individual;
(a) establishment
(b) organization
(c) corporation
(d) all of above
Q.14. 'goods' include every kind of _______ other than actionable claims, money, stocks, shares and securities.
(a) intangible items
(b) immovable property
(c) moveable property
(d) none of above
Q.15. _____ means any person who imports any goods into Pakistan;
(a) exporter
(b) importer
(c) trader
(d) none of above
ANSWERS
1 (a) 2 (b) 3 (d) 4 (c) 5 (d)
6 (a) 7 (b) 8 (a) 9 (c) 10 (d)
11 (a) 12 (c) 13 (a) 14 (c) 15 (b)
16 (e) 17 (d) 18 (d) 19 (a) 20 (d)
21 (b) 22 (d) 23 (a) 24 (b) 25 (d)
26 (a) 27 (b) 28 (e) 29 (d) 30 (a)
31 (c) 32 (a)
Q. No. 5 (a) February 2013 Define the following terms under section (2) of the Sales Tax Act, 1990:
(i) Person
(ii) Input tax
(iii) Distributor
Q.4 (a) APRIL 2012 Define the following terms as given in the Sales Tax Act, 1990:
(i) Firm
(ii) Open market price
Q. NO. 4 (a) WINTER 2010 Define the following terms under the Sales Tax Act, 1990:
(i) Person
(ii) Cottage Industry
Q. NO. 6 (a) SUMMER 2010 Define the following under Sales Tax Act, 1990:
(i) Distributor
(ii) Documents
Q. NO. 7(a) Autumn 2008 Explain the concept of Value of Supply under the Sales Tax Act, 1990.
Q. NO. 5 (a) SUMMER 2008 Define the following terms with reference to the STA, 1990:
(i) Cottage industry
(ii) Manufacture or Produce
Q. NO. 7 (a) WINTER 2006 White short note on the following in terms of the STA, 1990.
(i) Arrears Section 2(2A)
(ii) E-Intermediary-Section 2(9A)
(iii) Retail price-Section 2(27)
Q. NO. 3 (b) SUMMER 2005 Define the following terms under the Sales Tax Act, 1990. 1- Tax fraud 2- Time of supply 3-
Retail price
Q. NO. 3 (a) SUMMER 2004 Define the term Associated Person under Sales Tax Act, 1990.
Q.2 (a) Spring 2011 Samad Corporation (SC) supplies specialized material to various industrial concerns. The company has
entered into following transactions during the month of February 2011.
(i) Supply of material costing Rs. 3 million to AB Limited (ABL). It has been agreed that ABL would settle the
transaction by paying Rs. 1.5 million in cash and the balance amount by way of allowing SC to use ABLs import
quota. The market price of the supply is Rs. 3.5 million.
(ii) Supply of material to DM Limited (DML) at a discounted price of Rs. 6.8 million. Due to particular relationship, DML
has been allowed a special discount of 15% as against the normal business practice of 8%.
(iii) Supply of 20 tons of material, falling under third schedule, to BML at a wholesale price of Rs. 138,000 per ton. The
retail price of the material is Rs. 150,000 per ton.
Required: In each of the above situation, advise the management about the value of supply on which sales tax would be
levied.
Q. NO. 9(a) Spring 2005 Define the following with reference to the Sales Tax Act, 1990:-
(a) Associated person.
(b) Manufacturer or producer.
(c) Taxable supply.
Q. NO. 11 Autumn 2004 Define the following with reference to the Sales Tax Act, 1990?
(a) Distributor
(b) Input-tax
(c) Manufacture
(d) Similar supply.
Q. NO. 10 Autumn 2003 Define the following terms in the light of Sales Tax Act, 1990.
(a) Manufacture or produce.
(b) Supply
(c) Taxable activity
Q. NO. 10 Spring 2003 Explain the term Manufacture as used in the Sales Tax Act 1990.
Chapter
2 REGISTRATION
The provisions of this Chapter shall apply to the following persons, namely:--
Rules of registration shall apply to the following persons, namely a person:
(a) required to be registered under the Act; (d) who is already registered and requires a change
in the name, address or other particulars of
registration;
(b) required for duty or tax under any other Federal (e) who is blacklisted or whose registration is
law or Provincial law; suspended; and
(c) who is subject to compulsory registration; (f) who is required to be de-registered.
(b) a retailer who is liable to pay sales tax under the Act or rules made there under, excluding such retailer
required to pay sales tax through his electricity bill under sub-section (9) of section 3;
(c) an importer;
(d) an exporter who intends to obtain sales tax refund against his zero rated supplies;
(e) a wholesaler, dealer or distributor; and
(f) a person who is required, under any other Federal law or Provincial law, to be registered for the
purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act;
(2) Persons not engaged in making of taxable supplies in Pakistan, if required to be registered for making imports or
exports, or under any provisions of the Act, or any other Federal law, may apply for registration.
(3) The registration under this Act shall be regulated in such manner as the Board may, by notification in the official
Gazette, prescribe.
2.3 Application for registration [Rule 5]:
A person required to be registered under the Act shall, before making any taxable supplies, apply on the
computerized system through owner, authorized member or partner or authorized director, as the case may
be, in the Form STR-1, as annexed to these rules. Such application shall specify the RTO in whose jurisdiction
the registration is sought, as per criteria given below, namely in case of a:
(a) In case of listed or unlisted Public Ltd. The place where the registered office is located
Company:
(b) In case of other companies: (i) If the company is primarily engaged in manufacture
or processing, the place where the factory is
situated; and
(ii) If the company is primarily engaged in business
other than manufacture or processing, the place
where main business activities are actually carried
on;
(c) Person not incorporated: area where the business is actually carried on;
(d) Person not incorporated, having business where his manufacturing unit is located:
premises and manufacturing units at
different places:
(e) The Federal Board of Revenue may transfer where the place of business or registered office or
the registration of any registered person to a manufacturing unit is located.
jurisdiction:
(f) Jurisdiction of Large Taxpayers Unit: shall remain as specified by the Board:
SUBMISSION OF 1. CNIC of all owner, members partners or directors, as the case may be, and the
SCANNED COPIES OF representative (if any), and in case of non- resident, their passports;
THE DOCUMENTS
WITH THE
2. in case of a company or registered AOP, the Registration or Incorporation Certificate,
APPLICATION
along-with Form III or Form A as prescribed in the Companies Ordinance, 1984.
3. in case of a partnership, the partnership deed and Statement of Affairs;
4. bank account certificate issued by the bank, in the name of the business;
5. lease or rent agreement, if the premises is on rent, along-with CNIC of the owner of
the premises;
6. ownership documents of the premises, such as registered sale deed or registered
transfer deed;
7. latest utility bills (electricity, gas, land line telephone, and post paid mobile phones, as
the case may be); and
8. list of machinery installed, in case of manufacturer.
9. distribution certificate from the principal showing distributorship or dealership, in case of
distributor or dealer;
10. balance sheet/statement of affairs/equity of the business;
11. particulars of all branches in case of multiple branches at various locations; and
12. particulars of all franchise holders in case of national or international franchise.
PERSONA VISIT The applicant being the owner, authorized member or partner or authorized director, as
the case may be, shall visit the concerned RTO for biometric verification along with all those
documents Sales Tax Rules, 2006 specified above which have not been submitted through
computerized system.
SUBMISSION OF Subject to above documents the applicant shall also submit the following to the computerized
ELECTRONICALLY system through the electronic application prescribed by the Board for the purpose, namely: -
GPS TAGGED
PHOTOGRAPHS a) GPS-tagged photographs of the business premises, office equipment, electricity
meter and gas meter;
b) in case of manufacturer, in addition to clause (a), GPS -tagged photographs of
factory premises, machinery, industrial electricity or gas meter installed; and
c) in case of wholesaler, in addition to clause (a), GPS -tagged photographs of
the business premises and go-down.
Incomplete applications shall not be entertained by the computerized system.
CLAIM OF INPUT ON Where an applicant has unsold or unused stocks of tax-paid inputs on which he
UNUSED STOCK desires to claim the benefit of section 59 of the Act, he shall declare such stocks in a
statement in the Form set out as STR-4, to be appended with his application for registration.
ACCEPTANCE OR The application shall be processed by the computerized system and if found complete in
REJECTION OF all respects, shall be assigned a risk score. In case the application is found low risk,
APPLICATION FOR registration shall be issued by the computer system and certificate shall be sent to the
ISSUANCE OF applicant by courier service. The high risk cases shall, for further inquiry and scrutiny
REGISTRATION of documents, be sent to the Commissioner Inland Revenue, designated in the RTO
CERTIFICATE for the purpose.
Where a person, who has furnished a Form for registration, discovers any omission or
wrong statement therein, or notices a subsequent change in any information,
particulars, annexures, statements, documents or data already furnished, he may, without
prejudice to any liability incurred by him under any provision of the Act, furnish a revised
Form for registration.
VERIFICATION OF In case the person applying for registration as manufacturer is sharing the premises, he shall
MANUFACTURING provide evidence of
FACILITY
(a) demarcation of manufacturing premises for registration, and
(b) installation of sub-meter by the relevant utility company, in case he does not have
independent industrial utility connection but is using electricity or gas through sub-
meter.
Where a person files application for sales tax registration as a manufacturer without having installed
machinery, for the purpose of import of machinery to be installed by him, temporary registration as manufacturer
shall be allowed to him for a period of sixty (60) days subject to furnishing of the complete list of machinery to be
imported along with Bill of Lading (BL) or Goods Declaration (GDs) in lieu of applicable requirements prescribed in
rule 5.
The temporary registration shall be issued by the computerized system within seventy two (72) hours of filing of the
complete application.
After receiving temporary registration, the person shall be allowed to import plant, machinery and raw
materials, etc. as a manufacturer, subject to submission to the customs authorities of a post-dated cheque equal to
the difference in duties and taxes to be availed as a manufacturer.
In case the applicable requirements prescribed in rule 5 are not fulfilled within sixty (60) days of issuance of
the temporary registration, such temporary registration shall be disabled and the post-dated cheques submitted
shall be enchased.
A person holding temporary registration shall file monthly return in the form STR-7, but shall not issue a sales tax
invoice and if such invoice is issued, no input tax credit shall be admissible against such invoice.
No sales tax refund shall be paid to the person during the period of temporary registration and the
amount of input tax may be carried forward to his returns for subsequent tax.
if a person, who is required to be registered under the Act, does not apply for registration and the CIR or
any other officer, as may be authorized by the Board, after such inquiry as deemed appropriate, is
satisfied that such person is required to be registered, he shall issue notice to such person in the Form
set out in Form STR-6.
In case the CIR receives a written reply from the said person within the time specified in the above notice,
contesting his liability to be registered, the CIR shall grant such person opportunity of personal hearing, if
so desired by the person, and shall thereafter pass an order whether or not such person is liable to be
registered compulsorily. Copy of the said order shall invariably be provided to that person. Where the CIR passes
the order for compulsory registration, he shall cause the said person to be registered through computerized
system.
Where the person to whom a notice as given above, does not respond within the time specified in the
notice, the CIR shall cause to compulsorily register the said person through computerized system under
intimation to the said person through courier service.
A person registered compulsorily as above is required to comply with all the provisions of the Act and rules made
there under from the date of compulsory registration, and in case of failure to do so, the CIR having jurisdiction
may issue notice U/S 25 of the Act for production of records or documents and appearance in person to
assess the amount of sales tax payable U/S 11 of the Act, and take any other action as required under the law
against such person:
Provided that if it is subsequently established that a person was not liable to be registered but was wrongly
registered under .this rule due to inadvertence, error or misconstruction, the CIR shall cause to cancel his
registration through the computerized system. In case of such cancellation of registration, such person shall
not be liable to pay any tax, default surcharge or penalty under the Act or rules made there under, subject to the
conditions, limitations and restrictions prescribed U/S 3B of the Act.
5. Change in the Particulars of registration [Rule 7]:
In case there is a change in the name, address or other particulars as stated in the registration certificate,
the registered person shall notify the change in the Form STR-l to the computerized system , within fourteen
(14) days of such change.
The change of business category as 'manufacturer' shall be allowed subject to fulfilment of all applicable
requirements as specified in rule 5.
In case of approval of the change applied for, a revised registration certificate shall be issued through
computerized system, which shall be effective from the date the person applied for the change.
The CIR may, based on available information or particulars and after making such inquiry as he may deem
necessary and after providing reasonable opportunity of being heard to a person, by an order in writing, make
modifications in registration of the person.
The Board may, in accordance with rule 5 or otherwise, by an order, transfer the registration of a
registered person from the jurisdiction of one LTU or RTO to another.
On transfer of registration,--
(a) all the records and responsibilities relating to such registered person shall be transferred to the
LTU or RTO, in whose jurisdiction the registration has been so transferred;
(b) notwithstanding the actions already taken, being taken or otherwise pending immediately before
the transfer in respect of such registered person under any of the provisions of the Act or the
rules made there under in the LTU or RTO from where his registration has been transferred, the
LTU or RTO, in whose jurisdiction the registration is so transferred shall exercise the jurisdiction
over such person in the manner as if it always had such jurisdiction.
In case of transfer of registration as above, the Board shall issue intimation letter to the registered person
along with copy to concerned LTU or RTO.
In case a registered person intends to shift his business activity from the jurisdiction of one LTU or RTO to
another, or he has any other valid reason for such transfer, he shall apply to the Board for transfer of his
registration along with Form STR-I. The Board shall follow the procedure as provided above.
Q.9 In case of approval of change in the registration from the ____ shall issue a revised registration certificate which will
be effective from the date of approval of change.
(a) Local Registration Office
(b) CRO
(c) Regional Tax Office
(d) Board
Q.10 The CIR is empowered to transfer the registration of a registered person from ____________.
(a) One collector to another
(b) Large Taxpayer Unit to Regional Tax Office
(c) both a or b
(d) None of the above
Q.11 On transfer of registration, it is not compulsory to transfer all the record and liabilities of the registered person to
the______ or Large Taxpayer Unit or regional tax office.
(a) Collector
(b) Large Taxpayer Unit
(c) Regional Tax Office
(d) all of the above
Q.12 A registered person may apply to Local Registration Office for de-registration / cancellation of his sales tax
registration _________________;
(a) on ceasing to carry on his business
(b) where supplies become exempt from tax
(c) where total taxable turnover during the last twelve months remains below the limit of Rs.5 million
(d) all of the above
Q.13 On application for de-registration or the Local Registration Office may recommend to the CRO to cancel the
registration of such person from such date as may be specified, but not later than 90 days _______.
(a) from the date of such application
(b) from the date all the dues outstanding against such person are deposited by him.
(c) from the date of such application or the date all the dues outstanding against such person are deposited by
him, whichever is the later.
(d) none of the above
Q.14 If a registered person fails to file tax return for six consecutive months, ____________________ recommend to the
central registration office for cancellation of the registration after satisfying that no tax liability is outstanding against
such person
(a) the Local Registration Office may, after issuing a notice in writing
(b) without giving an opportunity of being heard to such person
(c) the Local Registration Office may, after issuing a notice in writing and after giving an opportunity of being
heard to such person
(d) all of the above
Q.15 After the blacklisting of a registered person, the invoices issued ______________by such person shall not be
entertained for the purposes of sales tax refund or input tax credit.
(a) after blacklisting
(b) before blacklisting
(c) after and before blacklisting
(d) none of the above
ANSWERS
Q.7 (a) Autumn 2011 Under what circumstances, a registered person becomes liable to be de-registered under Sales Tax
Act, 1990. Also state the procedures for deregistration as enumerated in the Sales Tax Rules, 2006.
Q. NO. 7(a) Autumn 2009 Identify the situations under which a person registered under the Sales Tax Act, 1990 is liable to
be de-registered.
Q. NO. 7(b) Autumn 2009 Briefly explain procedure for de-registration as specified by the Sales Tax Rules, 2006.
Q. NO. 7(c) Autumn 2009 Comment whether the following persons are required to be registered under the Sales Tax Act,
1990.
(i) Mr. Yahya is a wholesaler and his annual business turnover is Rs. 4.9 million.
(ii) Mr. Fazal is operating a general store and his monthly average turnover is Rs. 0.4 million.
(iii) Mr. Ishaq is planning to import raw materials for business use. The annual imports are estimated at Rs. 3.0 million.
(iv) Mr. Pervez is a commercial exporter. All his business purchases are either exempt supplies or from unregistered
suppliers.
(v) Mr. Farooq is a distributor of consumer goods and his annual turnover is Rs. 15 million.
(vi) Mr. Rafiq is a manufacturer of candles. His turnover in last twelve tax periods was below Rs. 5 million. His utility bills
during the same period were Rs. 550,000.
Q. NO. 6(b) Spring 2008 Narrate the circumstances under which, it becomes obligatory for a person to get registered under
the STA, 1990.
Q. NO. 6(c) Spring 2008 Under what circumstances can a person registered under the Sales Tax Act, 1990, be de-
registered?
Q. NO. 7(b) Spring 2007 Registered persons under the sales tax rules 2006 (b) List down the persons who are required to
be registered under the Sales Tax Rules, 2006.
Q. NO. 8(c) Autumn 2007 What are the circumstances in which a person registered under the Sales Tax Act, 1990 may
apply for cancellation of his registration?
Q. NO. 12 Spring 2005 State under what circumstances the Collector of Sales-tax is empowered to black list a registered
person?
Q. NO. 11(a) Autumn 2005 Identify the persons required to be registered under the Sales Tax Act 1990.
Q. NO. 11(b) Autumn 2005 Under what circumstances is a registered person liable to be de-registered? Also explain the
procedure for de-registration.
Q. NO. 11(c) Autumn 2005 Explain the provisions relating to black listing and suspension of registration.
Chapter
In this chapter
CIR stands for Commissioner Inland Revenue
RP stands for Registered Person
Returns means any return required to be furnished under Sales tax Act.
1. RETURN
All registered persons required to file a return u/s 26 of the Safes Tax Act, 1990 according to the following rules:
2. Filing of Returns [Rule 14]
Every RP shall file the return, along with all its annexures, in accordance with the instructions and manner as
specified in rule 18 covered as under. Where a RP operates in different sectors for which different dates of filing of
return have been prescribed, such person shall file a single return for all sectors by such date applicable to his major
activity.
3. Receipt of return by the Bank [Rule 15]
The Bank official shall ensure that the particulars entered in all the three copies of the return are identical and that the
amount deposited by the RP tallies with the amount indicated as "TOTAL SALES TAX PAYABLE" in the return, and
shall thereafter sign and stamp the return indicating the date of payment of tax and submission of tax return.
The Bank shall forward the original copy of the return to the concerned department of Sales Tax and second copy
with the computer generated receipt shall be delivered to the RP and third copy shall be retained by the Bank for
record purposes.
In case of payment through cheque, pay order or bank draft, and shall issue a provisional acknowledgement receipt.
In cases where the payments are received through pay order or bank draft, the bank shall affix two stamps on the
return indicating the date on which the cross payment instrument was received and the date on which the instrument
was cleared for payment by transfer. In case the banking instrument is not cleared such person shall be liable to pay
default surcharge and penalties for late payment of sales tax.
Monthly ST return has to be filed by a registered person on the due date. The term due date is defined in section 2(9)
of the Act in the following manner:
"due date", in relation to the furnishing of a return u/s 26 and section 26AA means the 15th day of the month
following the end of the tax period, or such other date as the Board may, by notification in the official Gazette,
specify;
Therefore, the taxpayers are required to file the monthly ST return by 15th of the month following the end of the tax
period. Rule 18(3) of the ST Rules, 2006 states that in case the tax is deposited on the due date, then the return can
be filed up till 18th of next month.
7. Return [U/S 26 and Rule 13]:
7.1 Sales tax return:
Every RP shall furnish a true and correct return in the prescribed form to a designated bank or any other office
specified by the Board, indicating the purchases and the supplies made during a tax period, the tax due and
paid and such other information, as may be prescribed:
The Board may require any person or class of persons to submit return on quarterly basis, annually basis in
addition to monthly return;
The return filed electronically on the web or any magnetic media or any other computer readable media shall
also be deemed to be a return, and the Board may make rules for determining eligibility of the data of such
returns and e-intermediaries who will digitize the data of such returns and transmit the same electronically
under their digital signatures.
If there is a change in the rate of tax during a tax period, a separate return in respect of each portion of tax
period showing the application of different rates of tax shall be furnished.
A RP may, subject to approval of the CIR having jurisdiction, file a revised return within 120 days of the filing of
return as above or special return under section 27, to correct any omission or wrong declaration made therein.
7.2 Revision of return:
A RP may, subject to approval of the concerned CIR, file a revised return within 120 days of the filing of return
to correct any omission or wrong declaration.
If a RP wishes to file revised return voluntarily along with deposit of the amount of tax short paid or amount of
tax evaded along with default surcharge, whenever it comes to his notice, before receipt of notice of audit,
no penalty shall be recovered from him:
If a RP wishes to deposit the amount of tax as pointed out by the officer of Inland Revenue during the
audit, or at any time before issuance of the show cause notice, he may deposit the evaded amount of tax,
default surcharge and 25% of the penalty payable under section 33 along with the revised return:
If a RP wishes to deposit the amount after issuance of show cause notice, he shall deposit the evaded
amount of sales tax, default surcharge and full amount of the penalty payable under section 33 along with
the revised return and thereafter, the show cause notice, shall stand abated.
8. Special returns [U/S 27]:
In addition to the return specified u/s 26"
a RP shall furnish special return within such date indicating information such as quantity manufactured or
produced, purchases made, goods supplied or payment of arrears made, etc, for such period as the Board
may specify; and
the CIR may require any person whether, registered or not, to furnish a return on his behalf or as a
representative.
9. Final return [U/S 28]:
If a person applies for de-registration, he shall before such de-registration, furnish a final return to the CIR in the
specified form in such manner and at such time as directed by the CIR.
10. Return deemed to have been made [U/S 29]:
A return to be made on behalf of a person by his duly appointed representative shall, for all purposes, be deemed to
have been made by such person or under his authority unless proved to the contrary.
11. Summary of returns and their filing dates is given hereunder:
(b) REGISTERED PERSON U/R 18(3) Monthly 18th of next month following the tax period
WHERE ST DEPOSITED (including
ON DUE D ATE production
monthly return,
[ OTHER THAN ( A) ABOVE
where applicable)
& ( C) & ( D) AS UNDER
(c) PETROLEUM U/S 26 Monthly 25th of next month following the tax period
EXPLORATION & [Read with (including
PRODUCTION SRO production
COMPANIES 88(I)/2002 monthly return,
dated 11/02- where applicable)
2002]
(d) M ANUF ACTURERS OF U/R 58I of Monthly 28th of next month following the tax period
MILD STEEL , STEEL special (including
MELTERS, RE- ROLLERS procedure production
& SHIP BREAKERS Rules, 2007 monthly return,
where applicable)
2. REGISTERED PERSON U/S 26 Change in rate of Separate returns for each applicable tax
[Read with tax rate in the next month following the tax
Rule 13] period
3. CNG STATIONS Special Quarterly 15th of month next following each quarter
Procedure
Rules, 2007
4. REGISTERED OR U/S 27 Special On the date specified by the CIR its notice
UNREGISTERED PERSON calling for such return.
5. PERSON APPLIED FOR U/S 28 Final On the date specified by the CIR
DE- REGISTRATION
6. COMPANY (P RIVATE OR U/R 17 Annual 30th of September following the year end
PUBLIC LTD .)
Q.9 In case of any change in the rate of tax during a tax period,________________.
(a) changed rate shall be applicable on period before such change
(b) changed rate shall have no effect on period after such change
(c) one return before change and one return after change shall be filed
(d) None of above
Q.10 A person filing sales tax return shall deposit the amount of sales tax with __________.
(a) Income tax department
(b) designated bank
(c) Central Registration Office
(d) Local Registration Office
Q.11 Every registered person is required to file the sales tax returns in ________on E-portal.
(a) triplicate
(b) duplicate
(c) singly
(d) none of the above
Q.12 The sales tax returns are to be filed in the designated branches of _________________.
(a) State Bank of Pakistan
(b) National bank of Pakistan
(c) Silk bank
(d) None of above
Q.13 Every private company is also required to file ____________ return in addition to monthly sales tax returns.
(a) annual
(b) quarterly
(c) both a or b
(d) All of the above
Q.14 The electronic filing of sales tax returns is required from __________.
(a) companies
(b) AOPs
(c) individuals
(d) All of the above
Q.15 The Board has an authority to require ________ to furnish such summary or detail as may be notified by it.
(a) companies
(b) AOPs
(c) individuals
(d) any person
Q.16 A retail sales tax return filed by a retailer uptill ______________.
(a) 15th of the same month
(b) 18th of the next month
(c) 10th of the same month
(d) 20 of the next month
Q.17 A ________ is in lieu of monthly sales tax return or retail tax return.
(a) statement of sales
(b) detail of output tax
Q. NO. 10(b) Spring 2014 Under the provisions of Sales Tax Act, 1990:
Discuss the conditions under which a registered person may file a revised return.
Q. No. 8 (b) Autumn 2013 Discuss the rules relating to filing of electronic return under the Sales Tax Rules, 2006.
Q. No. 8 (a) Autumn 2012 Under the provisions of Sales Tax Act, 1990 and Rules made there under, identify the last date
for filing of sales tax return in each of the following cases:
(i) One 1 August 2012, Sara registered herself under the Sales Tax Act, 1990.
(ii) Fatima filed the return for the month of July 2012 on 10 August 2012. She wants to revise her return to correct certain
errors.
(iii) Amna Engineering Limited (AEL) is registered under the Sales Tax Act, 1990. AEL wants to file annual sales tax
return for the financial year ended 30 June 2012.
(iv) Abida wants to deregister herself with effect from 30 September 2012.
Q.NO. 7(a) Spring 2009 Discuss the provisions of the Sales Tax Act, 1990 with regard to the following:
(i) Filing of return
(ii) Voluntary revision of return
(iii) Revision of return during or after issuance of a notice of audit.
Q. NO. 10 Spring 2006 Explain the provisions of section 26 of Sales Tax Act, 1990 with regard to the following:
(a) Change in rate of tax during a tax period
(b) Voluntary revision of return
(c) Revision of return during audit or after issuance of a show cause notice by the department.
Q. NO. 11 Spring 2006 Which date shall be considered as the date of payment of sales tax in the following cases:
(a) Payment through cash or cheque
(b) Payment through pay order or bank draft
Chapter
Q.9 The law requires that every registered person shall issue a tax invoice at the time of ________________.
(a) Purchase of goods
(b) making supply of goods
(c) making exempt supply
(d) making supply at discounted price
Q.10 The tax invoice shall also contain value of goods ___________.
(a) inclusive of sales tax
(b) exclusive of sales tax
(c) sales tax
(d) all of the above
Q.11 Tax invoice cannot be issued ___________.
(a) manually
(b) in duplicate
(c) in triplicate
(d) none of the above
Q.12 A sales tax officer may have access to the ______ kept by the taxpayer as and when required.
(a) stock
(b) records
(c) plant and machinery
(d) computer
Q.13 An audit by the tax officer generally conducted _________ in a year as necessary to verify the records obtained by
the taxpayer.
(a) as many times
(b) once
(c) two times
(d) None of the above
Q.14 The officer appointed for the purpose of investigation about the records kept should not be below the rank of
_________.
(a) Commissioner Inland Revenue
(b) Chief Commissioner Inland Revenue
(c) Assistant Commissioner
(d) None of the above
Q.15 Where a show-cause notice has been issued, _________ of penalty shall be recovered from the taxpayer
(a) 25%
(b) 50%
(c) 75%
(d) 100%
Q.16 Where an authorized officer of Inland Revenue considers it necessary to take a sample of any goods or raw materials
to determine the value of goods and sales tax liability or for any other reason, he may remove a ___________quantity
to enable him for proper examination or analysis to be made.
(a) minimum
(b) maximum
(c) average
(d) none of the above
Q.17 The Commissioner Inland Revenue or an officer of Inland Revenue may, in respect of any transaction between
persons who are associates, determine the transfer price of taxable supplies between the persons on the basis of
_______________.
(a) Fair Market Value
(b) Net Realisable Value
(c) market value
(d) Discounted value
ANSWERS
1 (a) 2 (a) 3 (d) 4 (d) 5 (d)
16 (a) 17 (a)
Q. NO. 5 (b) SUMMER-2007 Describe the records, which are required to be maintained by a registered person u/s 22 of
Sales Tax Act, 1990
Q. NO. 8 WINTER-2003 Describe in detail the books keeping and invoicing requirements as required u/s 22 to 24 of Sales
Tax Act, 1990.
Q. NO. 7(a) Spring 2010 State the provisions of Sales Tax Act, 1990 relating to maintenance and retention of records by a
registered person making taxable supplies.
Q. NO. 7(a) Spring 2008 A registered person making a taxable supply has to issue a tax invoice at the time of supply of
goods. What are the particulars that are required to be mentioned on the invoice?
Q. NO. 6(a) Autumn 2008 Mr. Kazim has recently started a business and has been registered under the Sales Tax Act,
1990. You are required to explain to him the provisions of Sales Tax Act, 1990 relating to maintenance and retention of
records.
Q. NO. 8(a) Autumn 2007 Every registered person making a taxable supply is required to issue a tax invoice at the time of
supply of goods. List down the particulars which are required to be contained in a sales tax invoice.
Q. NO. 8(b) Autumn 2006 Provisions relating to maintenance of records. List down the records that are required to be
maintained. Minimum period for which the records are required to be retained A registered person is required to maintain
certain records under the Sales Tax Act, 1990. You are required to:
(i) explain the provisions relating to maintenance of records.
(ii) list down the records that are required to be maintained.
(iii) specify the minimum period for which the records are required to be retained.
Q. NO. 12 Autumn 2003 List down the records that are required to be maintained by a person registered under the Sales
Tax Act, 1990 and for what period the records are to be maintained?
Q. NO. 11(b) Spring 2003 What are the minimum information required to be given on Sales Tax invoice.
Q.13 Autumn 2002 The finance manager of ABC Ltd requests for an advice on Tax Invoice, please draft a suitable reply in
the light of Sales Tax Act, 1990.
Chapter
Subject to the provision of section 8(6) or any notification issued there under, where taxable supplies are made to a
person who has not obtained registration number, there shall be charged, levied and paid a further tax at the rate of
2% of the value in addition to the rate specified in this section:
The Federal Government may, subject to such conditions and restrictions as it may impose, by notification in
the official Gazette, declare that in respect of any taxable goods, the tax shall be charged, collected and paid in
such manner and at such higher or lower rate or rates as may be specified in the said notification.
Tax on production capacity basis
The Board may, by notification in the official Gazette, in lieu of levying and collecting tax on taxable supplies, levy
and collect tax
(a) on the production capacity of plants, machinery, undertaking, establishments or installations producing or
manufacturing such goods; or
(b) on fixed basis, as it may deem fit, from any person who is in a position to collect such tax due to the nature of
the business.
The liability to pay the tax shall be:
(a) in the case of supply of goods, of the person making the supply, and
(b) in the case of goods imported into Pakistan, of the person importing the goods.
(c) The Federal Government may fix a lower or higher rate of sales tax in addition to 17%.
Federal Government vide SRO 657 dated 11-07-2013 has notified that the import and supply of second-hand
and worn clothing shall be charged to sales tax @ 5%.
Liability of Sales Tax on Purchases by Exporters
The Federal Government vide SRO 401(I)/2001 dated June 18, 2001 has notified that where the goods are supplied
to or received by a person as exporter under the provisions of Duty and Tax Remission for Export Rules, 2001 then
sales tax in respect of such goods shall be payable by the person receiving the supply instead of the person making
the supply if such person is unable to account for the goods in the manner prescribed under the Rules.
According to sales tax schedule the rates are given as follows:
Third Schedule (Complete schedule provided separately) 17% of retail price
Fifth Schedule (Complete schedule provided separately) Zero percent and
Sixth Schedule (Complete schedule provided separately) Exempted supplies
Eighth Schedule (Complete schedule provided separately) At specified rates
Ninth Schedule (Complete schedule provided separately) At specified rates
1.1 Taxable supplies made by a registered person [Section 3(2)(a)]
Taxable-supplies specified in the Third Schedule shall be charged to tax at the rate of 17% of the retail price with
sales tax shall be legibly, prominently and indelibly printed or embossed by the manufacturer on each item:
Provided that the Federal Government may exclude any taxable supply from the said Schedule,
Goods specified in 3rd schedule are given below:
Fruit juices and vegetable juices, ice cream, aerated waters or beverages, syrups and squashes, cigarettes, toilet
soap, detergents, shampoo, toothpaste, shaving cream, perfumery and cosmetics, tea, powder drinks, milky drinks,
toilet paper and tissue paper, spices sold in retail packing bearing brand names and trademarks, shoe polish and
shoe cream. Household electrical goods, including air conditioners, refrigerators, deep freezers, televisions, recorders
and players, electric bulbs, tube-lights, fans, electric irons, washing machines, telephone sets, Fertilizers, cement sold
in retail packing, Tiles sold in retail packing, Biscuits, confectionery, chocolates, toffees and candies.
Taxable supplies made by registered person [Section 3(2)(aa)]
Goods specified in the Eight Schedule (provided separately) shall be charged to tax at such rates and subject to such
conditions and limitations as specified therein.
The adjustment or refund of input tax if any to a registered person shall be made on yearly basis in the second month
following the end of the financial year.
The Board may notify any other limit of input tax adjustment for any person or class of persons.
Any auditor found guilty of misconduct in furnishing the certificate shall be referred to the Council for disciplinary
action.
Non applicability of section 8B [SRO 647(I)/2007, dated 27-06-2007]:
Provision of section 8B(1) shall not apply to the following registered persons:
1. Person registered in electric energy sector;
2. Oil marketing companies and petroleum refineries;
3. Fertilizers manufacturers;
4. Manufacturers consuming raw materials chargeable to sales tax @ 19.5% or 21% provided that the value of
such raw materials exceed 50% of value of all taxable purchases in a tax period;
5. Wholesalers-cum-retailers (covered under Chapter XII of Sales Tax Special Procedures Rules, 2007);
6. Commercial importers provided the value of imports subjected to 2% value addition tax under Chapter X of the
Sales Tax Special Procedures Rules, 2007, exceeds 50% of the value of all taxable purchases in a tax period.
7. Persons making zero-rated supplies provided value of such supplies exceed 50% of value of all taxable supplies
in a tax year;
8. Distributors and wholesalers;
9. Gas distribution companies;
10. Solvent extracting units of edible oils;
11. Telecommunication services; and
12. Pakistan Steel, Bin Qasim, Karachi
11. Debit and credit note [U/S 9]
Where a registered person has issued a tax invoice in respect of a supply made by him and as a result of cancellation
of supply or return of goods or a change in the nature of supply or change in the value of the supply or some such
event the amount shown in the tax invoice or the return needs to be modified, the registered person may, issue a
debit or credit note and make adjustment against output tax in the return.
Sales tax rules for debit and credit note [Rule 19, 20, 21 and 22]
Buyer on goods returns Issue a debit note
Supplier on receipt of returned goods Issue a credit note
The goods may be returned along with the debit note within 180 days from the date of supply however the collector
on the request of suppliers may extend this period for further 180 days.
The debit and credit notes shall be issued in duplicate and contain the information regarding the description, quantity
and the value of goods, based on the invoices issued at the time of supply, the amount of sales tax paid and the
number and date of original tax invoice. The adjustment of input and output taxes shall be available in the tax period
in which the goods are returned. The supplier shall reduce the amount of output tax in his return for the tax period in
which he received the goods.
Rule for destruction of goods [Rule 23]
Where goods are returned on the ground that those are unfit for consumption and need to be destroyed by the
suppliers, then along-with other formalities an approval of collector of sales tax shall be obtained before the goods are
destroyed in the presence of an officer not below the rank of Assistant Collectorate deputed by the collector.
Input tax on goods subsequently destroyed: A registered person is entitled to reclaim input tax paid on goods
which were subsequently destroyed and were not meant for use Lahore High Court in the case of Mayfair Spinning
Mills Ltd PTCL 2002 CL.115.
Input tax on wastage of Raw Materials during Manufacturing: Circular 1 of 1989 clarifies that such input is
reclaimable. However, if the wastage is such that can be sold then the same shall be considered as a by-product and
chargeable to sales tax unless specifically exempt.
12. Refund of input tax [U/S 10]
If the input tax paid by a registered person exceeds the output tax on account of zero rated local supplies or export
made during that tax period, the excess amount of input tax shall be refunded to the registered person not later than
45 days of filing of refund.
In case of excess input tax against supplies other than zero-rated or exports, such excess input tax may be carried
forward to the next tax period, along with the input tax as is not adjustable u/s 8B, and shall be treated as input tax for
that period.
If a registered person is liable to pay any tax, default surcharge or penalty payable under any law the refund of input
tax shall be made after adjustment of unpaid outstanding amount of tax.
Where a person has claimed input tax credit or refund which was not admissible to him, the proceedings against him
shall be completed within 60 days and may be extended for further 60 days but the same in no case may be
extended by Additional CIR for nine months.
13. Assessment of tax and recovery of tax not levied or short-levied or erroneously refunded [U/S 11]:
1- If a person is required to file a tax return fails to file the return for a tax period by the due date or pays an
amount which, for some miscalculation is less than the amount of tax actually payable,
an officer Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of
tax, including imposition of penalty and default surcharge in accordance with section 33 and 34:
However if in the above case a person files the return after the due date and pays the amount of tax payable
along with default surcharge and penalty, the notice to show cause and the order of assessment shall abate.
2- If a person has not paid the tax due on supplies made by him or has made short payment or has claimed input
tax credit or refund which is not admissible under this Act for reasons other than those specified as above,
An officer Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of
tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully
claimed and shall impose a penalty and charge default surcharge in accordance with section 33 and 34.
3- Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has
been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or
the amount of refund erroneously made.
shall be served with a notice requiring him to show cause for payment of the amount specified in the notice.
4- Where, by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or
made or has been short-levied or has been erroneously refunded, the person liable to pay the amount of tax or
charge or the amount of refund erroneously made
shall be served with a notice requiring him to show cause for payment of the amount specified in the notice:
Provided that, where a tax or charge has not been levied as above, the amount of tax shall be recovered as
tax fraction of the value of supply.
5- No order under this section shall be made by an Officer Inland Revenue unless a notice to show cause is
given within 5 years, of the relevant date, to the person in default specifying the grounds on which it is
intended to proceed against him and the officer of Sales Tax shall take into consideration the representation
made by such person and provide him with an opportunity of being heard:
Provided that order under this section shall be made within 120 days of issuance of show cause notice or
within such extended period as the CIR may, for reasons to be recorded in writing, fix provided that such
extended period shall in no case exceed 90 days:
Provided further that any period during which the proceedings are adjourned on account of a stay order or
Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not
exceeding 60 days shall be excluded from the computation of the period specified above.
(6) Where a registered person fails to file a return, an Officer Inland Revenue not below the rank of Assistant
Commissioner shall subject to such conditions as specified by the Board, determine the minimum tax liability
of the registered person.
(7) For this section, the expression "relevant date" means--
(a) the time of payment of tax or charge as provided u/s 6; and
(b) in a case where tax or charge has been erroneously refunded, the date of its refund.
13.1 Short paid amounts recoverable without notice [U/S 11A]
Where a registered person pays the amount of tax less than the tax due as indicated in his return, the short paid
amount of tax along with default surcharge shall be recovered from such person by stopping removal of any goods
from his business premises and through attachment of his business bank accounts, without giving him a show cause
notice. No penalty shall be imposed unless a show cause notice is given to such person.
14. Exemption [U/S 13(1)]
Supply of goods or import of goods specified in the Sixth Schedule as specified by the Federal Government, is
exempt from tax as follows:
(a) pursuant to the approval of the Economic Coordination Committee of Cabinet, whenever circumstances
exist to take immediate action for the purposes of national security, natural disaster, national food
security in emergency situations, protection of national economic interests in situations arising out of
abnormal fluctuation in international commodity prices, removal of anomalies in taxes, development of
backward areas and implementation of bilateral and multilateral agreements;
The exemption from tax may be allowed from any previous date specified in the notification.
Items specified in 6th Schedule are exempt from levy of tax however, where a person does not desire to avail any
tax exemption, he may, after voluntary registration, opt. to pay sales tax as normal sales tax payer.
The Federal Government shall place before the National Assembly all notifications issued under this section in
a financial year.
Any notification issued, shall, if not earlier rescinded, stand rescinded on the expiry of the financial year in which
it was issued.
15. Sales of taxable activity or transfer of ownership [U/S 49]
(A) To a non registered person: In case of termination of taxable activity or part thereof or its sale or transfer of
ownership to a non-registered person, the possession of taxable goods or part thereof by the registered
person shall be deemed to be a taxable supply and the registered person shall be required to account for and
pay the tax on the taxable goods held by him;
Provided that if the tax payable by such registered person remains unpaid, the amount of unpaid tax shall be
the first charge on the assets of the business and shall be payable by the transferee of business.
(B) To a registered person: In the case of sale or transfer of ownership of a taxable activity or part thereof to
another registered person as an on-going concern, sales tax chargeable on taxable goods or part thereof shall
be accounted for and paid by the registered person to whom such sale is made or ownership is transferred.
16. Estate of deceased person [U/S 53]
The tax liability of a deceased registered person under the Act shall be the first charge on his estate in the hands of
his successors.
17. Estate in bankruptcy [U/S 54]
(1) If a registered person is declared bankrupt, the tax liability under this Act shall pass on to the estate in
bankruptcy if it continues to operate the business.
(2) If tax liability is incurred by an estate in bankruptcy, the tax is deemed to be a current expenditure in the
operations of the estate in bankruptcy and shall be paid before the claims preferred by other creditors are
settled.
18. Removal of difficulties [U/S 55]
If any difficulty arises in giving effect to the provisions of this Act or the rules made or notifications issued there under,
the Board may through a general order or otherwise, issue instructions-or directions, not inconsistent with the
provisions of this Act, for such actions to be taken by an Officer Inland Revenue or any other person as it considers
necessary or expedient for the purpose of removing the difficulty.
19. Service of orders, decisions, etc. [U/S 56]
(1) Any notice, order or requisition required to be served on a resident individual, other than in a representative
capacity shall be treated as properly served on the individual if-
(a) personally served on the individual or, in the case of an individual under a legal disability or a non-
resident individual, the representative of the individual;
(b) sent by registered post or courier service to the place of business or to the individual's usual or last
known address in Pakistan: or
(c) served on the individual in the manner prescribed for service of a summons under the Code of Civil
Procedure, 1908.
(2) Any notice, order or requisition required to be served on any person, other than a resident individual, for the
purposes of this Act, shall be treated as properly served on the person if-
(a) personally served on the representative of the person;
(b) sent by registered post or courier service to the person's registered office or address for service of
notices under this Act, in Pakistan, or where the person does not have such office or address, the notice
is sent by registered post to any office or place of business of the person in Pakistan; or
(c) served on the person in the manner prescribed for service of a summons under the Code of Civil
Procedure, 1908.
(3) Where an AOP is dissolved, any notice, order or requisition required to be served on the association may be
served on any person who was the principal officer or a member of the association immediately before such
dissolution.
(4) Where, business stands discontinued, any notice, order or requisition required to be served on the person
discontinuing the business may be served on the person personally or on any individual who was the person's
representative at the time of discontinuance.
(5) The validity of service of a notice issued shall not be called into question after the notice has been complied
with in any manner
Agreement for the Exchange of information [U/S 56A]
The Federal Government may enter into bilateral or multilateral agreements with provincial governments or
with governments of foreign countries for the exchange of information, including electronic exchange of
information, with respect to sales tax imposed under this Act or any other law of Pakistan and under the
corresponding laws of such countries and may, by notification in the official Gazette, make such provisions as
may be necessary for implementing such agreements.
The provisions of section 107 of the Income Tax Ordinance, 2001 shall, mutatis mutandis, apply to the
provisions of this section.
Disclosure of information by public servant [Section 56B]
Any information acquired under any provision of this Act or in pursuance of a bilateral or multilateral
agreement or tax information exchange agreement shall be confidential and no public servant shall disclose
any such information, except as provided under section 216 of the Income Tax Ordinance, 2001.
The provisions of section 216 of Income Tax Ordinance, 2001, shall, mutatis mutandis, apply to the provisions
of this section.
Prize schemes to promote tax culture [Section 56C]
The Board may prescribe prize schemes to encourage the general public to make purchases only from
registered persons issuing tax invoices.
Rectification of mistake [U/s 57]
The officer Inland Revenue, Commissioner, the Commissioner (Appeals) or the Appellant Tribunal may by an order
in writing to rectify any mistake apparent in any order passed by him or from the record on his or its own motion or
any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (appeals) or the Appellate
Tribunal, the Commissioner.
No rectification order under this section which has the effect of increasing an assessment, reducing a refund or
otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable
opportunity of being heard.
Where a mistake apparent on the record is brought to the notice of the officer of Inland Revenue, Commissioner or
Commissioner (Appeals), as the case may be, and no order has been made, before the expiration of the financial
year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified
and all the provisions of this Act shall have effect accordingly.
No order under this section shall be made after five years from the date of order sought to be rectified.
20. Liability for payment of tax in the case of private companies or business enterprises [U/S 58]
Where any private company or business enterprise is wound up and any tax chargeable on the company or business
enterprise, whether before, or in the course of, or after its liquidation, in respect of any tax period cannot be recovered
from the company or business enterprise, every person who was a owner of, or partner in, or director of, the company
or business enterprise during the relevant period shall, jointly and severally with such persons, be liable for the
payment of such tax.
21. Tax paid on stocks acquired before registration [U/S 59]
The tax paid on goods purchased by a person who is subsequently required to be registered u/s 14 due to new
liabilities or levies or gets voluntary registration shall be treated as input tax, provided that such goods were
purchased by him from a registered person against an invoice issued during a period of 30 days before making an
application for registration and constitute his verifiable unsold stock on the date of compulsory registration or on
the date of application for registration or for voluntary registration:
Provided that where a person imports goods, the tax paid by him thereon during a period of 90 days before making
an application for registration shall be treated as an input tax subject to the condition that he holds the bill of entry
relating to such goods and also that these are verifiable unsold or un-consumed stocks on the date of compulsory
registration or on the date of application for registration or for voluntary registration.
22. Powers to deliver certain goods without payment of tax [U/S 60]
The Federal Government may authorise the import of goods or class of goods, without payment of the whole or any
part of the tax payable thereon to the following persons, namely:-
(i) registered importers importing such goods temporarily with a view to subsequent exportation;
(ii) registered manufacturer-cum-exporters who import raw materials and intermediary products for further
manufacture of goods meant for export.
23. Repayment of tax to persons registered in Azad Jammu and Kashmir [U/S 61A]
The Board may authorize the repayment in whole or in part of the input tax paid on any goods acquired in or imported
into Pakistan by the persons registered in Azad Jammu and Kashmir as are engaged in making of zero-rated
supplies.
24. Liability of the registered person for the acts of his agent [U/S 68]
When any person is expressly or impliedly authorised by a registered person to be his agent for all or any of the
purposes of this Act, the registered person shall be responsible for the act done by his agent.
25. Issuance of duplicate of sales tax documents [U/S 69]
An officer Inland Revenue not below the rank of Assistant Commissioner may, on payment of one hundred rupees,
issue an attested duplicate of any sales tax document as is available with the department or has been filed made
there under to a relevant registered person applying for the same.
26. Certain transactions not admissible [U/S 73]
(1) Payment of the amount for a transaction exceeding value of Rs.50,000, excluding payment against a utility bill,
shall be made by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any
other crossed banking instrument showing transfer of the amount of the sales tax invoice in favour of the
supplier from the business bank account of the buyer:
Provided that online transfer of payment from the business account of buyer to the business account of
supplier as well as payments through credit card shall be treated as transactions through the banking channel,
subject to the condition that such transactions are verifiable from the bank statements of the respective buyer
and the supplier.
(2) The buyer shall not be entitled to claim input tax credit, adjustment or deduction, or refund, repayment or draw-
back or zero-rating of tax under this Act if payment for the amount is made otherwise than as stated above,
provided that payment in case of transaction on credit is so transferred within one hundred and eighty days of
issuance of the tax invoice.
(3) The amount transferred in terms of this section shall be deposited in the business bank account of the
supplier, otherwise the supplier shall not be entitled to claim input tax credit, adjustment or deduction, or
refund, repayment or draw-back or zero-rating of tax under this Act.
Explanation - For the purpose of this section, the term "business bank account" shall mean a bank account utilized
by the registered person for business transactions, declared to the CIR in whose jurisdiction he is registered through
Form STR 1 or change of particulars in registration database.
27. Special procedure [U/S 71]
(1) The Federal Government may, by notification in the official Gazette, prescribe special procedure for scope and
payment of tax, registration, book keeping and invoicing requirements and returns, etc; in respect of such
supplies as may be specified therein.
(3) The trade enrolment Certificate Schemes immediately in force before the commencement of the Finance Act,
1999, shall be deemed to be validly made under this Act.
28. Condonation of time-limit [U/S 74]
Where any time or period has been specified within which any application is to be made or any act or thing is to be
done, the Board may in any case or class of cases, permit such application to be made or such act or thing to be
done within such time or period as it may consider appropriate:
Provided that the Board may, by notification in the official Gazette, and subject to such limitations or conditions as
may be specified therein, empower any Commissioner Inland Revenue to exercise the powers under this section in
any case or class of cases.
29. Application of the provisions of act 1969 to sales tax [U/S 75]
The Federal Government may, by notification in the official Gazette, declare that any of the provision of the Customs
Act, 1969, relating to the levy of, and exemption from, customs duties, draw-back of duty, warehousing, confiscation,
and procedure relating to offences and appeals shall, with such modifications and alterations as it may consider
necessary or desirable to adapt them to the circumstances, be applicable in regard to like matters in respect of the
tax imposed by section 3.
(a) 5%
(b) 10%
(c) 17%
(d) 1/5th of the tax payable by the supplier
Q.10. The withholding agent shall issue a certificate to the supplier showing therein_____.
(a) The name and registration number of the supplier
(b) Description of goods purchase and the amount of sales tax deducted from the supplier
(c) Both a and b
(d) None of the above
Q.11. While making the payment of sales tax, the supplier shall claim___________.
(a) The credit of input tax
(b) The credit of sales tax deducted by the withholding agent
(c) Both a and b
(d) None of the above
Q.12. The non-applicability of the provision of sales tax special procedure (withholding) rule is not applicable in respect of
companies engaged in___________.
(a) Distribution of gas electricity
(b) Providing telephone services, including mobile phone services
(c) Both a and b
(d) None of the above
Q.13. A retailer having annual turnover less than Rs. 5 million in respect of taxable supplies made by him___________.
(a) Is not required to pay sales tax
(b) Shall pay turnover tax as per slab rates.
(c) Shall pay the tax irrespective of the quantum of supplies made by him
(d) none of the above
Q.14. A retailer paying sales tax on electricity bill basis is__________.
(a) not required to be registered under the Sales Tax Act, 1990
(b) required to be registered under the Sales Tax Act, 1990
(c) optional for the retailer that he may be registered or not.
(d) none of the above
Q.15. Goods exported out of Pakistan are charged to tax at the rate of___________.
(a) 10%
(b) 15%
(c) 0%
(d) 5%
Q.16 Sales tax in respect of imported goods is charged at the time of ___________.
(a) sale of such goods
(b) import of goods
(c) on raising of invoice
(d) All of the above
Q.17 Sales tax for taxable supplies made in Pakistan is paid at the time of ___________.
(a) on raising of invoice
(b) on receipt against sales
(c) filing of return
(d) All of the above
Q.18 Sales tax on purchases made from registered persons is subtracted from the ________with limitations, where
applicable.
(a) first
(b) last
(c) none of above
Q.28 The registered supplier shall issue sales tax invoice for all _____ supplies made to the withholding agent.
(a) exempt supplies
(b) zero rated supplies
(c) taxable
(d) all of above
Q.29 A person falling in the definition of cottage industry is _________to be registered under the Sales Tax Act, 1990.
(a) not required
(b) required
(c) optional
(d) none of the above
Q.30 In case of retailers who are not required to get themselves registered, the sales tax paid on electricity bills by them
shall discharge their tax liabilities under the ________________.
(a) Sales Tax Act
(b) Income Tax Ordinance
(c) FED Act
(d) Both a and b
Q.31 The Govt. may recover the tax deducted by a person as ___________.
(a) arrears of tax
(b) penalty
(c) default surcharge
(d) none of above
Q.32 The goods which have been entered for export, although not exported are treated as____ supplies.
(a) taxable
(b) exempt
(c) zero rated
(d) none of the above
Q.33 Zero rated supply are ____________.
(a) exempt supplies
(b) taxable supplies
(c) none of the above
(d) all of the above
Q.34 The goods, which have been exported to a country specified by the _________ are not included in the zero rated
supply.
(a) Securities and Exchange Commission of Pakistan
(b) Federal Government
(c) Chief Commissioner Inland Revenue
(d) Commissioner Inland Revenue
Q.35 The credit of input tax is available on __________ supplies.
(a) taxable supplies
(b) zero rated supplies
(c) exempt supplies
(d) both a and b
Q.36. An officer Inland Revenue not below the rank of Assistant Commissioner may, on payment of Rs. ___, issue an
attested duplicate of any sales tax document as is available with the department or has been filed made there under
to a relevant registered person applying for the same.
(a) 200
(b) 100
(c) 300
(d) 400
Q.37. The ________ may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax,
registration, book keeping and invoicing requirements and returns, etc; in respect of such supplies as may be
specified therein.
(a) Board
(b) Federal Government
(c) Central Registration Office
(d) none of above
Q.38. Payment of the amount for a transaction exceeding value of Rs._______, excluding payment against a utility bill, shall
be made by a crossed cheque.
(a) 50,000
(b) 75,000
(c) 100,000
(d) 150,000
Q.39. A registered retailer (having credit or debit card machines) shall deposit the sales tax along-with return on _______.
(a) monthly
(b) quarterly
(c) annually
(d) semi-annually
Q.40. The sales tax on account of minimum value addition shall be levied and collected at import stage on goods imported
for other than in house use @ ___% of the value of goods in addition to the tax chargeable under the Act.
(a) 6
(b) 5
(c) 4
(d) 3
Q.41. Any person who has collected any tax which was not payable or which is in excess of the tax actually payable then
such amount shall be deemed to be an _____ payable to the Federal Government and no claim for refund shall be
allowed in this respect.
(a) arrear of tax
(b) default surcharge
(c) additional tax
(d) none of above
Q.42. The burden of proof that the incidence of tax has been or has not been passed to the consumer shall be on the
person _____________.
(a) paying the tax
(b) collecting the tax
(c) both a and b
(d) none of above
Q.43. If there is a change in the rate of tax, a taxable supply made by a registered person shall be charged to tax at such
rate as is in force at the __________.
(a) time of supply
(b) time of purchase
(c) time of payment of goods
Q.52. The Commissioner Inland Revenue or an Officer Inland Revenue may, in respect of any transaction between persons
who are associates, determine the transfer price of taxable supplies between the persons as is necessary to reflect
the ______ of supplies in an arm's length transaction.
(a) cost value
(b) fair market value
(c) net realizable value
(d) none of above
Q.53. In case of termination of taxable activity or part thereof or its sale or transfer of ownership to a non-registered person,
the possession of taxable goods or part thereof by the registered person shall be deemed to be a ________ supply.
(a) taxable
(b) exempt
(c) zero rated supply
(d) none of above
Q.54. The tax liability of a deceased registered person under the Act shall be the ______ charge on his estate in the hands
of his successors.
(a) last
(b) first
(c) second
(d) none of above
Q.55. If a registered person is declared bankrupt, the tax liability under this Act shall pass on to the ______ if it continues to
operate the business.
(a) legal representative
(b) successor
(c) estate in bankruptcy
(d) none of above
Q.56. If any difficulty arises in giving effect to the provisions of this Act or the rules made or notifications issued there under,
the _______ may through a general order or otherwise, issue instructions-or directions, not inconsistent with the
provisions of this Act, for such actions to be taken by an Officer Inland Revenue or any other person as it considers
necessary or expedient for the purpose of removing the difficulty.
(a) Board
(b) Commissioner Inland Revenue
(c) Appellate Tribunal Inland Revenue
(d) none of above
Q.57. Where an AOP is dissolved, any notice, order or requisition required to be served on the association may be served
on _____________ immediately before such dissolution.
(a) principal officer
(b) member
(c) both a and b
(d) none of above
Q.58. Where, business stands discontinued, any notice, order or requisition required to be served on the person
discontinuing the business may be served on the _________ at the time of discontinuance.
(a) person personally
(b) persons representative
(c) both a and b
(d) none of above
Q.59. Where any private company or business enterprise is wound up and any tax chargeable on the company or business
enterprise, cannot be recovered from the company or business enterprise, every person who was a owner of, or
partner in, or director of, the company or business enterprise during the relevant period shall, ________, be liable for
the payment of such tax.
(a) jointly and severally
(b) individually
(c) none of above
Q.60. The tax paid on goods purchased by a person who is subsequently required to be registered or gets voluntary
registration shall be treated as input tax, provided that such goods were purchased by him from a registered person
against an invoice issued during a period of ______ days before making an application for registration.
(a) 60
(b) 30
(c) 90
(d) 120
ANSWERS
1 (c) 2 (b) 3 (a) 4 (d) 5 (a)
6 (a) 7 (b) 8 (a) 9 (c) 10 (c)
11 (c) 12 (c) 13 (a) 14 (a) 15 (c)
16 (b) 17 (a) 18 (a) 19 (a) 20 (a)
21 (b) 22 (b) 23 (b) 24 (b) 25 (d)
26 (c) 27 (a) 28 (d) 29 (a) 30 (a)
31 (a) 32 (a) 33 (b) 34 (b) 35 (d)
36 (b) 37 (b) 38 (a) 39 (a) 40 (d)
41 (a) 42 (b) 43 (a) 44 (b) 45 (c)
46 (b) 47 (c) 48 (a) 49 (c) 50 (c)
51 (a) 52 (b) 53 (a) 54 (b) 55 (c)
56 (a) 57 (c) 58 (c) 59 (a) 60 (b)
Q. NO. 5 (a) March 2015 (b) XYZ Industries (pvt.) Limited has been established for many years and registered under the
Sales Tax Act, 1990. The Chief Financial Officer (CFO) of the company, Mr. Akram observed that there is often delay and
discrepancies in filing of sales tax return due to inexperienced staff regarding the sales tax matters. He requested the
Sales Tax Advisor of the company to train the staff of the sales tax department.
Required:
Being the Sales Tax Advisor, guide the staff regarding the following queries in the light of the Sales Tax Act, 1990:
(i) In cases of any short payment of sales tax, how the company can avoid and reduce imposition of penalty under
section 33 of the Sales Tax Act, 1990?
(ii) Under which situations, XYZ Industries (pvt.) limited may be held liable to pay default surcharge in addition to the
sales tax due on it?
Q.NO. 5(a) August 2014 M/s. Sultan Limited is contemplating ways to increase its sales. Assume you are a Tax
Consultant and the management of the company is seeking your advice on the sales tax implications. Discuss the
provisions of the Sales Tax Act, 1990 in respect of the sales tax and valuation of the goods under the following schemes:
(i) For a certain range of products, it is being proposed to provide sample packs Free of Cost to the customers.
(ii) A mix of products X, Y and Z is proposed to be sold at a concessional rate as a Package Deal.
(iii) Sales of certain products are intended to be introduced under the hire purchase/ installment mode. However, an
additional issue raised in this regard that the rate of sales tax will be changed subsequently.
Q.NO. 6(a) August 2014 Ajmal Traders is engaged in the retail business. They are not registered with the sales tax
authorities. They intended to get themselves registered as a retailer. However, before getting themselves registered, they
have certain questions.
Required:
Being the companys Tax Advisor, you are required to answer the following queries in the light of the relevant provisions of
the Sales Tax Act, 1990:
(i) What is the threshold of the value of supplies upon which registration with the sales tax authorities
is compulsory?
(ii) Whether zero-rated and exempted supplies will be considered as a part of value of supplies for the purpose
of charging and collecting sales tax?
(iii) Can a retailer adjust input tax or claim refund of sales tax?
(iv) At what dates, quarterly sales tax returns are required to be filed by the retailer?
(v) Whether issuance of invoice is mandatory for supplies made by the retailer? How such invoices will be
generated?
Q. No. 5(b) February 2014
Briefly state in the light of the provisions of the Sales Tax Act, 1990 whether the following persons can reclaim input tax?
(i) Alpha Private Limited is a renowned company established in 1990. It is registered under the said Act and deals in
taxable and non-taxable supplies.
(ii) Mr. Amir is a non-registered person under the said Act, deals in taxable supplies only.
Q. No. 5(c) February 2014
Shalimar Private Limited (SPL) manufactures and supplies household electrical goods to Altamash Enterprises (AE). Both
the companies are registered under the Sales Tax Act, 1990. During the month of January, 2014 SPL had supplied 30
washing machines to AE. However, AE decided to return 16 washing machines to SPL due to sub-standard quality.
Required: Under the provision of the Sales Tax Rules, 2006 describe the procedure to be followed by Altamash
Enterprises (AE) for returning the goods.
Q. No. 6 (a) (i) Spring 2013
Apparently an exempt supply and a zero-rated supply are look-alike. Under both the cases a person is not
required to pay tax under the Sales Tax Act, 1990. However, these two types of supplies differ with each other
on many points.
Differentiate exempt supply and zero-rated supply with reference to the following:
Taxability
Q.NO.5 (b) Autumn 2014 There are certain food items in the inventory of XY Limited (XYL) which were returned by
the customers after the expiry date. Specify the procedure which must be followed under the Sales Tax Rules, 2006 if XYL
wishes to destroy these items.
Q. NO. 10(a) Spring 2014 Under the provisions of Sales Tax Act, 1990:
Identify the situations under which a debit or credit note may be issued by a registered person.
Q.7 (a) Autumn 2012 Identify the goods that shall be charged at the rate of zero per cent under the Sales Tax Act, 1990.
(b) List the situations in which the type of goods identified in (a) above would not be eligible for zero rating.
Q.8 (b) Autumn 2012 While carrying the sales tax audit of haleema, the Officer of Inland Revenue identified a deficiency
in the amount of sales tax deposited by her. She acknowledged this deficiency but failed to deposit the balance amount.
Determine Haleemas liability in the above situation. Also explain whether it would have been to her advantage if she had
paid the amount before issuance of the show cause notice.
Q. 8 Spring 2012 Mr. Zamarrud is engaged in the manufacture and sale of taxable as well as zero-rated products.
Required: As a tax consultant, advise Ms. Zamarrud on the following matters:
(a) The conditions that need to be satisfied for the adjustment of input tax against the output tax liability.
(b) Any seven situations in which input tax is not allowed to be adjusted against the output tax liability.
(c) The remedy available to her if she fails to adjust input tax in the period in which it is paid.
Q.2 (b) Spring 2011 List down the particulars to be mentioned on the debit note issued by the supplier in the event of
change in the value of supply, under the Sales Tax Rules, 2006.
Q.7 (b) Autumn 2011 Mr. Gohar has recently been registered under the Sales Tax Act, 1990. He is engaged in the export
and distribution of consumer products. Before filing the first return, he wishes to obtain advice on the following matters:
(i) Eligibility for a refund if input tax paid is in excess of the output tax payable for the month.
(ii) Consequences of non-payment of the entire amount of tax due as indicated in the return.
(iii) Concept of provisional and final adjustment.
Required: Comment on each of the above matters. (08 marks)
Q. NO. 7(b) Spring 2010 List the type of exports which are outside the purview of zero rating.
Q. NO. 7(b) Spring 2009 With reference to the Sales Tax Act, 1990, identify the situations under which a registered person
shall not be entitled to claim or deduct input tax.
Q. NO. 6(b) Autumn 2008 Certain food items supplied by Pakistan Distributors (Pvt.) Ltd. (PDL) have been returned by
the customers after the expiry date. PDL wishes to destroy them. Specify the procedure which would have to be followed in
this regard.
Q. NO. 7(b) Spring 2008 Sales Tax Act, 1990 places certain restrictions on adjustment of input tax. You are required to
explain the related provisions in respect of the following:
(i) Extent of restriction on admissibility of input tax;
(ii) The conditions under which the amount of input tax which had been so restricted may subsequently be allowed;
Q. No. 13 Summer 2002 Explain the incidence of sales tax, if any, for exporters.
Q.11 Spring 2002 Explain the term " time of supply" with reference to the Sales Tax Act 1990.
Q.11 Autumn 2002 Elaborate the term input tax as defined in the Sales Tax Act,1990.
Q. No. 12 Autumn 2002
a. What is the significance of Third schedule to the Sales Tax Act,
b. Define retail price in the context of third schedule to the Sales Tax Act,
c. Whether trade discount allowed on products covered under the third schedule will affect sales tax levied on such
products. Give reasons in support of your answer.
Chapter
Note: All the under stated questions have been solved under the Sales Tax Act effective from July 1st 2015.
The following points are very important for students before solving the problems of sales tax.
Q.1 Briefly explain in which of the following cases a person is liable to be registered and also calculate tax payable on
turnover, if any:
Sr. No. Particulars
1 Mr. Aslam is an importer; his taxable turnover during last 12 months is Rs. 5,000,001.
2 A wholesaler having taxable turnover during last 12 months Rs. 400,000.
3 A manufacturer having taxable turnover during last 12 months Rs. 4,000,000.
4 A manufacturer having taxable turnover during last 12 months Rs. 5,000,000.
5 A manufacturer having taxable turnover during last 12 months Rs. 5,000,001.
6 Mr. Amir is a manufacturer; his taxable turnover during last 12 months was Rs. 2,500,000 and his utility
bills during last 12 months was
a) Rs. 600,000
b) Rs. 800,000
c) Rs. 900,000
7 Mr. Zahid is a Retailer; his taxable turnover during last 12 months is less than Rs. 5 million.
8 Taxable turnover of Mr. Akram during last 12 months is Rs. 400,000, he is a distributor.
9 Mr. Usman is a Retailer; his taxable turnover during last 12 months is Rs. 15 million.
10 A person wants to import goods, whether he is required to get himself registered or not.
11 Cottage Industry
12 Mr. Bilal is a manufacturer; detail regarding his turnover during last 12 months is as follows:
Local sales 3,500,000
Exports (Zero rated supplies) 2,500,000
13 Mr. Kamran is a manufacturer, information regarding last 12 months is given below:
Exports (Zero rated supplies) 3,000,000
Electricity bills 850,000
14 Mr. Ehsan is a Commercial exporter and wants to claim refund.
Solution of Q.1:
Important note: This solution for requirement of registration has been made under section 14 of the Sales Tax Act,
1990.
5 In this case manufacturer is liable to be registered as his taxable turnover is more than Rs.5,000,000.
Sales tax payable (5,000,001 x 17%) = 850,000
6 A In this case manufacturer is not required to be registered as he falls in the definition of cottage
industry. (cottage industry is not liable to be registered)
(Cottage industry means a manufacturer whose annual taxable turnover during the last 12 months
ending any tax period does not exceed Rs.5 million or whose annual utility (electricity, gas and
telephone) bills during the last 12 months ending any tax period do not exceed Rs.800,000.
B In this case manufacturer is not required to be registered as he falls in the definition of cottage
industry i.e. his utility bills do not exceed Rs.800,000. (cottage industry is not liable to be registered)
(Cottage industry means a manufacturer whose annual taxable turnover during the last 12 months
ending any tax period does not exceed Rs.5 million or whose annual utility (electricity, gas and
telephone) bills during the last 12 months ending any tax period do not exceed Rs.800,000.
C In this case manufacturer is required to be registered as his utility bills exceed Rs. 800,000.
Sales tax payable (2,500,000 x 17%) 425,000
7 Mr. Zahid is a retailer (other than dealing only in exempt supplies) hence liable to be registered as there is
limit on taxable supplies.
8 A distributor is required to be registered irrespective of its turnover.
Sales tax payable (400,000 x 17%) = 68,000
9 A retailer (other than exempt supplies) is liable to be registered as there is limit on taxable supplies.
Sales tax shall be payable under normal procedure u/s 3 of the Sales Tax Act, 1990.
10 An importer is required to be registered irrespective of its turnover.
11 Cottage industry is not required to be registered.
12 Total taxable supplies (including zero rated supplies) of the manufacturer is 6,000,000, so he is liable to
be registered.
Sales tax payable (3,500,000 x 17%) = 595,000
13 Mr. Kamran is required to be registered as he is a manufacturer and his utility bills during last 12 months
are more than Rs. 800,000.
However he is not required to pay any sales tax as his sales are zero rated.
14 A commercial exporter is not required to be registered, however if he wants to claim refund of input tax
then he must get himself registered.
Q.2: Compute sale tax liability of Mr. Aslam (registered manufacturer) for the month of July 2015 from following
information.
Rs.
Sales to registered persons 650,000
Purchases from registered persons 300,000
Purchases from non-registered persons 100,000
Solution:
Output tax:
On sales to registered persons U/S 3 (Rs. 650,000 x 17%) 110,500
Less: Input tax
On purchases from registered person (300,000 x 17%) 51,000
On purchases from non-registered persons (Note-1) -
Total input tax 51,000
Limitation on input tax upto 90% of output tax u/s 8B of the
Sales the Sales Tax Act, 1990 (Rs. 110,500 x 90%) 99,450
Input tax is fully admissible as it is less than 90% of output tax. ______
Sales tax payable 59,500
(Note 1) As purchases from non-registered persons are without sales tax invoices hence the same shall be
without sales tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax in not
applicable.
Q.3 Explain section 8B of the Sales Tax Act, 1990.
Solution:
A registered person shall not be allowed to adjust input tax in excess of 90% of the output tax for that tax period:
Tax charged on the acquisition of fixed assets shall be fully adjustable against the output tax in the month of
acquisition.
The Board may exclude any person or class of persons from this section.
A registered person may be allowed adjustment or refund of input tax on fulfilment of the following conditions, in
case:
(i) whose accounts are subject to audit under the Companies Ordinance, 1984, upon furnishing a statement along
with annual audited accounts, duly certified by the auditors, showing value additions less than the limit prescribed
above; or
(ii) other registered persons, as notified by the Board.
The adjustment or refund of input tax if any to a registered person shall be made on yearly basis in the second
month following the end of the financial year.
The Board may notify any other limit of input tax adjustment for any person or class of persons.
Any auditor found guilty of misconduct in furnishing the certificate shall be referred to the Council for disciplinary
action.
Q.4: Following information has been provided by Mr. Zohaib registered as commercial importer for the month of August
2015.
Rs.
Invoice price of imported goods 500,000
Value for custom duty 550,000
Custom duty 50,000
FED (Federal Excise Duty) 30,000
Solution (a):
Output tax:
On taxable supplies U/S 3 (Rs. 800,000 x 17%) 136,000
Solution (b):
Output tax:
On taxable supplies (Rs. 700,000 x 17%) 119,000
Less input tax:
On commercial imports U/S 3 (630,000 x 17%) (Note 2) 107,100
Additional tax paid on commercial imports U/R 58B(1) (Rs. 630,000 x 3%) 18,900
126,000
Balance sales tax excess paid (Read with note 3) (7,000)
Notes:
1. Restriction of 90% of output tax is not applicable in case of commercial importer under SRO 647(I)/2007 dated
June 27, 2007.
2. Import value u/s 2(46)(iii)(d) for the purposes of sales tax is as under:
Rs.
Value for custom duty 550,000
Add: Custom duty 50,000
Add: Federal Excise duty 30,000
630,000
3. It is important to note that if commercial imports stock is totally sold then there should be no refund as it is
minimum value addition case however if imported stock is not fully sold then there may be excess payment as
per return however there will be no refund in minimum tax case. Further if the value addition is in excess of the
minimum value addition then the taxpayer has to pay the sales tax on the value addition in excess of total sales
tax paid at import stage U/R 58C of Sales Tax Special Procedure Rules, 2007.
Q.5: Mr. Mohsin is a registered manufacturer of goods falling under third schedule. Information about his sales and
purchases for the month of August 2015 is as follows:
Sales (after 10% discount) 45,000
Taxable purchases 30,000
Required: Calculate sale tax payable by Mr. Mohsin.
Solution:
Goods falling under 3rd schedule are chargeable to tax @ 17% at retail price. If discount is allowed on these goods
then sales tax shall be calculated on the retail price and not on the discounted price.
Output tax:
Tax on sales (45,000 x 100/90 x 17%) 8,500
Input tax:
Tax on purchases (30,000 x 17%) 5,100
Full input tax is allowed as it is less than 90% of output tax of Rs. 7,650. ____
Balance sales tax payable 3,400
Q.6: Calculate output tax on following supplies
Sr. #
1 Taxable supplies Rs. 232,000 inclusive of sales tax
2 Local taxable supplies Rs. 116,000 without sales tax
Solution:
(Note 1) When value of sales are given including sales tax, then value of sales tax shall be calculated by using tax fraction
formula U/S 2(36) i.e. Sales tax = value including sales tax x 17 / 117. [Rs. 232,000 x 17/117 = 33,709]
(Note 2) Output tax on local taxable supplies without sales tax [Rs. 116,000 x 17% = 19,720]
Q.7 Mr. Kamran is a registered manufacturer under the Sales tax Act, 1990. Data regarding his business for the month of
July 2015 is as follows:
Sr. # Rs.
1 Taxable supplies to registered persons 500,000
2 Taxable supplies to non-registered persons (including the amount of Sales Tax) 250,000
3 Exempted sales (made from exempt purchases only) 300,000
4 Supplies made to DTRE registered persons 200,000
5 Zero rated supply 450,000
6 Taxable purchases from registered persons 130,000
7 Purchases (for exempt supplies only) 50,000
8 Sales tax paid on factory gas bill consumed in labor residential colonies 2,500
9 Sales tax paid on factory electricity bills (Sales tax registration number is printed on bills) 5,600
10 Sales tax paid on factory telephone bills (Sales tax registration number is printed on bills) 500
11 Sales tax receivable (previous month) 200
Solution:
Output tax Rs.
On taxable supplies to registered persons U/S 3 (Rs. 500,000 x 17%) 85,000
On taxable supplies to non-registered persons U/S 3 (Rs. 250,000 x 17/117) (Note - 2) 36,325
th
On supplies to DTRE registered persons [U/S 4 read with 5 Schedule] 0
On zero rates supplies [U/S 4 read with 5th Schedule] 0
121,325
Input tax
On taxable purchases used only for taxable local supplies (Note - 3) 11,566
On factory electricity bills (Note - 4) 5.600
On factory telephone bills (Note - 4) 500
On factory gas bill of labor colonies (Note 5) 0
Previous months b/f 200
Actual admissible input tax (A) 17,866
90% of output tax (Rs. 121,325 x 90%) (B) (Note - 3) 109,193
Less Admissible input tax: Lower of (A) or (B) 17,866
Sales tax payable 103,459
Refundable in respect of zero rated supplies & DTRE supplies (Rs. 3,241 + 7,293] 10,534
(Note - 1)
Input tax on purchases from registered persons (130,000 x 17%) 22,100
Total input tax for apportionment 22,100
(Note 2) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons by virtue of SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid separately
without adjustment of the same against input tax / refund of the registered person and further it shall also not be considered
for the computation of 90% limitation on output tax.
(Note - 3) As the zero rated supplies (including sales to DTRE registered persons) are less than 50% of all taxable supplies
under SRO 647(I)/2007 dated June 27, 2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 4) The question has been solved on the assumption that sales tax used on factory electricity and telephone bills has
been used only for taxable supplies (other than zero rated supplies) hence no apportionment of the same has not been
made.
(Note 5) Input tax paid on gas bills of labor residential colonies is not admissible input tax under SRO 490(I)/20014 dated
June 12, 2004.
(Note - 6) The question has been solved on the assumption that exempt supplies have been made only from exempt
purchases and without use of any sales tax of other inputs, hence the same has been fully accounted for in the input tax
without any apportionment.
Q.8 Mr. Kamran is a registered manufacturer under the Sales Tax Act, 1990. Data regarding his business for August 2015 is
as follows
Working
Taxable purchases from registered persons (Rs. 160,000 x 17%) 27,200
Taxable purchases from non-registered persons (Note 3) 0
Sales tax paid on electricity bills 10,000
Total input tax to be apportioned 37,200
Q.10 Mr. Hashmi is registered as wholesaler-cum-retailer under the Sales Tax Act, 1990. Data regarding his business is
given below for the month of August 2015:
Rs.
1 Taxable supplies to registered person 400,000
2 Taxable supplies to non-registered person 28,000
4 Taxable purchases from registered person 150,000
5 Taxable purchases from non-registered person 290,000
6 Taxable purchases from wholesaler 60,000
7 Sales tax paid on PTCL dues 6,000
8 Sales tax paid on electricity bill 5,000
9 General sales tax paid on Sui Gas bill 6,000
Note: Sales tax registration number is printed on utility bills. Calculate his sales tax liability for August 2015.
Solution
Rs.
Output tax
On taxable supplies to registered person U/S 3 (Rs. 400,000 x 17%) 68,000
On taxable supplies to non-registered person U/S 3 (Rs. 28,000 x
17%) (Note 2) 4,760
72,760
Less: Input tax
On taxable purchases from registered person (Rs. 150,000 x 17%) 25,500
On taxable purchases from non-registered person (Note 3) 0
On taxable purchases from wholesaler (Rs. 60,000 x 17%) 10,200
On PTCL dues (Note 4) 0
On electricity bills paid (Note 4) 0
On sui gas bills paid (Note 4) 0
Total input tax 35,700
Balance sales tax payable 37,060
(Note 1) As it is case of a wholesaler-cum-retailers under SRO 647(I)/2007 dated June 27, 2007, therefore 90% limitation
is not applicable U/S 8B of the Sales Tax Act, 1990.
(Note 2) It has been assumed that 2% further tax is not applicable on local taxable supplies to unregistered persons under
SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid separately without adjustment of
the same against input tax / refund of the registered person and further it shall also not be considered for the computation of
90% limitation on output tax.
(Note - 3) As purchases from non-registered persons are without sales tax invoices hence the same shall be without sales
tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax in not applicable.
(Note - 3) A registered person is not entitled to claim or deduct the input tax paid on electricity, telephone and gas bills that
are not being the direct constituent and integral part of the taxable goods produced, manufactured or supplied during the
course or in the furtherance of any taxable activity under SRO 1307(I)/97 dated December 20, 1997.
Q.11 Mr. Usman is a registered commercial importer. Data for his business for the month of August 2015 is as follows:
Rs.
1 Taxable supplies to registered person 402,130
2 Taxable supplies to non-registered person 94,013
(including the amount of sales tax)
3 Supplies to DTRE registered person 192,993
4 Zero rated supply 607,785
5 Taxable purchases from registered person 209,812
6 Exempted purchases 35,912
7 Imported goods 337,100
8 Sales tax paid on gas bill- consumed 18,000
9 Sales tax paid on electricity bills 20,000
(Sales tax registration number is printed on)
10 Previous month credit b/f 2,000
Solution
Rs.
Output tax
On taxable supplies to registered person U/S 3 (Rs. 402,130 x 17%) 68,362
On taxable supplies to non-registered person U/S 3 (Rs. 94,013 x 17
/ 117) (Note 4) 13,660
Supplies to DTRE registered person [U/S 4 read with 5th Schedule] 0
Zero rated supplies [U/S 4 read with 5th Schedule] 0
82,022
Input tax
On apportioned local supplies (working attached) 38,759
Of previous month credit b/f 2,000
Balance sales tax payable 41,263
Sales tax refundable in respect of zero rated supplies / DTRE supplies
(Rs.15,504 + 48,825) 64,329
Working
Taxable purchases from registered person (Rs. 209,812 x 17%) 35,668
Exempted purchases 0
Imported goods U/S 3 (Rs. 337,100 x 17%) 57,307
Additional tax on commercial imports (Rs. 337,100 x 3%) 10,113
Sales tax paid on gas bill- consumed (Note 5) 0
Sales tax paid on electricity bills (Note 5) 0
Total input tax to be apportioned 103,088
Note: Limitation of 90% of output tax U/S 8B shall not be applicable because of fulfillment of the following two conditions
under SRO 647(I)/2013 dated June 27, 2013.
1. Commercial imports are more than 50% of total taxable purchases.
2. Zero rated supplies (including sales to DTRE registered persons) are more than 50% of all taxable supplies.
Although input sales tax credit is available with the registered person to be considered for 90% limitation but where no
such limitation is applied the same shall be fully adjusted against the ultimate sales tax liability of the person. The
unadjusted balance of sales tax if any shall be carried forward for future adjustment.
4. It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered persons
by virtue of SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid separately
without adjustment of the same against input tax / refund of the registered person and further it shall also not be
considered for the computation of 90% limitation on output tax.
5. A registered person is not entitled to claim or deduct the input tax paid on gas and electricity bills that are not being
the direct constituent and integral part of the taxable goods produced, manufactured or supplied during the course or
in the furtherance of any taxable activity under SRO 1307(I)/97 dated December 20, 1997.
Q.12 Mr. Bilal Idrees is a registered manufacturer under the Sales Tax Act, 1990. Data regarding his business is given
below:
Rs.
1 Taxable supplies to registered person 500,000
2 Taxable supplies to non-registered person 180,000
3 Sales to retailers 50,000
4 Supplies donated to recognized institution 15,000
5 Taxable purchases from registered person 220,000
6 Taxable purchases from non-registered person 190,000
7 Purchased raw material (used on taxable and exempt supplies) 200,000
8 Withholding tax deducted on sales 10,000
9 Sales tax paid on PTCL dues 6,000
10 Sales tax paid on factory electricity bills 5,000
Note: Sales tax registration number is printed on utility bills.
Required: Calculate his sales tax liability for the month of September 2015.
Solution
Rs.
Output tax
On taxable supplies to registered person U/S 3 (Rs. 500,000 x 17%) 85,000
On taxable supplies to non-registered person U/S 3(Rs. 180,000 x
17%) (Note - 2) 30,600
Sales to retailers U/S 3 (Rs. 50,000 x 17%) 8,500
th
Supplies donated to recognized institution (Exempt under 6 Schedule) 0
124,100
Input tax
On taxable supplies (working attached) (A) 80,741
90% of output (Rs. 124,100 x 90%) (B) 111,690
Less: Admissible input tax: lower of (A) or (B) 80,741
43,359
Withholding tax on supplies 10,000
Balance sales tax payable 33,359
Working
Taxable purchases from registered person (Rs. 220,000 x 17%) 37,400
Taxable purchases from non-registered person (Note - 3) -
Purchased raw material (used taxable and exempt supplies) (Rs.
200,000 x 17%) 34,000
Sales tax paid on PTCL dues 6,000
Sales lax paid on factory electricity bill 5,000
Total input tax to be apportioned 82,400
(Note - 1) It is assumed that all the purchases are used for both taxable as well as exempt supplies
(Note 2) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons by virtue of SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid separately
without adjustment of the same against input tax / refund of the registered person and further it shall also not be considered
for the computation of 90% limitation on output tax.
(Note 3) As purchases from non-registered persons are without sales tax invoices hence the same shall be without sales
tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax in not applicable.
(Note 4) As it is case of a manufacturer and none of the clauses under SRO 647(I)/2007 dated June 27, 2007 is applicable
therefore 90% of output tax limitation on input is applicable U/S 8B of the Sales Tax Act, 1990.
Q.13 Mr. Muhammad Shan is a registered manufacturer under the Sales Tax Act, 1990. Data regarding his business for
the month of August 2015 is as follows.
Rs.
1 Taxable supplies to registered persons on credit basis 3,500,000
2 Taxable supplies to non-registered persons from exempted purchases (with Sales Tax) 250,000
3 Sales to retailers 150,000
4 Exempted supplies (Out of purchases from non-registered persons) 600,000
5 Supplies to DTRE registered person 400,000
6 Zero rated supply 900,000
7 Supplies made for personal use (including the amount of sales tax) 120,000
8 Taxable purchases from registered on credit basis 300,000
9 Purchases from unregistered persons 250,000
10 Imported goods 150,000
11 Acquisition of fixed assets purchased from non-registered persons 800,000
12 Sales tax paid on gas bill consumed in residential colonies 20,000
13 Sales tax paid on electricity bills 50,000
14 Sales tax paid on telephone bills 50,000
15 Sales tax credit 20,000
Required: Calculate sales tax payable.
Solution
Rs.
Output tax
On taxable turnover to registered persons (Rs.3,500,000 x 17%) 595,000
On taxable supplies to non-registered persons (Rs. 250,000 x 17 /
117) (Note - 2) 36,325
On supplies to retailers (Rs. 150,000 x 17%) 25,500
Supplies to DTRE registered persons (U/S 4 read with 5th Schedule) 0
On zero rated supplies (U/S 4 read with 5th Schedule) 0
On exempted supplies (U/S 13 read with 6th Schedule) 0
On supplies made for personal use (Rs.120,000 x 17 / 117) 17,436
674,261
Input tax
On local supplies (Working attached) 116,248
Previous months credit 20,000
(A) 136,248
90% of output (Note - 1) (B) 606,349
Less: Admissible input tax: lower of (A) or (B) 136,248
Sales tax payable 538,013
Working
Sale tax refundable in respect of zero rated supplies / DTRE supplies attached 39,114
Working
Taxable purchases from registered on credit basis (Rs. 300,000 x 17%) 51,000
Exempted purchases 0
Imported goods (Rs. 150,000 x 17%) 25,500
Acquisition of fixed assets purchased from non-registered persons (Note 3) 0
Sales tax paid on gas bill consumed in residential colonies (Note 4) 0
Sales tax paid on factory electricity bills 50,000
Sales tax paid on factory telephone bills 50,000
Total input tax to be apportioned 176,500
Chapter
07
SOLVED PAST PAPERS SALES TAX NUMERICALS OF
MOD-C (2003 TO 2015)
Note: All the following questions have been solved under the Sales Tax Act effective from July 1st 2015.
Q.NO.7 Spring 2015 Bashir is registered under the Sales Tax Act, 1990 and is engaged in the business
of export and supply of consumer goods. Following information has been extracted from his records for
the month of February 2015.
Rupees
Supplies
To registered persons 25,980,000
To unregistered persons 2,500,000
Exempt supplies 1,874,000
Export to USA 2,000,000
Purchases
Purchases from registered person 21,710,000
Import of a machine 2,500,000
payable/refundable and input tax credit to be carried forward, if any, for tax period February 2015.
Solution
Mr. Bashir
Computation of Sales tax payable / refundable
For the period of February 2016
Output Tax
Sales to registered person 4,433,600
Sales to unregistered person 425,000
Exempt Supplies -
Export 2,000,000 x 0% -
4,858,600
Input tax
Residual Input tax W-1 3,175,291
Not claimed input tax 55,900
Sales tax credit 410,000
3,641,191
or 90% of 4,858,600 4,372,740 3,641,191
1,217,409
Add: Further Sales Tax 50,000
Less: Input tax on fixed assets (374,268)
Sales tax payable with return 893,140
Q.NO.6 Autumn 2014 Ali Trading Company (ATC) is registered under the Sales Tax Act, 1990 and is engaged in the
business of manufacture and supply of consumer goods. Following information has been extracted from the
records of ATC for the month of August 2014.
Rupees
Supplies
Local supplies to wholesalers 14,500,000
Local supplies to distributors 10,254,980
Exports 18,650,000
Local supplies to registered retailers 980,000
Supply of exempted goods 5,500,000
Purchases
Local purchases from registered persons 50,982,000
Local purchases from un-registered persons 9,200,000
(vii) Proper debit and credit notes have been issued wherever necessary.
Sales tax is payable at the rate of 17%. All the above figures are exclusive of sales tax.
Required:
Under the provisions of the Sales Tax Act, 1990 compute sales tax payable/refundable and input tax
credit to be carried forward, if any, for August 2014.
Solution
Q. NO. 9 Spring 2014 Zaheer is registered under the Sales Tax Act, 1990. He is engaged in the manufacture and
supply of spare parts. Following information has been extracted from the records for the month of February 2014.
November 2013. However, the input tax on this invoice could not be claimed in the relevant period.
(ii) Taxable supplies amounting to Rs. 1.2 million were returned by different customers. Proper debit /
credit notes were raised in respect of such supplies.
(iii) Raw materials purchased from registered suppliers include an amount of Rs. 2.5 million against which
100% advance was paid in the month of January 2014. However, due to a dispute, sales tax invoice was
delayed and was received by the company after filing of return.
(iv) Sales tax credit of Rs. 1.2 million was brought forward from previous month.
Sales tax is payable at the rate of 17%. All the above figures are exclusive of sales tax.
Required:
Compute the sales tax payable by or refundable to Zaheer along with input tax to be carried forward, if any, in the
sales tax return for the month of February 2014.
Rs. Rs.
Output tax on:
(N - 1) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(N - 2) It has been assumed that 2% further tax is applicable on local taxable supplies to unregistered persons hence
further tax shall be accounted for and paid seperately without adjustment of the same against input tax / refund
of the registered person and further it shall also not be considered for the computation of 90% limitation on
output tax.
(Note - 3) A registeed person is not entitled to claim input tax attirbutable to exempt supplies under section 8(2) of the
Sales tax Act, 1990.
(Note - 4) A registred person is not entitled to deduct input tax from output tax for taxable supply without holding a sales
tax invoice under section 7(2)(i) of the Sales tax Act, 1990.
Where a registered person has not deducted input tax in the relevant tax period, he may claim such tax in the
return for any of the six subsequent tax periods under proviso of section 7(1) of the Sales Tax Act, 1990.
In view of the above no adjustment of 100% advance made against purchases in the preceeidng tax period has
been made in the current tax period.
Faizan is registered under the Sales Tax Act, 1990 and is engaged in the business of manufacture and supply of
engineering goods. Following information has been extracted from his records for the month of August 2013.
Discounts
Gross amount Net amount
allowed
-------------------- Rupees --------------------
Local supplies to registered persons
- Noori Limited 16,000,000 800,000 15,200,000
- Soori Limited 4,000,000 400,000 3,600,000
Local supplies to unregistered persons 4,200,000 210,000 3,990,000
Exports to Jordan 6,000,000 - 6,000,000
(ii) Faizan normally allows 5% discount to all its customers. However, as a special case, a discount of 10%
was allowed to Soori Limited. All the discount were shown on the invoice.
(ii) Supplies worth Rs. 617,500 (net of discount ) were returned by Noori Limited. Proper debit and credit
notes were issued in this regard.
(v) Records indicate that a pump and a motor were given to Fizan's friend, free of cost. The list price of the
pump and motor was Rs. 33,000.
(vi) Faizan is required to pay a penalty of Rs. 10,000 under the Sales Tax Act, 1990 on account of certain
defects in the maintenance of records.
(vii) Sales tax credit brought forward from previous month amounted to Rs. 850,280.
(viii) Sales tax is payable at the rate of 17% All the above figures are exclusive of sales tax.
Required:
Compute the sales tax payable by or refundable to Faizan along with input tax to be carried forward, if any, in the sales
tax return for the month of August 2013.
Solution
Mr Faizan
Sales Tax Liability
Tax Period: August 2015
Rupees
Output tax:
Sales tax
Rs. Rate of sales tax
Rs.
on local supplies to registered persons
- Noori Limited U/S 3 15,200,000 17% 2,584,000
- Soori Limited (value after 5% discount) U/S 3 3,800,000 17% 646,000
On local supplies to unregistered persons (N - 4) 3,990,000 17% 678,300
On exports to Jordan [U/S 4 read with 5th Schedule] 6,000,000 0% -
On goods given to Friend, free of cost U/S 3 33,000 17% 5,610
Less: sale return [U/S 9 read with Rule 22] 617,500 17% (104,975)
29,640,500 3,808,935
Input tax:
(N - 1) Input tax
Input tax on Local purchases from registered persons (Rs. 27,000,000 x 17%) 4,590,000
(N - 3) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(N - 4) It has been assumed that 2% further tax is applicable on local taxable supplies to unregistered persons hence
further tax shall be accounted for and paid seperately without adjustment of the same against input tax / refund
of the registered person and further it shall also not be considered for the computation of 90% limitation on
output tax.
Mr. Clever a manufacturer of household appliances, is registered under the Sales Tax Act, 1990. Following
information has been extracted from its records for the month of February 2013:
Supplies Rupees
Local supplies of manufactured good to registered persons 26,860,000
Local supplies of manufactured good to unregistered persons 3,550,000
Local supplies of zero-rated goods 1,250,000
Exports to Malaysia 15,000,000
Local purchases
Registered persons 40,550,000
Unregistered persons 5,000,000
(i) Supplies worth Rs. 1,300,000 were returned by different registered persons. Proper debit/ credit
notes were raised within the specified time.
(ii) Local purchase from registered person include and invoice Re. 60,000 which was issued in the name
of Mr. Clever's uncle.
(iii) A new machine amounting to Rs. 3,000,000 was imported from china and put into operation during
the same month.
(iv) Sales tax credit of Rs. 410,000 was brought forward from pervious month.
Sales tax is payable at the rate fo 16%. All the above amounts are exclusive of sales tax.
Required:
Compute the sales tax payable by /refundable to Mr. Clever along with input tax to be carried forward, if any, in the
sales tax return for the month of February 2013.
Solution
Sales tax
Output tax Rs. Rs.
Less sales returns [U/S 9 read with Rule 22] 1,300,000 (221,000)
4,948,700
Input tax
Input tax apportioned to local taxable supplies (Working given) 4,818,479
Add sales tax credit brought forward 410,000
Input to be carried forward [(A) without fixed assets admissible input - (B)]
[Rs.4,896,094 - Rs.4,453,830] 442,264
Sales tax refundable in respect of exports U/S 10(1) (Working attached) 2,574,821
(Note - 1) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990. The said limitation is not
applicable on input tax paid on acquistion of fixed assets.
(Note - 2) It has been assumed that 2% further tax u/s 3(1A) applicable on local taxable supplies to unregistered persons
under SRO 648(I)/2013 dated July 09, 2013 hence further tax shall be accounted for and paid seperately
without adjustment of the same against input tax / refund of the registered person and further it shall also not be
considered for the computation of 90% limitation on output tax.
(Note - 3) As purchases from non-registered persons are without sales tax invoices hence the same shall be without
sales tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax is not
applicable.
Zainab is registered under the Sales Tax Act, 1990 and is engaged in the manufacture and supply of Products A and B.
Following information has been extracted from her records for the month of August 2012:
Product A Product B
Rs. Rs.
Supplies
Local supplies 5,350,000 1,010,000
Export to Thailand 2,550,000 3,950,000
Purchases
Local materials from registered persons 6,000,000
Local materials from unregistered persons 850,000
Additional information
Required:
In the light of Sales Tax Act, 1990 and Rules made thereunder, calculate the following for the month of August 2012:
(a) Sales tax payable / refundable
(b) Input tax to be carried forward, if any
Solution
(a)
Sales tax
Rs. Rs.
Output tax
Local taxable supplies [U/S 3 (Rs. 1,110,000 x 17%] 188,700
Local exempt supplies [U/S 13 read with 6th Schedule] -
Exports (zero rated) [U/S 4 read with 5th Schedule] -
Total output tax 188,700
(b) Sales tax refundable on export sales U/S 10(1) (Note - 1) 507,311
* Input tax on purchases from registered persons i.e. [(6,000,000-150,000+100,000) x 17%] = 1,011,500
(Note - 2) As the zero rated supplies are more than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is not applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 3) A registeed person is not entitled to claim input tax attirbutable to exempt supplies under section 8(2) of the
Sales tax Act, 1990.
Mr. Agha is registered under the Sales Tax Act, 1990. He is engaged in the supply of household appliances and has
provided you the following information for the month of August 2011:
Goods worth Rs. 1,500,000 were returned by a registered person. Proper debit/credit notes have been issued in
this regard.
Goods purchased from unregistered persons were exclusively used for making taxable supplies. An amount of Rs.750,000
is payable to a registered person since February 01, 2011.
(iii) Sales tax credit of Rs. 610,000 has been brought forward from previous month.
(iv) All the above amounts are exclusive of sales tax.
(v) Agha is also required to pay a penalty of Rs. 10,000 under the Sales Tax Act, 1990 on account of certain defects in the
maintenance of records.
Required:
Compute the sales tax payable/(refundable) by/to Mr. Agha along with input tax to be carried forward, if any, in the sales tax
return for the month of August 2011.
Solution
Rs. Rs.
Output tax
Local taxable supplies to registered persons U/S 3 (Rs. 35,550,000 x 17%) 6,043,500
Taxable supplies to unregistered persons U/S 3 (Rs.1,700,250 x 17%) (Note - 2) 289,043
Exports to USA and Canada [U/S 4 read with 5th Schedule] -
Supplies of exempt goods [U/S 13 read with 6th Schedule] -
Sales tax in respect of goods returned [U/S 9 read with Rule 22] (255,000)
Total output tax 6,077,543
Input tax
Input tax apportioned to local taxable supplies (Note - 1) 5,008,202
Add sales tax credit b/f 610,000
Total input (A) 5,618,202
90% of output tax (B) 5,469,788
Less: Admissible input tax: lower of (A) or (B) 5,469,788
Sales tax payable 607,754
(Note - 2) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 3) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it shall
(Note - 4) As purchases from non-registered persons are without sales tax invoices hence the same shall be without
sales tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax is not
applicable.
(Note - 5) A registeed person is not entitled to claim input tax U/S 73 where the payment against invoices exceeding Rs.
50,000 has not been made within 180 days of the issuance of tax invoices unless condonaion of time limit
approval from the of Board has been obtained U/S 74 of the Sales Tax Act, 1990.
(Note - 6) A registeed person is not entitled to claim input tax attirbutable to exempt supplies under section 8(2) of the
Sales tax Act, 1990.
Maroof Engineering Limited (MEL) is registered under the Sales Tax Act, 1990. The company is engaged in the
manufacture & supply of spare parts. Following information has been extracted from the records of MEL for February 2011
month.
Rupees
Purchases:
Local Material:
from registered suppliers 15,000,000
from un-registered suppliers 8,000,000
Supplies:
Manufactured goods:
local taxable supplies to registered persons 10,000,000
local taxable supplies to un-registered persons 3,000,000
export to Taiwan 10,000,000
exempt goods 2,000,000
(ii) Material purchased from un-registered suppliers was exclusively used for making taxable supplies.
(iii) Goods worth Rs. 500,000 were returned by different customers. Proper debit/credit notes were raised within the
specified period.
(iv) A new machinery of Rs 2.4 million was purchased and put to use during the same month.
(v) Rs. 20,000 was paid to a courier company for delivering gifts to MELs high value customers.
(vi) MELs purchases from registered suppliers include material worth Rs. 2 million against which an advance was paid in
the month of January 2011. However, due to a dispute, sales tax invoice was delayed and was received by the company
after filing of return.
(vii) Parts worth Rs. 15,000 were delivered to the CEO for his personal use, free of cost.
(viii) Sales tax credit of Rs. 50,000 was brought forward from previous month.
Required:
(a) Compute the sales tax payable/refundable.
(b) Input tax credit to be carried forward, if any.
Solution
Rs. in 000 Rs. in 000
Taxable Value Sales Tax
Sales Tax Credit (Input Tax)
Local purchases:
From registered persons (Rs. 15.0 m Rs. 3.0 m) 12,000 2,040
On local supplies [Rs. 1,324 - Rs. 212 (408/ 25,015 x 13,015)] (A) 1,112
90% of output tax (Rs. 2,128 x 90%)= (B) 1,915
(Note - 2) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990. The said limitation is not
applicable on input tax paid on acquistion of fixed assets.
(Note - 3) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it shall
also not be considered for the computation of 90% limitation on output tax.
(Note - 4) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
(Note - 5) As purchases from non-registered persons are without sales tax invoices hence the same shall be without
sales tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax is not
applicable.
Abdul Ghaffar is registered as a manufacturer, under the Sales Tax Act, 1990. He carried out the following activities during
the month of August 2010:
Rs. in 000
Supplies
Manufactured goods
Local - taxable goods 22,000
Local - exempt goods 3,000
Exports 5,000
Commercial goods 14,000
Purchases
Local purchases of raw material 8,000
Import of raw material 17,000
Commercial import of finished goods 10,000
(ii) Commercial imports are stated at C and F value and are subject to customs duty at the rate of 15%.
(iii) In July 2010, an amount of Rs. 365,000 was carried forward as sales tax credit.
(iv) Sales tax is payable @ 16% except commercial imports which are charged @ 19%.
Solution
Rs. in '000' Rs. in '000' Rs. in '000'
SALES TAX CREDIT (INPUT TAX) Taxable value Sales tax Sales tax
(Note - 2) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 2) As commercial imports subject to 3% additional tax are less than 50% of all taxable puchases under SRO
647(I)/2007 dated June 27, 2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 3) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
Mr. Kaleem is registered under the Sales Tax Act, 1990 as a manufacturer as well as a commercial importer. He has
provided you the following information for the month of February 2010:
Rs. in million
Export sales manufactured goods 30
Local sales of exempt manufactured goods 20
Taxable supplies manufactured goods 120
Taxable supplies commercial imports 60
Purchases
Local purchases of raw material from:
All the above amounts are exclusive of sales tax. Commercial imports have been stated at C and F value and are subject to
customs duty at the rate of 10%. There was no stock of commercial imports at the beginning or end of the month.
Required: Compute the sales tax liability of Mr. Kaleem along with input tax to be carried forward (if any) in his sales tax
return for the month of February 2010. (Ignore the feect of minimum value addition in case of commercial imports).
Solution
Rs. Rs.
Sales tax liability:
Output tax local manufactured taxable supplies U/S 3 (Rs. 120,000,000 x 17%) 20,400,000
Output tax local supplies out of commercial imports U/S 3 (Rs. 60,000,000 x 17%) 10,200,000
30,600,000
Input tax on commercial imports (44,000,000 x 17% without value addition) 7,480,000
Input tax against local taxable supplies (Note - 1) 19,200,000
(A) 26,680,000
90% of output tax (Rs. 30,600,000 x 90%) (B) 27,540,000
Less admissible input tax: lower of (A) or (B) 26,680,000
Input tax:
Input tax on purchases from registered persons (Rs. 160,000,000 x 17%) 27,200,000
27,200,000
(Note - 2) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 3) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
Mr. Asif is registered under the Sales Tax Act, 1990. Following information for August 2009 month has been extracted from
his business records:
Required: Compute the sales tax payable and/or to be carried forward by Mr. Asif in the return for the month of August
2009.
Solution
Input tax:
Input tax on purchases from registered persons (8,000,000 x 17%) 1,360,000
1,360,000
(Note - 1) Apportionment of residual input tax
[U/R 25 of the Sales tax Rules, 2006] Supplies Residual input
tax
Rs. Rs.
Taxable local supplies 8,000,000 518,095
Exports 11,000,000 712,381
(Note - 2) As the zero rated supplies are more than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is not applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 3) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it shall
also not be considered for the computation of 90% limitation on output tax.
(Note - 4) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
Value
excluding Sales Tax @ Value including
Sales Tax 16% Sales Tax
Rupees Rupees Rupees
Sales
- Taxable 6,000,000 960,000 6,960,000
- Exempt 4,000,000 0 4,000,000
10,000,000 960,000 10,960,000
Purchases
- Raw materials 9,200,000 1,472,000 10,672,000
- Fixed assets 1,700,000 272,000 1,972,000
10,900,000 1,744,000 12,644,000
Required: Work out sales tax liability of Mr. Azad along with input tax to be carried forward (if any) in his sales
tax return.
Solution
Input tax:
Input tax on raw material 1,564,000
1,564,000
(Note - 2) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
(Note - 3) As the none of the clause of SRO 647(I)/2007 dated June 27, 2007 is applicable, therefore 90% limitation is
applicable U/S 8B of the Sales Tax Act, 1990.
Mr. Adam is a registered person and engaged in the supply of various types of appliances for last many years. He has
provided you the following information for the month of February 2007:
i. Supplies made during the month amount to Rs. 95 million. Details of supplies made are as follows:
Rs. in million
Exports 50
Exempt supplies 10
Supplies to registered person 30
Supplies to unregistered person 5
ii. During the month, he has made an adjustment of Rs. 500,000 through credit note in a registered
persons balance.
iv. All goods purchased from unregistered persons are exclusively used for making taxable supplies.
v. An amount of Rs. 3,000,000 is payable to a registered person since December 20, 2006. The input tax on the
purchase as accounted for in the relevant tax period.
Arrears 500,000
Surcharge 70,000
Penalty 30,000
Compute Mr. Adams sales tax liability.
Solution
Arrears 500,000
Surcharge 70,000
Penalty 30,000
Payable 600,000
Sales tax payable 3,646,579
Input tax:
Input tax (45,000,000 x 17%) 7,650,000
7,650,000
(Note - 2) As the zero rated supplies are more than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is not applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 3) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it shall
also not be considered for the computation of 90% limitation on output tax.
(Note - 4) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
Following information is extracted from the records of M/s Rainbow Enterprises (Private) Limited. The information pertains
to the month of July 2005:
Rupees
Supplies to registered person 5,000,000
Supplies to unregistered person 1,500,000
Export Supplies 3,000,000
Purchase from registered suppliers 4,000,000
Purchase from unregistered suppliers 1,000,000
Sales of exempt goods 1,000,000
Examination of creditors ledger reveals that an amount of Rs.100,000 is still outstanding on account of the purchase made
from a registered supplier on January 12, 2005. The input tax on the said purchase was accounted for in the relevant tax
period.
Goods purchased from unregistered suppliers are exclusively used for making taxable supplies.
Solution
Input tax:
Input tax on purchases from registered persons (4,000,000 x 17%) 680,000
Less: Sales tax on purchase outstanding for more than 180 days (100,000 x 17%) 17,000
663,000
(Note - 2) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
(Note - 3) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it shall
also not be considered for the computation of 90% limitation on output tax.
(Note - 4) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
Following is the pertinent data relating to sales tax return of the company:
Output tax
(a) You are required to compute the sales tax payable alongwith the monthly sales tax return for the tax period July 2003,
August 2003 and September 2003 with brief explanatory notes, where relevant.
(b) With reference to data in (a) above, assuming that on October 20, 2003 it was found that input tax claim relating to tax
period July 2003 amounting to Rs. 50,000 was inadvertently not claimed in the sales tax return filed for that period. On
November 10, 2003, it was also found out that there was another input tax claim relating to tax period September 2003
amounting to Rs.25,000 which was not claimed in the monthly return filed for that period.
You are required to advise as to whether such unclaimed amounts could be claimed under the Sales Tax Act, 1990. If your
answer is in affirmative, then briefly explain the procedure for claiming such amounts.
(c) With reference to data (a) above, & disregarding the errors given in (b) above], assuming that in the month of November
2003, it was found that output tax of Rs. 1,300,750 shown in the monthly return for tax period October 2003 was infact Rs.
1,350,750 i.e. short declared by Rs. 50,000.
You are required to briefly explain the remedy, if any, available in the STA, 1990 to account for this error.
Solution
The question has been solved by assuming that the rate of output tax given in the question is 17% instead of 15%.
90% of output tax (90% x A above) (Note - 3) (C) 1,237,500 1,058,175 1,089,000
Less admissible input tax: lower of (B) or (C) 1,237,500 1,058,175 1,050,000
Balance sales tax payable 137,500 117,575 160,000
Input tax carried forward 284,325 391,825 -
Effect of further tax under section 3(IA) has not been taken into account as the same can not be adjusted against output tax
and further the additional sales to unregistered persons tax has been reduced from 3% to 1% with effect from tax year
2014.
(Note - 3) As the none of the clause of SRO 647(I)/2007 dated June 27, 2007 is applicable, therefore 90% limitation is
applicable U/S 8B of the Sales Tax Act, 1990.
(b)
Under section 7(1) it is provided that where a registered person did not deduct input tax within the relevant period, he may
claim such tax in the return for any of the six succeeding tax periods therefore both the input may be claimed in the monthly
sales tax returns for the tax period October.
(c)
Under section 11A of the Sales Tax Act, 1990. where a registered person pays the amount of tax less than the tax due as
indicated in his return, the short paid amount of tax alongwith default surcharge shall be recovered from such person and no
penalty under section 33 shall be imposed unless a show cause notice is given to such person.
Star Enterprises has submitted the following data for the month of March 2003
Rupees
Total Sales-registered 1,000,000
Total Sales-Unregistered 5,000,000
Export Sales 2,500,000
Exempt Supplies 500,000
Gross Purchases-from Registered suppliers 6,500,000
Gross Purchases-from Unregistered suppliers 500,000
Purchase Return-to Registered suppliers 650,000
Required: You are required to compute sales tax liability of Star Enterprises for the month of March 2003.
Solution
Input tax:
On taxable supplies (Rs. 6,500,000 x 17%) 1,105,000
Less: Sales tax on purchase returns [U/S 9 read with Rule 22] (Rs. 650,000 x 17%) 110,500
994,500
(Note - 2) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(Note - 3) A registeed person is not entitled to claim input tax attirbutable to exempt supplies U/S 8(2) of the Sales Tax
Act, 1990.
(Note - 4) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
Chapter
2. If any arrears of tax, default surcharge, penalty or any other amount which is adjudged or payable by any person and
becomes irrecoverable, the Board or any authorized officer, may write of the arrears in the manner prescribed by the
Board.
3. The officer Inland Revenue shall have the same powers for the recovery of tax, penalty or any other demand raised
under this Act a Civil Court has for the purpose of recovery of an amount due under a decree.
RECOVERY RULES
Application (Rule 70) These provisions shall apply to recoveries made u/s 48 recovery of arrears of the Act.
Initiation of recovery action (Rule 71)
1. On expiry of 30 days from the date on which the Govt. dues are adjudged, the referring authority shall deduct the
amount from any money owing to the person from whom such amount is recoverable and which may be at the
disposal or in the control of such officer.
2. In case the government dues are not fully recovered, the referring authority may;
(a) Serve a notice to the sales Tax, custom, federal excise and income tax officers in the form as set out in STR-
16 to deduct the government dues from any money owing to the defaulter which may be under their control
and a copy of such notice shall be endorsed to the defaulter.
(b) Require by a notice in writing, any person or organization who holds or may subsequently hold, any money for
or on account of the defaulter, to pay to such officer the amount specified in the notice.
(c) Require, by notice in writing, the custom officers to stop the clearance of any goods imported by defaulter; and
(d) Attach the bank account of defaulter
Further if the concerned person request then the collector may recover the dues in such installments as he may deem
proper either before or after the initiation of recovery proceedings.
Further in case a registered person pays tax less than the due tax, the referring authority may directly proceed to recover the
remaining tax. He may, after serving a notice for the payment in 3 days, do so by the attachment of the bank accounts of
defaulter or through stoppage of clearance from the business premises.
Stoppage of clearance and selling of business premises (Rule 72)
In case the government dues are not recovered the referring authority shall serve upon defaulter a notice to inform him that if
he shall not pay his dues in full then he shall be disallowed to remove the goods from his business premises with effect from
the date specified in notice.
Further if the govt. dues still remain unpaid, the referring authority shall seal the business premises of the defaulter till such
time the dues are paid or recovered in full.
If the referring authority is satisfied that the defaulter is likely to conceal, remove or dispose off the whole or any part of such
of his movable or immovable property, as shall be liable to attachment in the process of recovery and that the realization of
government dues in consequence be delayed or obstructed, he may at any time after the issue of the notice direct for
reasons to be recorded in writing, execution of the notice by ignoring the specified time limit.
The referring authority may, if he deems fit, publish such notice in one or more newspapers circulated in district of normal
residence of defaulter.
Demand notice (Rule 73)
If the referring authority fails to recover the dues then he shall issue a demand note to the recovery officer and shall specify
therein the details of Government dues. He shall certify that the formalities have been completed and there exist no bar or
stay order against the proposed recovery.
Attachment and sale of property (Rule 74)
The Recovery Officer, on the receipt of demand note, shall serve upon the defaulter a notice. His movable or immovable
property shall stand attached and subsequently shall be sold if the recovery is not otherwise affected.
Master registers to be maintained by the referring authority and the recovery Officer (Rule 75)
The referring authority and Recovery Officer shall maintain master register in which they shall enter every notice, order and
demand note serially. They shall also authenticate all entries by affixing their signature and seal thereon.
They shall exchange their information for completion of corresponding entries in the master registers of both offices in the
form of a monthly return which shall after filling the respective columns by the concerned office.
REFUND
Application (Rule 26)
This shall apply to all refund claims filed by--
a) registered manufacturer-cum-exporters and commercial exporters whose all or part of supplies are zero rated.
b) registered persons whose goods to be supplied are chargeable to sales tax at the rate of zero percent, claim input tax.
c) registered persons claiming refund of the excess amount of input tax.
d) registered persons whose claim input tax on supplies used in the export of goods and
e) local supply of which is exempt.
f) persons claiming refund within one year (section 66) and diplomats, diplomatic missions and privileged persons and
organizations who purchase goods or services on payment of tax and are otherwise entitled to receive zero-rated
supply.
Expeditious processing and payment of refunds (Rule 26A)
The refund claims as provided in this rule shall be processed and paid in the manner as provided and all other claims shall
be processed and paid in the manner as prescribed after rule 26A.
Refunds under this rule shall be allowed to the registered manufacturers-cum-exporters of Regional Tax Office, Lahore from
tax period April, 2010. From tax period July, 2010 all registered manufacturer-cum-exporters of other Regional Tax Offices /
Large Taxpayer Units will be allowed refund under this rule.
Refunds shall be allowed to the Active Taxpayers, at the time of processing by the IT System of Board, as per Active
Taxpayers List displayed at Board's website.
Registered persons claiming refund will electronically submit refund claim in requisite data in RCPS format through Board
web portal by using the user-id, password and pin code allotted to them at the time of e-Enrolment.
The registered person claiming refund shall maintain and keep all the paper documents relating to the refund claim, such as
invoices, credit notes, debit notes, goods declarations, bank credit advice, etc. in his office instead of submitting to the
concerned Regional Tax Office or Large Taxpayers' Unit.
Risk Management System (RMS) of Board IT System shall process the refund claims within two working days of electronic
submission of refund claim in the RCPS format and take further action as follows:
a) In case the refund claim is cleared fully or partially, electronic advice will be issued to the concerned Regional Tax
Office/Large Taxpayer Unit and the registered person about the refund amount cleared by the Risk Management
System (RMS) for payment; and
b) In case the refund claim is not cleared by Risk Management System (RMS), an electronic intimation will be issued to the
registered person in this regard and his case will be processed in the prescribed manner (7) Concerned Regional Tax
Office/Large Taxpayer Unit will arrange issuance of cheque for the amount cleared by Risk Management System (RMS)
within 7 working days of the receipt of electronic advice.
The electronic copy of refund claim will be forwarded for post refund audit after the issuance of cheque for the amount
cleared by RMS.
Establishment of Refund Division and posting of officers (Rule 27)
There shall be established a CSTRO under the Board for centralized payment of refund amount to such claimants and from
such date as the Board may specify.
There shall be established a Refund Division in each Collectorate of Sales Tax to receive, process and settle the refund
claims filed under these rules.
There shall be posted an officer not below the rank of an Assistant Collector of Sales Tax, as nominated by the Collector to
be the officer-in-charge of the Refund Division.
There shall be established a Post Refund Division in each Collectorate of Sales Tax headed by an officer not below the rank
of an Assistant Collector of Sales Tax to audit the refund claims processed and sanctioned by the Refund Division.
Filing of refund claim (Rule 28)
When the claimant shall file the monthly sales tax return with all supportive document including requisite data in the format
or software (RCPS), shall be treated as refund claim has been received.
Provided that no refund claim shall be entertained if the claimant fails to furnish the claim on the prescribed software (RCPS)
along-with the supportive documents within 120 days of the filing of return:
Provided further that the period of one hundred and twenty days as aforesaid, in case of a commercial exporter, shall be
reckoned from the date when the BCA is issued to him by the concerned Bank.
Provided also that if a claimant is exporting goods manufactured by him as well as the goods purchased in the same state,
in the same tax period, the period of 120 days shall be reckoned from date of filing of return or the date of issuance of BCA,
whichever is later.
The manufacturer-cum-exporters, who are registered as limited companies, having annual turnover more than 100 million
rupees and whose refund claim on inputs consumed in zero-rated supplies excluding building material and utilities is less
than 1% of the value of exports and local zero-rated sales, shall have the option to file refund claim electronically provided
their suppliers are also filing return along with details of sale and purchases electronically.
If the supportive documents are not submitted to the officer-in-charge within the specified time, the Collector of Sales Tax
having jurisdiction may extend the time limit for a further 60 days on a written request from the claimant justifying the
reasons for delay in submission of such documents or data on RCPS.
The Board may, through a General Order or otherwise, prescribe the date, manner and procedure for electronic filing of
sales tax refund claims by the registered persons filing their monthly returns electronically.
Scrutiny and processing of refund claim (Rule 29)
On submission of a refund claim, the Refund Receipt Section shall confirm that the claim is complete in all respects, after
which it shall be loaded in the system for assigning the claim a unique identification number.
After assigning the unique identification number, the CREST shall cross match the data on soft copy with the data available
in the system and process the claim by applying the risk parameters and generate analysis report indicating the admissible
amount as well as the amount not validated on the basis of automated risk criterion along-with the objections raised by the
system.
The processing officer shall forward the claim file along-with the analysis report to the officer-in-charge for further necessary
action.
Where the Processing Officer or the officer-in-charge is of the opinion that any further inquiry or audit is required in respect
of amount not cleared by the CREST or for any other reason to establish genuineness and admissibility of the claim, he may
make or cause to be made such inquiry or audit as deemed appropriate, after seeking approval from the concerned
Additional Collector and inform the refund claimant accordingly.
Sanction and payment of refund claim (Rule 30)
On receipt of analysis Report and refund payment order for the amount verified by CREST and found admissible by the
processing officer, the officer in-charge shall sanction the amount so determined and issue the Refund Payment Order
(RPO).
The officer-in-charge shall transmit the Refund Payment Order electronically and in respect of claim filed manually, forward
the original copy thereof to the treasury officer of the Collectorate. The treasury officer shall make payment of refund through
a cross cheque in favour of the refund claimant, indicating his declared account number and Bank name. The crossed
cheque shall also be counter signed by an authorized co-signatory.
The Additional Collector shall reconcile the refund cheques issued by the treasury officer of the Collectorate during a month
with the Bank scrolls received from State Bank of Pakistan and record the outcome of such reconciliation in the system.
Where any cheque is returned back by the State Bank of Pakistan due to any reason, the treasury officer shall cancel such
cheque, if required and attach such cancelled cheque with the respective counter foil of the cheque book.
From such date to be notified by the Board, the officer-in-charge shall electronically transmit the RPO to the treasury officer
in the CSTRO under his digital signatures and retain a copy thereof in the Refund Division for record.
The treasury officer in CSTRO and the co-signatory designated by the Board in this regard shall issue the cheque for the
sanctioned amount as mentioned in the RPO.
The CSTRO shall also prepare a statement of payment advice for the concerned Bank on a daily basis, for direct transfer of
the refund amount to the declared Bank account of the claimant, under intimation to the CSTRO, the concerned Collectorate
of Sales Tax as well as the claimant.
Scrutiny and processing of refund claims filed by manufacturers of specified goods (Rule 31)
Refund of sales tax paid inputs, local supply of manufacturing of goods which has been zero-rated, shall be processed and
sanctioned through the Fast Track Channel within 15 days from the date of filing of refund claim.
The refund of sales tax paid on utilities and the goods imported directly by the claimant and the input tax incurred on
acquiring furnace oil from Oil and Gas Marketing Companies for power generation and consumption thereof in the
manufacture of zero-rated goods, shall be sanctioned upon validation by the automated system. Refund of input tax paid in
respect of other inputs, if validated by the CREST, shall also be sanctioned in the same manner.
Refund of tax paid verifiable inputs used in the export of goods, local supply of which is exempt under the Act or any
notification, shall be paid.
Scrutiny and processing of refund claims relating to commercial exporters (Rule 32)
When the commercial exporters made exports and claimed refund of sales tax paid input then refund shall be sanctioned
only after verification of supportive documents and approval through CREST.
Extent of payment of refund claim (Rule 33)
When the claimants claim refund under these rules then refund shall be sanctioned only to the extent of input tax paid on
actual purchases or imports used in manufacturing of goods to be exported or supplied at the rate of 0%.
Refund of excess input tax not relating to zero-rated supplies (Rule 34)
(1) The refund of excess unadjusted input tax relating to supplies other than zero-rated shall be claimed and sanctioned
in the cases mentioned below, namely:-
(a) the manufacturers of fertilizers, electric power producers and electric power distribution companies may claim
refund of excess input tax over output tax in any tax period;
(b) registered persons in plastic, paper and steel sectors whose inputs are subject to sales tax at 20% or 17.5%
ad valorem and their final product is subject to tax at 15% ad valorem may claim refund of excess input tax if
the same is not adjusted within a minimum consecutive period of three months;
(c) registered persons who are not able to adjust input tax in excess of 90% of output tax in view of restriction in
section 8B of the Act, may file refund claim as under,-
(i) in case of registered persons whose accounts are subject to audit under the Companies Ordinance,
1984, after the end of their accounting year; and
(ii) in case of other registered persons, after the end of financial year;
(d) all other registered persons, not covered by clauses (a) to (c) above, may claim refund of excess input tax, if
the same is not adjusted within a minimum consecutive period of twelve months:
Provided that the amount of refund claim in all such cases shall not exceed the excess of total input tax over the total
output tax, as declared in the relevant returns, for the period in respect of which the claim has been filed and shall not
include any excess input tax declared prior to the said period.
(2) The registered person shall file application for refund claim along with data prepared through RCPS, providing the
following information, namely:--
(i) name and registration number of the claimant;
(ii) period of claim;
(iii) amount of claim; and
(iv) a statement along with annual audited accounts as envisaged in clause (i) of subsection (2) of section 8B of
the Act, if applicable:
Provided that the application for claim shall be filed within the period specified in rule 28 after the filing of return for
the last month in the period of claim.
(3) The refund of excess input tax under this chapter shall be filed, processed and sanctioned in the manner as provided
in rules 29 and 30.
(4) The refund of excess input tax excluding the cases of claims by registered persons, whose accounts are subject to
audit under the Companies Ordinance, 1984 as referred to in section 8B(2) of the Act, shall be sanctioned as found
admissible after a departmental audit of records maintained by the registered person and after a certificate is
recorded by the sales tax officers auditing the records that actual value addition during the period involved was not
found sufficient to require a net payment of tax for the reasons mentioned in the audit report:
Provided that in case of refund claim post-refund audit shall be conducted after the close of financial year and the
auditors shall report on the aspect of value addition in their audit report.
(5) The refund claimant shall ensure that the input tax involved in the refund claim is not shown as outstanding credit in
the returns for the tax periods subsequent to the period of claim.
(6) The refund of excess input tax under this rule shall not be claimed where the same has already been claimed or paid
under any other notification issued by the Federal Government or the Board.
Responsibility of the claimant (Rule 35)
The claimant shall provide supportive document and data on prescribed electronic format and then apply for the automated
processing of refund claims. He shall be responsible for any mis-declaration or submission of incorrect information and shall
be liable for penal action besides recovery of the amount erroneously refunded along with default surcharge.
Q.8. All notices or orders, unless otherwise specifically provided, shall be served___________;
(a) By tendering or sending by registered post or courier services, to the person or his agent at his last known
address;
(b) By affixing it on the notice board in the office of recovery officer where it cannot be served in the manner as
provided in clause (a).
(c) through email
(d) both a and c
Q.9. Any question arising between the referring authority and the defaulter or there is representative, shall be determined
by ___________, before whom such question arises.
(a) Commissioner Inland Revenue
(b) Appellate Tribunal Inland Revenue
(c) Recovery officer
Q.10. The Recovery Officer shall reject the objection summarily if he believes that the objection is ___.
(a) causing hardship to taxpayer
(b) raised to delay the proceedings
(c) raised by his subordinate authority
(d) none of above
Q.11. When the government dues are paid to the recovery officer or the demand notice is cancelled, the attachment shall
be deemed to be ___.
(a) withdrawn
(b) effective
(c) valid
(d) none of above
Q.12. When the claimant shall file the monthly sales tax return with all supportive document including requisite data in the
format or software (______), shall be treated as refund claim has been received.
(a) RCS
(b) RCCS
(c) RCPS
(d) Board
Q.13. Provided that no refund claim shall be entertained if the claimant fails to furnish the claim on the prescribed software
along-with the supportive documents within ___ days of the filing of return:
(a) 120
(b) 60
(c) 100
(d) 80
Q.14. The period of 120 days shall be reckoned from date of filing of return or the date of issuance of ___ whichever is later.
(a) RCPS
(b) BCA
(c) Demand notice
(d) none of above
Q.15. If a claimant is exporting goods manufactured by him as well as the goods purchased in the same state, in the same
tax period, the period of 120 days shall be reckoned from date of filing of return or the date of issuance of BCA,
_____.
(a) which-ever is earlier
(b) whichever is later
(c) none of above
Q.16. The manufacturer-cum-exporters, who are registered as limited companies, having annual turnover more than ___
million rupees and whose refund claim on inputs consumed in zero-rated supplies excluding building material and
utilities is less than 1% of the value of exports and local zero-rated sales, shall have the option to file refund claim
electronically provided their suppliers are also filing return along with details of sale and purchases electronically.
(a) 500
(b) 200
(c) 100
(d) 10
Q.17. If the supportive documents are not submitted to the officer-in-charge within the specified time, the Collector of Sales
Tax having jurisdiction may extend the time limit for a further ___ days on a written request from the claimant
justifying the reasons for delay in submission of such documents or data on RCPS.
(a) 60
(b) 70
(c) 80
(d) 90
Q.18. Refund of sales tax paid inputs, local supply of manufacturing of goods which has been zero-rated, shall be
processed and sanctioned through the Fast Track Channel within ___ days from the date of filing of refund claim.
(a) 20
(b) 30
(c) 15
(d) 10
Q.19. When the commercial exporters made exports and claimed refund of sales tax paid input then refund shall be
sanctioned only after verification of supportive documents and approval through ____.
(a) Refund payment order
(b) Federal Board of Revenue
(c) RCPS
(d) CREST
Q.20. When the claimants claim refund under these rules then refund shall be sanctioned only to the extent of input tax paid
on actual purchases or imports used in manufacturing of goods to be exported or supplied at the rate of ___ %.
(a) 16
(b) 0
(c) 21
(d) 1
ANSWERS
Chapter
2. Any person who fails to issue an invoice Such person shall pay a penalty of Rs.5,000 23
when required under this Act. or 3% of the amount of the tax involved,
whichever is higher.
3. Any person who un-authorizedly issues Such person shall pay a penalty of 3, 7 and 23
an invoice in which an amount of tax is Rs.10,000 or 5% of the amount of the tax
specified. involved, whichever is higher.
4. Any person who fails to notify the Such person shall pay a penalty of 14
changes of material nature in the Rs.5,000.
particulars of registration of taxable
activity.
5. Any person who fails to deposit the Such person shall pay a penalty of 3, 6, 7 and 48
amount of tax due or any part thereof in Rs.10,000 or 5% of the amount of the tax
the time or manner laid down under this involved, whichever is higher:
Act or rules or order made thereunder.
6. Any person who repeats erroneous Such person shall pay a penalty of Rs.5,000 7 and 26
calculation in the return during a year or 3% of the amount of the tax involved,
whereby amount of tax less than the actual whichever is higher.
tax due is paid.
7. Any person who is required to apply for Such person shall pay a penalty of 14
registration under this Act fails to make an Rs.10,000 or 5% of the amount of tax
application for registration before making involved, whichever is higher:
taxable supplies.
8. Any person who fails to maintain records Such person shall pay a penalty of 22 and 24
required under this Act or the rules made Rs.10,000 or 5% of the amount of tax
there under. involved, whichever is higher:
(b) fails to produce the record on receipt of such person shall pay a penalty of
second notice; and Rs.10,000; and
(c) fails to produce the record on receipt of such person shall pay a penalty of
third notice. Rs.50,000.
10. Any person who fails to furnish the such person shall pay a penalty of 26
information required by the Board through Rs.10,000; and
a notification issued under sub-section (5)
of section 26.
(a) submits a false or forged document to Such person shall pay a penalty of 2(37) and general
any officer of Inland Revenue; or Rs.25,000 or 100% of the amount of the tax
involved, whichever is higher. He shall,
further be liable, upon conviction by a
Special Judge, to imprisonment for a term
which may extend to 1 year, or with fine
which may extend to an amount equal to the
amount of tax involved, or with both.
12. Any person who denies or obstructs Such person shall pay a penalty of 25, 38 , 38A and 40B
the access of an authorized officer to the Rs.25,000 or an 100% of the amount of tax
business premises, registered office or to involved, whichever is higher. He shall,
any other place where record are kept, or further be liable upon conviction by a
otherwise refuses access to the stocks, Special Judge, to imprisonment for a term
records or fails to present the same when which may extend to 5 years, or with fine
required under section 25, 38 ,38A or 40B. which may extend to an amount equal to the
loss of tax involved, or with both.
13. Any person who commits, causes to Such person shall pay a penalty of 2(37)
commit or attempts to commit the tax Rs.25,000 or 100% of the amount of tax
fraud, or abets or connives in involved, whichever is higher. He shall,
commissioning of tax fraud. further be liable, upon conviction by a
Special Judge, to imprisonment for a term
which may extend to 5 years, or with fine
which may extend to an amount equal to the
loss of tax involved, or with both.
14. Where any person violates any Such person shall pay a penalty of 48
embargo placed on removal of goods in Rs.25,000 or 10% of the amount of the tax
connection with recovery of tax. involved, whichever is higher. He shall,
further be liable, upon conviction by a
Special Judge, to imprisonment for a term
which may extend to 1 year, or with fine
which may extend to amount equal to the
amount of tax involved, or with both.
15. Any person who obstructs the Such person shall pay a penalty of 31 and general
authorized officer in the performance of his Rs.25,000 or one hundred per cent of the
official duties. amount of the tax involved, whichever is
higher.
16. Any person who fails to make payment Such person shall pay a penalty of Rs.5,000 73
in the manner prescribed under section 37 or 3% of the amount of tax involved,
of this Act. whichever is higher.
17. Any person who fails to fulfill any of the Such person shall pay a penalty of Rs.5,000 71 and general
conditions, limitation or restrictions or 3% of the amount of the tax involved,
prescribed in a Notification issued under whichever is higher.
any of the provisions of this Act.
18. Where any officer of Inland Revenue Such officer of Inland Revenue shall be General
authorized to act under this Act, acts or liable, upon conviction by a special Judge,
omits or attempts to act or omit in a to imprisonment for a term which may
manner causing loss to the Inland extend to 3 years, or with fine which may
Revenue or otherwise abets or connives in extend to amount equal to the amount of tax
any such act. involved, or with both.
19. Any person who contravenes any of Such person shall pay a penalty of Rs.5,000 General
the provisions of this Act for which no or 3% of the amount of the tax involved,
penalty has, specifically, been provided in whichever is higher.
this section.
21. Where any person repeats an offence Such person shall pay twice the amount of General
for which a penalty has, specially, been penalty provided under the Act for the said
provided in this Act. offence.
(a) knowingly and without lawful authority Such person shall pay a penalty of 50A
gains access to or attempts to gain access RS.25,000 or 100% of the amount of tax
to the computerized system; or involved, whichever is higher. He shall,
further be liable, upon conviction by the
Special Judge, to imprisonment for a term
which may extend to 1 year, or with fine
which may extend to an amount equal to the
loss of tax involved, or with both.
(a) In the case of inadmissible input tax credit or refund, the period of default surcharge shall be started from
the date of adjustment of inadmissible input tax credit or refund is received.
(b) In the case of non-payment of tax or part thereof, the period of default surcharge shall be started from
the 16th day of month (following the due date of the tax period to which the default relates) to the day
preceding the date on which tax due is actually paid.
Exemption from penalty and default surcharge (U/s 34A)
The Federal Government (by notification) or the board (by order), published in Gazette in writing, may exempt any person
or class of person from payment of whole or part of penalty or default surcharge on conditions and limitation as
specified therein.
Power to summon persons to give evidence and produce documents in inquiries under this Act (u/s 37)
1. Any Officer of Inland Revenue shall have powers to summon any person whose attendance or any other thing he
considers necessary to produce evidence or document in any inquiry.
2. Any person summoned, shall be bound to attend either in person or by an authorized agent as directed by Officer
of Inland Revenue.
3. Provide that person who is exempt from personal appearance in a court u/s 132 and 133 of the Code of Civil
Procedure, shall not be required to appear in person.
4. Any inquiry before an Officer Inland Revenue shall be deemed to be a judicial proceeding within the meaning of sec.
193 and 228 of the Pakistan Penal Code Act, 1860.
Power to arrest and prosecute (U/s 37A)
1. An Officer Inland Revenue (at least an Assistant Commissioner) or any other officer of equal rank authorized by
the Board, who believes that any person has committed a tax fraud or any offence warranting prosecution on the
basis of material evidence, may cause arrest of such person.
2. All arrests made under this Act shall be carried out in accordance of Code of Criminal Procedure, 1898
3. Where any person has committed a tax fraud or any offence (warranting prosecution), the CIR may, either before
or after the institution of any proceedings for recovery of tax, compound the offence if such person pays the tax due
along with default surcharge and penalty as determined.
4. In the case of company, suspected of tax fraud, every director or officer of that company whom the authorized
officer believes is personally responsible for actions of company contributing the tax fraud shall be liable to arrest.
Further any arrest shall not absolve the company from the liabilities of payment of tax, default surcharge and
penalty.
Procedure to be followed on arrest of a person (U/s 37B)
1. The sales tax officer shall intimate the fact of arrest of person to Special Judge who may direct him to produce the
arrested person at such time and place and on such date as considers expedient and such officer shall act
accordingly.
2. The person arrested shall be, within 24 hours of such arrest excluding the time necessary for the journey, produced
before the Special Judge, if there is no Special Judge within a reasonable distance then to the nearest Judicial
Magistrate.
3. Any person arrested may (on the request), after pursuing the record or after giving the prosecution an opportunity of
being heard, admit or refuse to admit him to bail on his executing bond, with or without sureties and direct is detention
at such place as he deems fit.
4. Magistrate may, after authorizing the detention of person produced before him, direct to fix the date and time of his
production in such custody at such place and for such period as he considers necessary or proper for his earliest
production before the Special Judge, or direct him to be forthwith taken to, and produced before Special Judge, and
he shall be so taken.
5. Special Judge or Judicial Magistrate may preclude from remanding any such person in the custody of the Sales Tax
Officer who makes a request in writing to that effect and the Special Judge or Judicial Magistrate, after pursuing
record and hearing such person, deems necessary to make such order for the completion of inquiry or investigation
and such custody shall not exceed 14 days in any case.
6. The Sales Tax Officer shall record the fact of arrest and other relevant particulars in the register and shall
immediately proceed and if he completes inquiry within 24 hours of his arrest, excluding the time required for journey,
he may make a request for his further detention in his custody.
7. While holding an inquiry, the Sales Tax Officer shall exercise same powers as are exercisable by an officer in charge
of a police station under the Code of Criminal Procedure, 1898.
8. Sales Tax Officer, after holding an inquiry, shall release that person on his executing a bond with or without sureties
as he found no sufficient evidence or reasonable grounds for suspicion. He shall direct a person to appear, as and
when required before the Special Judge and make a report about his discharge to Special Judge and shall make a
full report of case to his immediate superior.
9. The Special Judge may, after the perusal of record of inquiry and hearing the prosecution, agree with such report and
discharge the accused and if he believes that there is sufficient grounds against such person proceed with his trial
and direct the prosecution to produce evidence.
10. The Sales Tax Officer empowered to hold inquiry shall maintain a Register of Arrests and Detention in the
prescribed form. He shall enter the name and particulars of every person arrested under this section together with the
time and date of arrest, details of the information received, the details of things, goods or documents, recovered from
his custody, the name of witnesses and the explanation given by him and the manner in which the inquiry has been
conducted from day to day in such register. The Special Judge may direct such officer to produce such register or
authenticated copies of its aforesaid entries.
11. Any Magistrate of the first class may record any statement or confession during inquiry under this Act, in accordance
with the provisions of sec. 164 of Code of Criminal Procedure, 1898.
12. The Federal Government by notification may authorize any other officer working under the Board to exercise the
powers and perform the functions of a Sales Tax Officer on some conditions imposed by him.
Special Judges (U/s 37C)
1. The Federal Government (by notification) may appoint as many Special Judges as he considers necessary and
shall specify the headquarters of each Special Judge and the territorial limits within which he shall exercise
jurisdiction.
2. No person shall be appointed as Special Judge unless he is or has been a session judge.
Cognizance of offences by Special Judges (U/s 37D)
1. A Special Judge may, within the limits of his jurisdiction, take cognizance of any offence punishable under this Act:
(a) Upon a report in writing made by an officer of Inland revenue or any other officer authorized by Federal
Government;
(b) Upon receiving a complaint or information of facts constituting such offence made or communicated by any
person;
(c) Upon his own knowledge acquired during any proceeding before him under this Act or any other law for the
time being in force.
2. The Special Judge shall proceed with the trial of the accused upon the receipt of report.
3. Upon the receipt of a complaint or information or by own knowledge, the Special Judge may
4. After conducting such inquiry or considering the report of such Magistrate or officer, if Special Judge believe that:
(a) There is no sufficient grounds for proceedings, he may dismiss the complaint
(b) There are sufficient grounds for proceedings; he may proceed against the person.
5. A Special Judge or a Magistrate or an officer, holding inquiry, may hold inquiry, as early as possible, u/s 202 of Code
of Criminal Procedure, 1898.
Special Judge, etc to have exclusive jurisdiction (U/s 37E)
(a) No court other than the Special Judge having jurisdiction, shall try an offence punishable under this Act;
(b) No other court or officer, except in the manner and to the extent specifically provided for in this Act, shall exercise any
power or perform any function under this Act;
(c) No court other than High court, shall entertain, hear or decide any application, petition or appeal under the aforesaid
Code;
(d) No court other than Special Judge or High court shall entertain any application, petition or pass any order or give any
direction under the aforesaid Code.
Transfer of cases (U/s 37G)
1. In the case of more than 1 Special Judge appointed the High Court or in the case of 1 Special Judge the Federal
Government (by order in writing) direct the transfer, at any
2. When the case is transferred to a Special Judge then he is not bound to recall or rehear any witness whose the
evidence has been recorded before the transfer and may act upon the evidence already recorded or produced before
the court which tried the case before the transfer.
Q.9. In the case of non-payment of tax or part thereof, the period of default surcharge shall be started from the ____ day of
month (following the due date of the tax period to which the default relates) to the day preceding the date on which
tax due is actually paid.
(a) 16th
(b) 20th
(c) 15th
(d) 10th
Q.10. ______, published in Gazette in writing, may exempt any person or class of person from payment of whole or part of
penalty or default surcharge on conditions and limitation as specified therein.
(a) Federal Government
(b) Federal Board of Revenue
(c) both a or b
(d) none of above
Q.11. All arrests made under this Act shall be carried out in accordance of ____.
(a) Code of Criminal Procedure, 1898
(b) Companies Ordinance, 1984
(c) Income Tax Ordinance, 2001
(d) Sales Tax Act, 1990
Q.12. _____ (by notification) may appoint as many Special Judges as he considers necessary and shall specify the
headquarters of each Special Judge and the territorial limits within which he shall exercise jurisdiction.
(a) Board
(b) Federal Government
(c) Commissioner Inland Revenue
(d) Securities and Exchange Commission of Pakistan
Q.13. No person shall be appointed as Special Judge unless he is or has been a ______.
(a) Session judge
(b) Civil judge
(c) Advocate of Supreme Court
(d) None of above
Q.14. Any person, including the Federal Government, the Board, the Commissioner Inland Revenue or Director of
Intelligence and Investigation or any other officer authorized by the board, aggrieved by any order passed or decision
made by a Special Judge under this Act or Code of Criminal Procedure, 1898, may within ___ days from the date of
an order or decision, prefer an appeal to the High Court.
(a) 180
(b) 120
(c) 60
(d) 150
Q.15. A Special Judge may hold sittings at ___________or at any other place as the case may be.
(a) Headquarters
(b) Supreme Court
(c) High court
(d) Appellate Tribunal Inland Revenue
ANSWERS
Q.4 (c) APRIL 2012 What are the penalties in respect of the following offences u/s 33 of the Sales Tax Act, 1990?
(i) A person who fails to maintain records required u/s 22 and 24 of this Act or the rules made there under.
(ii) Any person who obstructs an authorized officer in the performance of his official duty in general or in respect of
Section 31 of the Act.
(iii) What penalties shall be applicable in respect of the following contraventions of the law:
(a) Failure in furnishing a return;
(b) Non-payment of tax or failure in payment of tax; and
(c) Concealment of Income.
Chapter
10 APPEALS
3. In deciding an appeal, the CIR (Appeals) may make such further inquiry as may be necessary provided he shall not
remand the case for denovo consideration.
Appeals to Appellate Tribunal (U/s 46)
1. Any person including an OIR at least an Additional CIR, aggrieved by any order passed by-
(a) The CIR (Appeals),
(b) The CIR through adjudication or under any of the provisions of this Act or rules,
(c) The Board.
may, prefer an appeal to Appellate Tribunal within 60 days of receipt of such order or decision.
2. The Appellate Tribunal may admit, hear and dispose of the appeal in accordance with the section 131 and 132 of the
Income Tax Ordinance, 2001 and rules made there under.
3. All appeals and proceedings under this act pending before the customs, excise and sales tax appellate tribunal
constituted u/s 194 of the Customs Act, 1969 shall stand transferred to the appellate tribunal constituted u/s 130 of
the income tax ordinance, 2001 w. e. f 28th day of October 2009.
Reference to High Court (U/s 47)
1. The aggrieved person or any OIR at least an Additional CIR,, authorized by the CIR, may prefer an application in the
prescribed form along with a statement of the case to the High Court, stating any question of law arising out of such
order. The application shall be made within 90 days of the communication of the order of the Appellate Tribunal.
2. The statement to the High Court shall set out the facts, the determination of the Appellate Tribunal and the question
of law which arises out of its order.
3. The High Court may proceed to hear the case if, on an application, satisfied that a question of law arises out of the
order as above.
4. A reference to the High Court shall be heard by a bench consisting of at least two judges of the High Court and in
respect of reference.
5. The High Court upon hearing a reference shall decide the question of law raised and deliver judgment specifying the
grounds and the order of Tribunal shall stand modified accordingly. The Court shall send a copy of the judgment
under the seal of the Court to the Appellate Tribunal.
6. The cost of any reference to High Court shall be in the direction of the Court.
7. The tax shall be payable in accordance with the Appellate Tribunal order irrespective of reference has been made to
High Court.
Provided that if the amount of tax is reduced as a result of the judgment in the reference by the high court and
amount of tax found refundable by the high court, the high court may on application by an additional CIR authorized
by the CIR within 30 days of receipt of the judgment of the high court, that he intends to seek leave to the supreme
court, make an order authorizing the CIR to postpone the refund until the disposal of the appeal by the supreme
court.
8. Where an order, by the High Court, has stayed the recovery of tax, shall cease to have effect after 6 months of the
date of order unless the High Court decide the appeal or withdraw such order earlier.
9. Section 5 of the Limitation Act, 1908 shall apply to an application made to the High Court.
10. The person other than the Additional Commissioner authorized by the CIR shall pay a fee of Rs.100 with an
application.
11. Where any reference or appeal was filed with the approval of CIR by the officer of lower rank then the CIR and the
reference or appeal is pending before an appellate forum for the court, such reference or appeal shall always be
deemed to have been so filed by the CIR.
Alternative dispute resolution (U/s 47A)
1. Any registered person aggrieved in connection with any dispute pertaining to:
(a) The liability of tax against the registered person or admissibility of refunds, as the case may be;
(b) The extent of waiver of default surcharge and penalty;
(c) The quantum of input tax admissible in terms of section 7(3).
(d) Relaxation of any procedural or technical irregularities and condonation of any prescribed time limitation;
(e) Any other specific relief required to resolve the dispute,
May apply to the board for the appointment of a committee for the resolution of any hardship or dispute mentioned in
detail in the application which is under litigation in any court of law or an appellate authority, except in the cases
where first information (FIRs) have been lodged under the act or criminal proceedings initiated or where the
interpretation of question of law having larger revenue impact in the opinion of the Board is involved, may apply to the
Board for the appointment of a committee for the resolution of dispute in appeal and only such application may be
entertained for dispute resolution under the provisions of the section.
2. After examination of the application of a registered person, the Board may appoint a committee within 30 days of
receipt of such application. Such committee shall consist of an officer of Inland Revenue not below the rank of
Additional Commissioner and 2 persons from the notified penal consisting of retired judges not below District and
Sessions judge, Chartered or Cost accountant, advocates, representative of trade bodies or associations or any other
reputable taxpayers, for the resolution of dispute.
3. The committee constituted above shall examine the issue and may if deems fit, conduct enquiry, seek expert opinion,
direct any OIR or any other person to conduct an audit and shall make recommendation within 90 days of its
constitutions in respect of the dispute. If the committee fails to make recommendation within the said period, the
board shall dissolve the committee and constitute a new committee which shall decide the matter within a further
period of 90 days. If after the expiry of that period the dispute is not resolved, the matter shall be taken up by the
appropriate forum for decision.
4. On the recommendation of the committee, the Board may pass such order, as it may deem appropriate within 45
days of recommendations of committee.
5. The Chairman Board and a Member nominated by him may, on the application of an aggrieved person, for reasons to
be recorded in writing, and on being satisfied that there is an error in order or decision, pass such order as may be
deemed just and equitable.
6. The registered person may make payment of sales tax and other duty and taxes as determined by the board in its
order and such order of the board shall be submitted before the forum, tribunal or the court where the matter is
subjudice for consideration of order as deemed appropriate.
7. The Board by notification in the official gazette may make rules for carrying out the purposes of this section.
(c) 120
(d) 365
Q.9. The person other than the Additional Commissioner authorized by the CIR shall pay a fee of Rs.___ with an
application to High Court.
(a) 200
(b) 100
(c) 150
(d) 300
Q.10. Any person including an officer of Inland Revenue at least an Additional Commissioner, aggrieved by any order
passed by the Commissioner Inland Revenue (Appeals), the Commissioner Inland Revenue through adjudication or
under any of the provisions of this Act or rules, the Board may, prefer an appeal to Appellate Tribunal within ___ days
of receipt of such order or decision.
(a) 60
(b) 70
(c) 80
(d) 90
ANSWERS
Chapter
Arrangement of Rules
CHAPTER I PRELIMINARY
2. Definitions.-
(1) In these Rules, unless there is anything repugnant in the subject or context,-
i. "Act" means the Sales Tax Act, 1990;
ii. Annex means an Annex to these rules;
iii. "NEPRA" means the National Electric Power Regulatory Authority established u/s 3 of the Regulation of
Generation, Transmission and Distribution of Electric Power Act, 1997;
iv. "CNG station" means any place or premises from where Compressed Natural Gas (CNG) is supplied to,
or filled in cylinders or tankers;
v. "Collectorate" means the office of the Collector of Sales Tax having jurisdiction and includes the Large
Taxpayers' Unit (LTU) and the Regional Tax Office (RTO), where the offices of Income Tax, Sales Tax
and Federal Excise are co-located, and the word "Collector" shall be construed accordingly;
vi. "commission", in case of a car dealer, means the amount payable by the
vii. consumer to the dealer for the purpose of intermediating sale, booking, delivery or other related
services or activities in respect of a vehicle and includes any other amount charged from a consumer or
seller over and above the price of the vehicle;
viii. "consumer", in relation to Chapter III, means a person or his successor-in- interest who purchases or
receives electric power for consumption and not for delivery or resale thereof to others and includes a
person who owns or occupies a premises where electric power is supplied;
ix. "courier service" means delivery of documents, goods or articles utilizing the services of a person, either
directly or indirectly, to carry or accompany such documents, goods or articles for consideration;
x. "distribution", in relation to Chapter III, means the ownership, operation, management or control of
distribution facilities for the movement or delivery or sale to consumers of electric power but shall not
include the ownership, operation, management and control of distribution facilities located on private
property and used solely to move or deliver electric power to the person, owning, operating, managing
and controlling those facilities or to tenants thereof shall not constitute distribution;
xi. "Fiscal Electronic Cash Register" or "FECR" means an electronic cash register with fiscal memory
(black box), fiscal screw and seal, capable of simultaneously printing second copy (record copy) that
contains all information in addition to that on the first paper roll (customer copy) and having two
displays, one for operator and the other for customer;
xii. "gas bill" means the bill of charges issued by the gas transmission and distribution companies to their
consumers pertaining to a tax period for natural gas supplied by them;
xiii. "generation", in relation to Chapter III, includes the ownership, operation, management or control of
generation facilities for delivery or sale of electric power and not solely for consumption by the person
owning, operating, managing and controlling those facilities;
xiv. "HUBCO" means the Hub Power Company Limited;
xv. "IPP" means an Independent Power Producer established in private sector
xvi. operating under a license issued by the NEPRA for the purpose of generation, transmission, distribution
and sale of electric power, and governed by various Implementation Agreements executed between the
Islamic Republic of Pakistan and such Independent Power Producer and includes HUBCO and KAPCO;
xvii. jeweller means any person engaged in the supply of ornaments as a manufacturer, wholesaler or
retailer, but does not include a zargar;
xviii. JIMCO means joint installation of the oil marketing companies at Mehmood Kot, District Gujrat,
Punjab;
xviiia. National or international chain stores includes a chain of more than on retail outlets having the same
brand name or trade name or trade mark or logo, engaged in the retail sale of goods and operating
under a single or joint ownership or as a franchise or any other arrangement;
xix. "KAPCO" means the Kot Addu Power Company Limited;
xx. "KESC" means the Karachi Electric Supply Corporation;
xxi. "natural gas" means the gas obtained from bore-holes and wells whether unmixed or mixed with
artificial gas consisting primarily of hydrocarbons whether gaseous or in liquid form which are not oils
and includes liquefied petroleum gas (LPG) and compressed natural gas (CNG);
xxii. "OMC" means the oil marketing company and includes Shell Pakistan Limited, Chevron Pakistan
Limited and Pakistan State Oil (PSO);
xxiii. "private sector project" means a facility for generation, transmission or distribution of electric power
constructed, owned, managed or controlled by any one or more organizations or companies
incorporated under the Companies Ordinance, 1984 (XLVIII of l984);
xxiv. "product sharing" means acquiring of a product by one OMC from another OMC on loan basis, without
payment of price under an arrangement of returning the product of the same description by the former
to the latter, within such time as may be agreed between them;
xxv. "public sector project" means a facility for generation, transmission or distribution of electric power
constructed, owned, managed or controlled by the Federal Government, a Provincial Government, a
local authority or anybody owned or controlled by any such Government or authority;
xxvi. (xxiii-a) "stevedore" means a person, company or commercial concern engaged in loading and
unloading of cargo, including bulk cargo, from ships, whether mechanically or otherwise, and whether or
not licensed by the respective port authorities;
xxvii. "TCP" means the Trading Corporation of Pakistan;
xviiia. "taxable services" means the services chargeable to sales tax under the respective Provincial law, and
include all such services, utilities or facilities, by whatever name called, which are provided or rendered
by a service provider to his clients or customers or members;
xxviii. "Terminal Operator" means the company or person managing the affairs of joint installation (JIMCO) at
Mehmood Kot, District Gujrat;
xxix. "value of taxable services", in relation to hotels and courier services, means the gross amount charged
or the consideration in money including all Federal and Provincial levies, if any, which a service provider
receives from the clients or customers or members for providing or rendering taxable services, but
excluding the amount of sales tax:
Provided that in case the consideration for providing a taxable service is in kind or is partly in kind
and partly in money or the service provider and recipient or client are associated persons and the
service is provided for no consideration or for a consideration which is lower than the open market
value, the value of taxable service shall mean the open market value for providing the taxable
service, excluding the amount of tax:
Provided further that value of taxable service in relation to clubs for the purpose of levy of sales tax
shall not include consideration received on account of membership fees, refundable deposit or
security unless the same is deducted or adjusted in full or in part as settlement or recovery of dues
for services;
xxx. "vehicles" include all types of vehicles covered under Chapter 87 of the Pakistan Customs Tariff other
than headings 87.12, 87.15 and 87.16 thereof, as are generally used for the transportation of persons or
goods including three and two wheelers; and
xxxi. "zargar" means any person who is engaged in the making of ornaments or carrying out any related
process on labour charge basis and is not involved in the sale of ornaments to ordinary consumers.
(2) The words and expressions used, but not defined herein, shall have the same meanings as are assigned to
them in the Act.
(3) All provisions of any other rules made under the Act, in so far as they are not in consistent with these rules
shall, mutatis mutandis, apply to the registered persons operating under these rules.
CHAPTER II
SPECIAL PROCEDURE FOR PAYMENT OF SALES TAX
BY RETAILERS UNDER RULE 3 TO 10 OF SPECIAL PROCEDURE RULES 2007:
Application U/R 3
The provisions of this Chapter shall apply to all persons who make supplies from retail outlets to end consumers, including
jewelers and wholesalers cum retailers, whether registered or not, who shall be deemed to be retailers in respect of such
supplies for the purpose of this chapter and also to persons making supplies of electric power to retailers;
Provided that the provisions of this chapter shall not be applicable to the following registered persons, namely:-
(i) vehicle dealers paying sales tax in the manner prescribed in Chapter VIII;
(ii) registered retailers exclusively making supplies of goods specified in Chapter XIII, on which extra tax has already
been paid in the manner prescribed therein.
Registration U/R 4
Notwithstanding anything contained in clause (b) of rule 4 of the Sales Tax Rules, 2006, retailers falling in any of the
following categories shall be required to be registered as a retailer under the Act, in the manner specified in Chapter I of the
Sales Tax Rules, 2006.
(a) a retailer operating as a unit of national or international chain of stores;
(b) a retailer operating in an air conditioning shopping mall, plaza or centre, excluding kiosks;
(c) a retailer who has a credit or debit card machine;
(d) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds
rupees six hundred thousand (Rs. 600,000): and
(e) a wholesalers cum retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers
as well as on retail basis to the general body of the consumers:
Provided that the provisions of this Chapter shall remain applicable to retailers who do not obtain registration:
Provided further that the retailers operating as a unit of a franchise or any other arrangement of a national or
multinational chain of stores, shall obtain a separate registration as distinct from their principal.
Retailers required to pay tax on standard rate U/R 5
(1) Retailers specified in rule 4 shall pay sales tax at the rate specified in sub-section (1) of section 3 of the Act and shall
observe all the applicable provisions of the Act and rules made there under, including the requirement to file monthly
sales tax returns in the manner prescribed in Chapter II of the Sales Tax Rules, 2006:
Provided that the retailers making supplies of finished goods of the five sectors specified in Notification No. S.R.O.
1125(1)/2011, dated the 31st December, 2011 shall pay sales tax in respect of such supplies at the rates prescribed
in the said Notification.
(2) Subject to rule 8, retailers specified in rule 4 shall be required to install and operate Fiscal Electronic Cash Registers
(FECRs), and to issue invoices only there from to their customers.
(3) Retailers shall provide seamless and real-time access of their FECRs data to the Board and also allow on-site
physical inspection as and when authorized by the commissioner Inland Revenue having jurisdiction.
(4) While determining the taxable supplies made by jewelers, a jeweler shall be entitled to exclude the value of gold or
silver used in the jewelry supplied, provided that such assessable value for the purpose of taxable supply is not less
than 10% of the actual sale price excluding the amount of tax.
Other retailers shall pay sale sax through electricity bills U/R 6: -
(1) Retailers not falling in the categories specified in sub-rule(1) of rule 5, shall be charged sales tax through their
electricity bills by the persons making supplies of electric power, at the rates specified in sub-section (9) of section 3
of the Act, in the manner as specified hereunder, which shall be in addition to the tax charged on supply of electricity
under sub-section (1), (1A) and (5) of section 3 of the Act,
(2) Every person making supplies of electric power shall charge and collect sales tax at the rates specified in sub-section
(9) of section 3 of the Act, from every retailer having a commercial electricity connection:
Provided that sales tax under sub-section (9) of section 3 of the Act shall not be charged in cases where the person
making supplies of electric power receives a written order from the commissioner of Inland Revenue of the effect that-
(a) The consumer is not engaged in any retail business; of
(b) The consumer is already registered and paying sales tax through monthly sales tax returns.
(3) The amount of sales tax charged from retailers shall be shown separately in the electricity bill or invoice issued by the
supplier of electric power,
(4) The supplier of electric power shall collect and pay the amount of sales tax from retailers in the manner as prescribed
in chapter III.
Conditions and limitations U/R 7.-
(1) The amount of sales tax charged and collected though the electricity bill in terms of rule 6 shall not be adjustable by
the supplier of electric power and shall be paid by him in full into the Treasury.
(2) The tax paid through electricity bill by a retailer as prescribed in rule 6, shall be construed as the discharge of final tax
liability for the purpose of sales tax and he shall not be entitle for and input tax adjustment or refund there from.
Issuance of invoice or cash memo U/R 8; -
Every retailer operating under rules 5 shall issue serially numbered invoices or, as the case may be, cash memos in respect
of each supply made by him, manually or through electronic cash register, and from such date as may be specified by the
Board, the invoices shall be issued through Fiscal Electronic Cash Register.
CHAPTER III
SPECIAL PROCEDURE FOR COLLECTION AND PAYMENT OF SALES
TAX ON ELECTRIC POWER
11. Application.- The provisions of this Chapter shall apply for collection and payment of sales tax on electric power
imported, generated, produced, transmitted and supplied by electricity generation, transmission and distribution
companies licensed under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997,
including their distributors, dealers and agents, or by any other person dealing in importation, generation, production,
transmission, distribution and supply of electric power.
12. Registration.- Every electricity generation, transmission and distribution company licensed by NEPRA, including a
distributor, dealer and agent of such company, an Independent Power Producer, a Public Sector Project, Private
Sector Project, or any other person dealing in importation, generation, production, transmission, distribution and
supply of electric power shall, if not already registered, obtain registration in the manner prescribed in Chapter I of the
Sales Tax Rules, 2006.
13. Levy and collection of sales tax.-
(1) Every person, referred to in the preceding rule, who supplies electric power shall charge and collect sales tax
at the rate specified in sub-section (1) of section 3 of the Act.
(2) Subject to sub-rule (3), sales tax on electric power shall be levied and collected at the following stages,
namely:-
(a) in case of its importation, the responsibility to pay sales tax shall be of the importer, and the value
thereof shall be the value as determined u/s 25 or, as the case may be, section 25B of the Customs Act,
1969, including the amount of customs-duties and duty of excise duties levied thereon; and
(b) in case of generation, transmission, distribution and supply of electric power by a public sector project
like WAPDA a private sector project including an IPP, a Captive Power Unit or any other person, the
responsibility to collect sales tax shall be of the person making the supply, and the value shall be the
price of' electric power including all charges, surcharges excluding the amount of late payment
surcharge, rents, commissions and all duties and taxes whether local, Provincial or Federal, but
excluding the amount of sales tax, as provided in clause (46) of section 2 of the Act:
Provided that in case of electric power supplied by WAPDA, the additional charge of Rs.0.10 per kWh,
collected on account of Neelum Jehlum Hydro Power Development Fund shall not be included in value for
determination of sales tax payable.
(3) In case of an IPP, HUBCO, KAPCO or WAPDA Hydroelectric Power, the value of supply shall be the amount
received by such IPP or, as the case may be, HUBCO, KAPCO or WAPDA Hydroelectric Power, on account of
Energy Purchase Price only and any amount in excess of Energy Purchase Price received on account of
Capacity Purchase Price, Energy Price Premium, Excess Bonus, Supplemental Charges, etc., shall not be
deemed as a component of the value of supply:
Provided that in case WAPDA or KESC disputes any amount, WAPDA or, as the case may be, KESC, shall
issue a certificate showing such amount and the tax involved therein and such certificate shall be deemed to
be a Credit Note for the IPP for the purposes of section 9 of the Act, and shall be accounted for in the return for
the tax period in which such Credit Note is issued:
Provided further that in case an IPP, for the like reasons, receives any amount from WAPDA or KESC in
respect of supply made during any pervious tax period, tax on such amount shall be accounted for in the return
for the period in which it is received.
14. Filing of returns and deposit of sales tax.-
(1) In case of WAPDA and KESC, sales tax levied and collected under rule 13 during a tax period shall be
deposited on 'accrual basis' i.e. the amount of sales tax actually billed to the consumers or purchasers for the
tax period.
(2) WAPDA and KESC shall submit the monthly return as prescribed under section 26 of the Act, by the 21st day
of the month following the month in which the electric power bill or invoice has been raised. The tax due shall
be deposited in the Government Treasury under the relevant head "B0234l-Sales Tax" along with the
prescribed return under Chapter II of the Sales Tax Rules, 2006.
(3) In case of an IPP, the due date for the purpose of filing monthly sales tax return and for payment of sales tax
shall be the 25th day of the month following the month to which the sales tax invoice relates.
(4) Any person other than an IPP, WAPDA or KESC who supplies electric power shall file a monthly sales tax
return under section 26 of the Act and Chapter of the Sales Tax Rules, 2006, and deposit the amount of sales
tax payable for the tax period by the due date.
15. Determination of sales tax liability in respect of WAPDA and KESC.-
(1) Any person, except WAPDA and KESC, which supplies electric power shall be entitled to claim admissible
input tax adjustment in the manner specified in section 7 of the Act, read with sections 8 and 8B thereof.
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their
taxable purchases made in the month immediately preceding the tax period.
(3) The WAPDA shall henceforth be entitled to claim input tax paid by it on price differential of Low Sulphur
Furnace Oil (LSFO) and High Sulphur Furnace Oil (HSFO) to PSO on behalf of KAPCO for generation of
electricity by KAPCO, subject to the condition that PSO mentions this apportionment on the invoices issued to
M/s. KAPCO & WAPDA in each transaction and the same is verifiable from the accounts of both WAPDA and
KAPCO.
16. Input tax adjustment for registered consumers.-
(1) In case of registered consumers, the electric power bill issued by electric power distribution company shall be
treated as a tax invoice as defined in clause (40) of section 2 of the Act.
(2) The registered consumers shall be entitled to claim input tax adjustment against such invoice after the bill has
been paid, as per the provisions of section 7, 8 and 8B of the Act provided the bill contains registration number
and address of the business premises declared to the Collector by such consumer.
17. Record keeping and invoicing.-
(1) Every person who supplies electric power shall maintain records as prescribed under section 22 of the Act or a
notification issued there under.
(2) Every person who supplies or distributes electric power shall print in his bill or invoice, as the case may be,
registration number of the consumer, if applicable, the rate and the amount of sales tax required to be charged
by him under sub-section (1) of section 3 of the Act.
(3) Every person who supplies electric power and using computerized accounting system may issue a computer
generated sales tax invoice and keep his record on the computer in the prescribed format.
18. Penalty.-
(1) Non-issuance of electric power bill for a tax period or any inordinate delay in the issuance of such bill by the
electric power transmission and distribution companies or by any registered person engaged in the supply of
electric power shall be liable to penalties under the relevant provisions of the Act.
(2) If the tax is not paid within the due date or in the manner as provided under this Chapter, the registered person
shall be liable to pay default surcharge and such other penalties prescribed in the Act.
CHAPTER IVA
SPECIAL PROCEDURE FOR COLLECTION AND PAYMENT OF
EXTRA TAX ON SPPLIES OF ELECTRIC POWER AND NATRUAL GAS
CONSUMED BY UNREGISTERED AND INACTIVE PERSONS
18A. Application The provisions of this chapter shall apply to supplies of electric power and natural gas consumed by
persons having industrial or commercial connections.
18B. Mode and manner of collection.-
(1) Every person supplying electric power of natural gas, shall charge and collect extra tax at the rate notified by
the Federal Government, from every consumer having an industrial or commercial connection, where the bill
for a month is in excess of rupees fifteen thousand, and the consumer either has not provided his sales tax
registration number to the supplier or his name is not shown as active on the Active Taxpayers List (ATL)
maintained by the Federal Board of Revenue.
(2) The amount of extra tax shall be shown separately in the bill or invoice for electric power or natural gas issued
by the supplier.
(3) The supplier shall collect and pay the amount of extra tax in the manner prescribed in Chapter III and IV, as
the case may be.
19. Application.- The provisions of this Chapter shall apply for collection and payment of Sales Tax on Natural Gas
including Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) imported, produced, transmitted and
supplied by gas well-head companies and gas transmission and distribution companies licensed under the Natural
Gas Rules, 1960, including their distributors, dealers, sales agents, retailers or by any other person hereinafter called
the "person" for the purposes of this Chapter and dealing in importation, production or distribution and supply of
Natural Gas including Compressed Natural Gas and Liquefied Petroleum Gas.
20. Levy and collection of sales tax.-
(1) Every person who supplies natural gas shall be liable to registration and shall charge and pay sales tax at the
rate specified in sub-section (1) of section 3 of the Act.
(2) Sales tax on natural gas shall be levied and collected at the following stages and in the following manners,
namely:-
(a) in case of its importation, the responsibility to pay sales tax shall be of the importer who shall pay in the
manner prescribed in sub-section (1) of section 6 of the Act, and the value thereof shall be the value as
determined u/s 25 or 25B of the Customs Act, 1969, read with section 31A thereof, including the
amount of customs-duties and Federal excise duties levied thereon;
(b) in case of production and supply from the bore-holes and wells, the person responsible to charge and
pay sales tax shall be the person making the supply at the bore-holes or the well-heads. The value for
the purposes of levy of sales tax shall include price of natural gas, charges, rents, commissions and all
duties and taxes, local, Provincial and Federal but excluding the amount of sales tax, as provided in
clause (46) of section 2 of the Act;
(c) in case of supply of natural gas by a gas transmission and distribution company, the person responsible
to charge, collect and deposit sales tax shall be the gas transmission and distribution company and the
value for the purpose of tax shall be the total amount billed including price of natural gas, charges
excluding the amount of late payment surcharge, rents, commissions and all duties and taxes, local,
Provincial and Federal, but excluding the amount of sales tax as provided in clause (46) of section 2 of
the Act:
Provided that in case of supply of natural gas to CNG stations, the Gas transmission and distribution
company shall charge sales tax at the rate of 9% of the value in addition to the tax chargeable under
section 3 of the Act or a notification issued there under:
Provided that CNG stations, if not already registered, shall obtain registration under Chapter I of the
Sales Tax Rules, 2006, and shall also file quarterly sales tax return in the manner given in rule 7; and
(d) in case of supply of LPG, the person responsible to charge, collect and deposit sales tax shall be the
person who is a manufacturer, dealer, distributor or a retailer of LPG and the value of LPG for the
purposes of levy of sales tax shall include price of LPG, charges, rents, commissions and all duties and
taxes, local, Provincial and Federal, but excluding the amount of sales tax as provided in clause (46) of
section 2 of the Act.
(3) If the supplies are made free of charge or for some other consideration or a consideration which is lower than
the billed or invoiced prices, the sales tax shall be charged as if it were supplied at open market price in terms
of sub-clause (a) of clause (46) of section 2 of the Act.
21. Determination of tax liability. - While determining his tax liability, the person supplying or distributing natural gas
shall be entitled for input tax credit for the tax paid on his purchases for making taxable supplies against output tax
payable subject to the limitations and restrictions imposed under sections 7, 8 and 8B of the Act and the notifications
issued there under:
Provided that the gas distribution companies may deduct input tax paid by them on purchase of natural gas as is
subsequently supplied by them in Azad Jammu and Kashmir from the output tax.
22. Record keeping and invoicing.-
(1) Every person supplying or distributing natural gas shall issue a serially numbered sales tax invoice for every
supply made by him.
(2) The bill or invoice issued by the person supplying or distributing natural gas shall, inter alia, indicate the rate
and amount of sales tax required to be charged by him under sub-section (1) of section 3 of the Act:
Provided that the monthly gas bill or invoice issued to a registered consumer shall also contain registration
number of that consumer, and such bill or invoice shall be deemed to be tax invoice in terms of section 23 of
the Act.
(3) The registered consumers shall be entitled to claim input tax adjustment against such invoice after the bill has
been paid, as per the provisions of sections 7, 8 and 8B of the Act, subject to the condition that the bill
contains registration number and address of the business premises declared to the Collector by such
consumer.
(4) The registered persons supplying natural gas using computerized accounting system may, issue computer-
generated sales tax invoices and keep their record on computer in the prescribed format.
(5) The registered person supplying natural gas shall maintain records as prescribed u/s 22 of the Act, including
record of daily stocks and sales, stating therein the quantity and value of the gas supplied and the amount of
sales tax charged thereon, provided that the gas transmission and distribution companies shall not be required
to maintain records of daily stocks and sales.
23. Filing of monthly return.- Every person supplying or distributing natural gas shall submit monthly return as
prescribed in the Act. The tax due shall be deposited in the Government Treasury under the relevant head "B02341-
Sales Tax" by the 15th day of the month following the month in which the gas has been supplied:
Provided that in case of gas supplied by gas companies to its consumers directly and charges are billed on a monthly
basis, the date shall be the 15th day of the second month following the month in which supplies were made.
24. Penalty.
(1) Non-issuance of gas bill or invoice for a tax period or any inordinate delay in the issuance of such bill by the
person engaged in supplying or distributing natural gas shall be liable to penalties under the relevant
provisions of the Act.
(2) If the tax is not paid within the date due as provided under this Chapter, the registered person supplying or
distributing natural gas shall be liable to pay default surcharge and such other penalties prescribed in the Act.
CHAPTER V
SPECIAL PROCEDURE FOR SUPPLY OF SUGAR TO TRADING CORPORATION OF PAKISTAN (TCP)
25. Application. - The provisions of this Chapter shall be applicable in case of supply of sugar by the registered
manufacturers of sugar to the TCP for further supply or export thereof.
26. Manner of payment of tax-
(1) Upon successful grant of tender for purchase of sugar, TCP will only pay the value of supply of sugar to the
sugar mills excluding the amount of sales tax against a Commercial Invoice issued by the mills.
(2) At the time of removal of sugar from the mill premises, the mill will issue a sales tax invoice in favour of TCP
who will accordingly pay to the mill the amount of sales tax due on the quantity being removed from the sugar
mill.
(3) In the event of removal of sugar by TCP for export purposes, the mill will issue a zero-rated tax invoice,
against which no sales tax shall be payable.
27 Relevant tax period.- The mill will show the value of sugar sold to TCP and the tax chargeable thereon in the
monthly tax return as well as in its supply register relating to the tax period in which the sales tax invoice has been
issued by the mill in favour of TCP.
28. Monthly statement by TCP.- TCP shall submit a monthly statement to the Collector in the format set out at Annex-A,
which shall be used by the Collector for cross verification of the supplies declared by the sugar mills as having been
made to the TCP.
CHAPTER VI
SPECIAL PROCEDURE FOR PERSONS PROVIDING OR RENDERING SERVICES
SUBJECT TO SALES TAX UNDER THE PROVINCIAL LAWS
29. Application. - The provisions of this Chapter shall apply for collection and payment of sales tax by the persons
providing or rendering services chargeable to sales tax under the respective Provincial laws.
30. Registration.- Every service provider, providing or rendering taxable services to its customers or clients or members,
if not already registered, shall obtain registration in the manner prescribed in Chapter I of the Sales Tax Rules, 2006.
31. Levy and collection of sales tax.- A service provider, providing or rendering taxable services to customers, clients
or members shall charge, collect and pay sales tax at the rate as provided in the respective Provincial Sales Tax
Ordinances, 2000 or the Islamabad Capital Territory (Tax on Services) Ordinance, 2001, as the case may be.
32. Filing of return and deposit of sales tax.
(1) A service provider, providing or rendering taxable services shall file return in accordance with the procedure
laid down in section 26 of the Act read with Chapter II of the Sales Tax Rules, 2006.
(2) The tax due shall be deposited in the designated branch of National Bank of Pakistan under the relevant head
"B02366-Sales Tax on Services collected on behalf of Provincial Governments", in the manner as provided in
the aforesaid Chapter II.
(3) In case a service is provided or rendered over a period of time and bill is to be issued on completion of service,
time of supply shall be the time when service is completed or the payment, or consideration in money, in
respect thereof is received whichever is earlier.
33. Determination of tax Liability.- While determining his tax liability, a service provider shall be entitled to claim input
tax credit for the tax paid on account of taxable purchases or imports made and utilities like telephone (excluding
mobile telephone), gas and electricity consumed in providing taxable services, against his output tax liability, subject
to the conditions, limitations and restrictions prescribed under sections 7, 8 and 8B of the Act and the rules or
notifications issued there-under; and subject to fulfillment of the conditions laid down u/s 73 of the Act.
34. Invoicing.
(1) A service provider, providing .or rendering taxable services shall issue serially numbered sales tax invoices to
its customers or clients or members, for the services provided or rendered, containing all the particulars as
prescribed u/s 23 of the Act:
Provided that the customers or clients or members who have been extended credit facility by a service
provider, may, for the taxable services provided or rendered during the month, be issued serially numbered
sales tax invoices at the end of each month.
(2) A service provider using computerized accounting system may issue computer generated sales tax invoice
containing all the prescribed entries.
35. Specific Provisions.- The specific provisions relating to particular categories of service providers are contained in
Part 1 to 3 of this Chapter.
PART-I
ADVERTISEMENTS ON TELEVISION AND RADIO
36. Scope and value.-
(1) In relation to advertisements, the expression "taxable services" means the services in respect of
advertisements
(a) broadcast or telecast by TV or radio stations based in Pakistan;
(b) booked in Pakistan for broadcasting or telecasting on TV or radio stations based abroad, whether or not
possessing landing rights in Pakistan; and
(c) transmitted on closed circuit T.V. or cable T.V. network.
(2) "Value of taxable service" for the purposes of levy of sales tax shall be the total consideration in money
received or the gross amount charged by a service provider from his clients for broadcasting or telecasting of
any advertisement on radio or television, including all Federal and Provincial levies but excluding the amount
of sales tax.
37. Input tax adjustment by the c1ient.- A registered person (client) whose advertisement is released on radio or
television, and to whom the sales tax invoice is issued and routed through the advertising agency, can claim input tax
adjustment for the amount of tax paid on account of release of advertisement on radio or television subject to the
observance and fulfillment of following conditions, namely:
(a) payments for all such advertisements are made by such registered person through Banking channels in such
manner that payment against a particular invoice is easily verified;
(b) all invoices issued by the service provider are in accordance with the specimen invoice set out at Annex-B;
and
Conceptual Approach to Taxes 673
Sales Tax Special Procedure Rules, 2007 Chapter-11
PART-2
CUSTOMS AGENTS AND SHIP-CHANDLERS
38. Scope and levy in relation to Customs agents.
(1) In relation to Customs agents, value of taxable service for the purposes of levy of sales tax shall be the total
consideration or charges received by a Customs agent for providing and rendering the service, excluding the
amount of sales tax. It shall not include considerations received on account of transportation charges,
demurrage, wharf age, customs-duties, excise duty, sales tax, provincial duties or taxes, toll taxes, municipal
charges, port charges, handling charges, packing charges, labour payment and such other reimbursable
expenses which a Customs agent pays on behalf of his clients against a proper receipt or invoice or bill.
(2) The sales tax registration number along with license number of the Customs agent shall be quoted on the
'Goods Declaration' or the drawback or refund claim, as the case may be.
39. Scope and levy, in relation to ship-chandlers. -- In relation to ship- chandlers, value of taxable services for the
purposes of levy of sales tax, shall be total consideration received or the gross amount charged by a ship-chandler for
providing or rendering the taxable services, including all Federal and Provincial levies but excluding the amount of
sales tax. It shall not include consideration received on other accounts such as transportation charges, toll taxes,
municipal charges, port charges, handling charges, packing charges and labour charges, which a ship-chandler pays
on behalf of his clients against a proper receipt or bill.
PART - 3
SERVICES PROVIDED BY STEVEDORES
(3) The OMC, to whom a product taken on stock sharing basis is returned, shall pay sales tax on its supply or sale
to the buyer or consumer and input tax adjustment thereon shall be admissible, if not already availed.
44. Miscellaneous.-
(1) The stock of a product moved for exchange under these rules shall not be required to be declared on the sales
tax return unless finally supplied or sold on payment of sales tax.
(2) The OMC, which has taken any stock of a product on sharing basis under these rules, shall not normally
charge the price, over and above the price which would have been fetched by such stock had it been supplied
or sold by the lending OMC.
(3) No adjustment, refund or remission of sales tax shall be allowed under any circumstances on account of
variation or difference of the sales price of the exchanged stocks.
CHAPTER VIII
SPECIAL PROCEDURE FOR COLLECTION AND PAYMENT OF SALES TAX BY VEHICLE DEALERS
45. Registration.-
(1) All vehicle dealers shall be required to be registered under the Act who are engaged or otherwise deal in the
sale of locally manufactured vehicles and all types of imported vehicles, whether new or old or used, on the
basis of commission or otherwise, whether or not such dealer is appointed or authorized by the manufacturer
or importer of vehicles.
(2) All dealers shall within seven days of coming into force of this Chapter declare to the Collector of Sales Tax
having jurisdiction, full particulars of his dealers and the Collector shall ensure that 'no such dealer of vehicles
falling in his jurisdiction remains unregistered.
46. Booking of vehicles.-
(1) No vehicle shall be booked by the concerned manufacturer or importer through a dealer unless the particulars
of such dealer and the concerned buyer are clearly mentioned in the relevant booking documents.
(2) The aforesaid condition shall not apply in case of vehicles imported under Personal Baggage, Transfer of
Residence or Gift Scheme.
47. Invoicing.-
(1) Subject to sub-rule (2) each dealer shall issue a sales tax invoice in the name of the consumer or buyer, in
case the manufacturer or dealer has issued invoice in the name of the dealer:
Provided that in case of motorcycles, the manufacturer shall supply the same to his dealer and the dealer shall
issue invoice in the name of the buyer or consumer.
(2) Where the vehicle is invoiced directly to customer through a dealer, the dealer shall issue a delivery advice-
cum-invoice as specified in the form set out at Annex-C indicating, inter alia, the amount and the sales tax, if
any, charged thereon by the dealer over and above the price indicated in the invoice issued by the assembler,
or as the case may be, the importer, directly in the name of the consumer. Such delivery advice-cum-invoice
shall be handed over to the buyer at the time of delivery of the vehicle along with the invoice issued by the
manufacturer or importer.
48. Declaration of commission.-
(1) Each manufacturer or as the case may be, importer of vehicles shall declare to the Collector of Sales Tax
having jurisdiction, the rates of commission payable to his dealers in case of each category, make and model
of vehicle. Any change or alteration made therein shall be communicated to the Collector within seven days.
(2) Nothing in sub-rule (1) shall prohibit the Collector to ascertain or verify the accuracy of the declared rates or
amounts of commissions and other information supplied under any of the provisions of this Chapter.
49. Input tax adjustment.- Subject to such conditions, limitations and restrictions, as are imposed by sections 7, 8 and
8B of the Act and the rules or notifications issued there under and subject to fulfillment of the conditions laid down
under section 73 of the Act, the dealers shall be entitled to input tax adjustment against their output tax liability.
50. Determination of tax liability.-
(1) A dealer shall not be required to pay sales tax on such amounts of commission on which tax has been paid by
the manufacturer or importer on whose behalf vehicles is sold by such dealer provided that in case any
amount is received over and above such commission, the obligation to pay tax shall be of the dealer. Such
amounts and commissions not previously charged to sales tax shall be declared in the value of taxable
supplies in the return.
(2) In case of vehicles exchanged without involvement of any cash payment between the dealers exclusively for
subsequent sale at their respective ends, tax shall be paid only at the time of their actual sale to the public.
51. Filing of return and payment of tax.- Each dealer shall file monthly sales tax return in the manner as provided in
Chapter II of the Sales Tax Rules, 2006.
52. Records to be maintained.- Each dealer shall keep proper record of all purchases, sales and tax invoices including
import documents and such other records as required to be maintained under section 22 of the Act.
53. Miscellaneous.- Where so requested by the Collector, the authority competent to register the vehicles shall furnish
information about the vehicles on which sales tax has been paid under these rules.
CHAPTER X
SPECIAL PROCEDURE FOR PAYMENT OF SALES TAX BY IMPORTERS
58A. Application.- The provisions of this Chapter shall apply to imports of all taxable goods as are chargeable to tax under
section 3 of the Act or any notification issued there under.
58B. Payment of sales tax on account of minimum value addition.-
(1) The sales tax on account of minimum value addition (hereinafter referred to as value addition tax in this
Chapter), shall be levied and collected at import stage on goods as specified aforesaid at the rate of three per
cent of the value of goods in addition to the tax chargeable under section 3 of the Act or a notification issued
there under:
Provided that the value addition tax shall not be charged on.-
(i) the goods as are imported by a manufacturer for in-house consumption;
(ii) the POL products, imported by an Oil Marketing Company for sale in the country, whose prices are
regulated under a special pricing arrangement by the Government of Pakistan or by a regulatory
authority working under the Government of Pakistan; and
(iii) Registered service providers importing goods for their in-house business use or for furtherance of their
taxable activity and not intended for further supply.
(2) The value addition tax paid at import stage shall form part of input tax, and the importer shall deduct the same
from the output tax due for the tax period, subject to limitations and restrictions under the Act, for determining
his net liability. The excess of input tax over output tax shall be carried forwarded to the next tax period as
provided in section 10 of the Act.
58C. Tax not to be refunded.-
(1) In no case, the refund of excess input tax over output tax, which is attributable to tax paid at import stage, shall
be refunded to a registered person.
(2) The registered person, if also dealing in goods other than imported goods, shall be entitled to file refund claim
of excess carried forward input tax for a period as provided in section 10 or in a notification issued there under
by the Board after deducting the amount attributable to the tax paid at import stage i.e. sum of amounts paid
during the claim period and brought forward to claim period. Such deducted amount may be carried forward to
subsequent tax period.
58D. Treatment of existing stocks of commercial importers.- The closing stocks of imported goods held by commercial
importers on 30th June 2008 on which additional sales tax at two per cent was paid at import stage shall be disposed
of under the provisions of this Chapter as in force before 1st July, 2008. The differential amount payable, in case tax
charged was higher than that paid at import stage, shall be paid on the monthly return as arrears of tax.
58E. Filing of return and audit.-
(1) The importers paying value addition tax under this Chapter shall file monthly return as provided in Chapter II of
the Sales Tax Rules, 2006.
CHAPTER XI
SPECIAL PROCEDURE FOR PAYMENT OF SALES TAX BY STEEL MELTERS,
RE-ROLLERS AND SHIP BREAKERS
58F. Application.- The provisions of this Chapter shall apply to
(a) steel melting units, steel re-rolling units, composite unites of melting and re-rolling and composite units having
complete facility of metling, re-rolling and MS cold drawing, whether operating on electric power, natural gas or
any other source of energy and regardless of the type of electricity connection;
(aa) importers of re-meltable iron and steel scrap falling under PCT Headings 7204.3000, 7204.4100 and
7204.4990, and of waste and scrap of compressor falling under PCT heading 7204.4940;
(ab) local suppliers of re-meltable iron and steel scrap;
(b) supplies of electric power and natural gas to units specified in clause (a);
(c) furnaces or steel mills operated by sugar mills or other persons using self-generated electricity from bagasse
or other means;
(d) Pakistan Steel Mills operated by sugar mills or other persons using self generated electricity from bagasse or
other means;
(e) Pakistan Steel Mills, Karachi Peoples Steel Mills, Karachi and Heavy Mechanical Complex; and
(f) Ship breakers.
58G. Registration.- Every person specified in rule 56F shall, if not already registered, shall obtain registration in the
manner prescribed in Chapter I of the Sales Tax Rules, 2006.
58H. Payment of tax.-
(1) Every steel-melter, steel re-roller, composite unit of melting, re-rolling and MS cold drawing and composite
unite of steel melting and re-rolling having a single electricity meter, excluding units operated by sugar mills or
other persons using self generated electricity shall pay sales tax at the rate of nine rupees per unit of electricity
consumed for the production of steel billets, ingots and mild steel (MS) products excluding stainless steel,
which will be considered as their final discharge of sales tax liability:
Provided that the rates of sales tax on the basis of electricity consumption prescribed in sub-rules (1) and (2)
shall only be applicable to unites consuming electric power supplied by public sector electricity distribution
companies and M/s K-Electric Limited.
(2) Payment of tax by steel melters, re-rollers, composite units of melting, re-rolling and MS cold drawing and
composite unites of melting and re-rolling shall be made through electricity bills along with electricity charges:
Provided that in case the due amount of sales tax mentioned in sub-rule (1) is not mentioned in the electricity
bill issued to any steel melter or re-roller, composite units of melting, re-rolling and MS cold drawing or
composite unit of melting and re-rolling, the said melter or re-roller, composite unit of melting, re-rolling and MS
cold drawing or composite unit shall deposit the due amount of tax for the relevant tax period at the rate of nine
rupees per unit of electricity consumed excluding the amount of sales tax already paid on the electricity bill
related to the said tax period through his monthly sales tax return.
(2A) Adjustable sales tax at the rate of Rs. 5,600 per metric ton shall be levied and collected on import of re-
meltable iron and steel scrap falling under PCT headings 7204.3000, 7204.4100 and 7204.4990,
whereas non-adjustable sales tax Rs. 5,600/- per metric ton shall be levied and collected on import of
waste and scrap of compressors falling under PCT heading 7204.4940:
Provided that further local supplies of such imported waste and scrap of compressor shall not be subject to
sales tax.
(2B) Local supplies of re-meltable iron and steel scrap shall be charged to sales tax at the rate of Rs. 5,600 per
metric ton.
(2C) Steel melters may obtain adjustment of the sales tax paid on imported remeltable iron and steel scrap,
against the sales tax payable through their electricity bills, in the manner prescribed by the Board through a
general order.
(3) In case of default in payment of sales tax by the due date mentioned on the electricity bill, besides other legal
action by the concerned RTO or LTU, the concerned electric supply company shall disconnect the electricity
connection of the unit.
(3A) The Commissioner of Inland Revenue may, if he considers it expedient in the interest of revenue, collect sales
tax directly from steel-melters and re-rollers at the rates prescribed in sub-rule (1) or sub-rule (2), as the case
may be.
In case of such direct collection of sales tax, the commissioner shall issue adjustment certificate to the
electricity distribution company, which shall adjust the amount of sales tax so paid in the electricity bills of the
registered person.
(4) Ship breakers shall pay sales tax at the rate of Rs. 8,000 per metric tonne of re-rollable scrap supplied by
them at the time of import. The quantity of re-rollable scrap shall constitute 70.5% of the total LDT of the ship
imported for breaking.
(5) The Customs Collectorate shall clear the goods declaration of ship for breaking on payment of sales tax along
with other Government dues.
(6) Pakistan Steel Mills, Karachi, Heavy Mechanical Complex, Taxila and Peoples Steel Mills, Karachi shall pay
sales tax on their products under sub-section (1) of section 3 of the Act read with section 7 and section 8B
thereof.
(7) Steel melters and re-rollers, except Pakistan Steel Mills, Heavy Mechanical Complex and Peoples Steel Mills,
paying sales tax on fixed rates through electricity bills shall not be entitled to any input tax adjustment except
as provided in second proviso to sub-rule (2C).
(2) Every steel-melter, composite unites of melting, re-rolling and MS cold drawing and steel re-roller paying sales
tax under these rules shall submit a copy of electricity bill showing payment of tax due duly authenticated by
the concerned Association along with a copy of sales tax return to the Commissioner having jurisdiction.
(8) The due date for filing of return shall be the 28th day of the month following the tax period to which the
electricity or gas bill relates.
58J. Records.-
Every person paying sales tax under these rules shall be required to maintain records specified under section 22 of
the Act.
58K. Values of steel products.-
The items specified in column (2) of the Table below shall be assessed for the purpose of sales tax on the values
fixed in column (4) thereof:-
TABLE
SNo. Description HS Code Value
(1) (2) (3) (4)
1. Billets supplied by Pakistan Steel Mills, Heavy Respective Rs.47,600/- PMT
Mechanical Complex and Peoples Steel Mills Headings
2. Imported billets -do- US$ 514 PMT
3. Re-rollable scrape supplied by ship breakers -do- Rs. 47,059/- PMT
58L. Responsibility of All Pakistan Steel Melters and All Pakistan Steel Rerollers Associations.-
The All Pakistan Steel Melters Association and All Pakistan Steel Re-rollers' Association shall be responsible to
ensure that the steel melters and re-rollers pay sales tax in the manner specified in these rules, and in case of non-
compliance, the Association shall actively assist the concerned Commissioner for enforcement and recovery of sales
tax due along with default surcharge calculated thereon, besides any other proceedings that may be initiated against
the defaulting steel-melter or steel re-roller under the Act. All Pakistan Steel Melters Association and All Pakistan
Steel Re-rolling Mills Association shall be authorized to authenticate the paid electricity bills of steel melters and steel
rerollers paying sales tax under these rules. The Associations shall be responsible to maintain unit-wise record of
sales tax paid by all steel melters and re-rollers on monthly basis. Every case of default in payment of sales tax shall
be reported by the President of the concerned Association to the concerned Commissioner or any other officer
nominated by the Board within seven days after the due date for payment of electricity bill.
58M. Monitoring Committee.-
A monitoring committee comprising of officers of Inland Revenue, representatives of concerned Associations and any
other person as may be nominated by the Board shall be constituted through a General Order to monitor the
collection of sales tax under these rules on monthly basis.
58MA. Option to pay sales tax on ad valorem basis.-
(1) The steel melters and re-rollers may opt to pay sales tax on ad valorem basis at the rate specified in sub-
section (1) of section 3 of the Act after deduction of input tax paid on their inputs subject to limits and
conditions as specified under the Act or notifications issued thereunder. Such melters and re-rollers shall
discharge their liability in the manner as indicated below, namely:-
(a) by the 25th of June each year such registered persons shall submit in writing to the Commissioner
having jurisdiction their irrevocable option to pay sales tax on ad valorem basis for the coming financial
year and the option so exercised shall remain enforce till the end of the financial year; and
(b) the commissioner shall coordinated with the electricity distribution companies to ensure that sales tax is
charged from such registered person in his electricity bill on the rate specified in sub section (1) of
section 3 of the Act which shall be adjustable against output tax payable on taxable supplied made by
such person, subject to the applicable provisions of the Act and rules made there under.
(2) The records maintained by registered persons opting to pay sales tax under this rule shall be subjected to
periodical audits.
58MB. Treatment for units engaged in exports.-
Subject to permission of Commissioner, concerned, the option to exclude the sales tax amount as specified in sub
rule (1) of rule 58H from the electricity bill shall be available to steel units exporting more than fifty percent of their
production.
58MC. Treatment for composite units.-
Steel melters and re-rollers who also supply products or products other than billets, ingots, MS cold drawing products
and re-rolled MS products shall follow standard sales tax procedure. The fixed taxes and values prescribed under this
Chapter shall not be applicable to supplies of such registered persons.
CHAPTER XII
SPECIAL PROCEDURE FOR PAYMENT OF SALES TAX BY WHOLESALE-CUM-RETAIL OUTLETS
58N. Application.-
The provisions of this Chapter shall apply to such chains of wholesale-cum-retail outlets, engaged in bulk import and
supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of
consumers and who maintain their records electronically.
58Q. Supplies to diplomats and diplomatic missions and refund of tax collected.-
(1) In case the supplies are made by the wholesaler-cum-retailers to diplomats and diplomatic missions, the same
shall be charged to sales tax at zero rate provided an exemption certificate issued by Ministry of Foreign
Affairs is provided mentioning the description and quantity of goods to be purchased.
(2) The invoice issued against zero-rated supplies as aforesaid shall mention the reference number and date of
the exemption certificate.
(3) In case the supplies to a diplomat or diplomatic mission have been charged to sales tax at a rate other than
zero, the wholesaler-cum-retailer may refund the amount charged after preparation of a credit note mentioning
the particulars of the invoice and the exemption certificate.
58RA. Miscellaneous.
(1) The wholesaler-cum-retailer operating under this Chapter shall issue a sales tax invoice for the goods subject
to extra tax under Chapter XIII, if supplied to a registered person, for the purpose of claiming input tax
adjustment by the buyer.
(2) The provisions of section 73 of the Act shall not affect the admissibility of input tax adjustment where the
wholesaler-cum-retailer receives consideration in cash against the supplies made by him.
CHAPTER XIII
SPECIAL PROCEDURE FOR PAYMENT OF EXTRA SALES TAX ON SPECIFIED
ELECTRIC HOME APPLIANCES
SPECIAL PROCEDURE FOR PAYMENT OF EXTRA SALES TAX ON SPECIFIED 2[GOODS]
58S. Application.
The provision of this Chapter shall apply to the supplies of goods specified in the following Table, hereinafter referred
to in this Chapter as the specified goods, namely:-
Table
S. No. Specified Goods
1 Households electric goods, including air conditioners refrigerators, deep freezers, televisions,
recorders and players, electric bulbs, tube-lights, fans, electric irons, washing machines and
telephone sets.
2 Household gas appliances, including cooking range, ovens, geysers and gas heaters.
3 Foam or spring mattresses and other foam products for household use.
4 Auto-parts and accessories.
5 Lubricating oils, brake fluids, transmission fluids, and other vehicular fluids and maintenance
products.
6 Tyres and tubes.
7 Storage batteries.
8 Arms and Ammunitions.
9 Paints, distempers, enamels, pigments, colours, varnishes, gums, resins, dyes, glazes, thinners,
blacks cellulose lacquers and polisher sold in retail packing.
10 Tiles.
11 Biscuits, confectionery, chocolates, toffees and candies.]
58T. Mode, manner and rate applicable for payment of extra amount of tax.-
(1) Extra amount of sales tax at the rate of 2% of value of supplies shall be levied and collected on the
supplies of all specified 5[ ] goods by manufacturers and importers in addition to the tax payable under
sub-sections (1) and (2) of section 3 of the Act, as the case may be.
(2) Extra amount of sales tax so charged and collected by the above listed registered person shall
be declared in the monthly return against relevant supplies and shall be deposited without any
adjustment against the same.
(3) The supplier of specified1[ ] goods shall mention the extra mount of sale tax charged under this chapter
separately on the sales tax invoice to be issued by them.
(4) The said registered persons shall charge the said extra sales tax even if they have paid any tax relating to
value addition at import stage.
(5) The specified 1[ ] goods on which extra sales tax has been paid in the aforesaid manner shall be exempt
from payment of sales tax on subsequent supplies including those as made by a retailer.
(6) The retailers operating under chapter II shall be entitled to deduct value of supplies subject to extra tax
under this Chapter from their turnover for the purpose of payment of sales tax under the said Chapter,
However, they shall pay sales tax at a rate specified in Chapter II which is based on their total turnover.
(7) If a registered person, other than a retailer, who buys the specified 1[ ] goods on payment of extra sales
tax under this chapter, also deals in sale and purchase of other goods, he shall discharge his liability in
respect of such other goods under sub-section (1) of section 3 and other relevant provisions of the Act
and shall also the be entitled to input tax adjustment only in respect of taxable supplies of such other
goods.
(8) A registered person who is engaged exclusively in purchase and sale of specified 1[ ] goods and
purchases the same on payment of extra sales tax, shall file quarterly sale tax return, in the manner
prescribed in rule7.
59. Repeal.- The Sales Tax Special Procedure Rules, 2006 are hereby repealed.
Monthly statement by
Trading Corporation of Pakistan
Total Value Sugar exported
Total Qty
Name of (excluding
S. No. purchased Qty
sugar mill sales tax ) Value (Rs.)
(Kgs.) (Kgs.)
(Rs.)
(1) (2) (3) (4) (5) (6)
from LOCO the Commissioner shall then determine the annual quantitative entitlement of input and
grant final approval for zero-rated purchases or imports. In case of non-receipt of report from LOCO
within four months of the application being forwarded by the Commissioner, he may provisionally allow
another six months quantity to the applicant, provided he is satisfied from the records that the previously
imported or purchased inputs are being properly consumed in the manufacture of goods specified
against S. No. 12 of the Fifth Schedule to the Act;
(d) in case of input goods to be imported by the applicant, the authorized officer of Inland Revenue shall
furnish all relevant information online to the Pakistan customs computerized System as per Annex H
to these rules against a specific user ID and password obtained under section 155D of the Customs
Act, 1969 (IV of 1969):
(e) where a registered person supplies input goods to the applicant in terms of an approval granted under
clause (b) or (c) as the case may number of the buyer besides all the particulars as required under
section 23 of the Act;
(f) the applicant will be entitled to claim refund of input tax paid on utilities and other inputs which are
purchased by him on payment of sales tax, in terms of section 10 of the Act read with relevant
provisions of the Sales Tax Rules, 2006;
(g) the applicant shall maintain complete records of the inputs imported or purchased and the goods
manufactured there from;
(h) the input goods allowed under clause (b) or (c), as the case my be, shall be imported or purchased
before the expiry date of the approval, and shall be consumed within twelve months of the date of their
import or purchase;
(i) the applicant shall inform the concerned Commissioner Inland Revenue in writing about the
consumption of the imported or purchased input goods within ninety days of their consumption. The
indemnity bond shall be released on receipt of written confirmation regarding consumption of goods by
the applicant;
(j) in case the input goods are not consumed within the period allowed in the approval, the applicant shall
pay the amount of sales tax involved, or may seek extension from the commissioner Inland Revenue
under intimation to the Collector of Customs;
(k) the concerned Commissioner Inland Revenue, whenever he deems necessary but not more than once
in a calendar year, may get the records of the manufacturer audited. In case it is found that the inputs
have not been properly accounted for or consumed in the manufacture and supply of goods as
prescribed, the Commissioner may initiate proceedings for recovery of the sales tax involved on the
unaccounted inputs besides penal action under the relevant provisions of the Act; and
(l) under circumstances of exceptional nature and for reasons to be recorded in writing, the concerned
Commissioner may relax any of the conditions, if he is satisfied that such condition is detrimental to the
bona fide purposes of manufacturers business, subject to such surety or guarantee he may deem
appropriate to secure the sales tax and to ensure proper account and utilization of the imported or
locally procured goods.
CHAPTER XV
SPECIAL PROCEDURE FOR SALES TAX ON COTTONSEED OIL EXPELLED
BY OIL EXPELLING MILLS AND COMPOSITE UNITS
OF GINNING AND EXPELLING
58W. Application. The provisions of this Chapter shall apply to the persons engaged in supply
cottonseed as well as composite units of cotton ginning and expelling of oil from cottonseed.
The sales tax payable on supply of cottonseed oil shall be collected at the time of supply of cottonseed on the basis
of quantity of cottonseed supplied], or consumed in-house for expelling of oil by composite cotton ginning units.
58Y. Mode, manner and rate applicable for payment of sales tax.
(1) The amount of sales tax chargeable under rule 58X shall be levied and collected at the rate of Rs.6 per 40
kg at the time of supply of cottonseed by cotton ginners for in-house consumption, or to any other
registered or unregistered person for the purpose of oil extraction or expelling.
(2) All cotton ginners, if not already registered or required to be registered, shall obtain sales tax registration for
the purpose of these rules.
(3) The amount of sales tax so charged and collected by the cotton ginners shall be declared in the monthly
returns and shall be deposited as such without any input tax adjustment.
(4) The suppliers of cottonseed shall mention sales tax charged under this Chapter separately on the sales
tax invoice to be issued by them.
(5) The oil expelling units using the cottonseed on which sales tax has been charged and collected in the
aforesaid manner shall be exempted from payment of sales tax on the supplies of oil cake produced from such
cottonseed.
(6) The ginner shall submit a certificate to the Commissioner having jurisdiction by the 15th day of the
month following the tax period for the quantity of cottonseed supplied to the growers for sowing purpose.
58Z. Monthly statement. Each ginning unit including a composite ginning unit, shall submit to the Commissioner of
Inland Revenue having jurisdiction, monthly statement of production and supply of ginned cotton, cottonseed and
cottonseed oil in the format set out in Annex-I, by the 15th day of the month following the tax period.
58ZA. Notice to be given by the ginning unit.A ginning unit, or as the case may be, a composite ginning unit
shall, at the time of commencement of ginning activity and at the time of closure thereof, inform the Commissioner of Inland
Revenue having jurisdiction within three days of such commencement or closure, as the case may be.
59. Repeal.The Sales Tax Special Procedure Rules, 2006 are hereby repealed.
Chapter
1. 1
Short title, application and commencement
2. 2
Responsibility of a withholding agent
3. 3
Responsibility of the registered supplies
4. 4
Responsibility of the Collector
5. 5
Exclusions
6. 6
Application of other provision
7. ANNEX
(2) A withholding agent, other than a recipient of advertisement services, shall deduct an amount equal to one fifth of the
total sales tax shown in the sales tax invoice issued by a registered person and make payment of the balance amount
to him as per illustration given below,-
Example:
Value of taxable supplies excluding sales tax Rs. 1000
Sales tax chargeable @ 17% Rs. 170
Sales tax to be deducted by the withholding agent Rs. 34 (i.e. Rs. 170 5)
Sales tax payable by the withholding agent to the supplier Rs. 136 (i.e. Rs. 170- Rs.34)
Balance amount payable to the supplier by the withholding agent Rs. 1,136 (i.e. Rs. 1,000 + Rs.136)
(3) A withholding Agent, shall on purchase of taxable goods from unregistered persons, deduct sales tax at the
applicable rate of the value of taxable supplies made to him from the payment due to the supplier and unless
otherwise specified in the contract between the buyer and the supplier, the amount of sales tax for the purpose of this
rule shall be worked out on the basis of gross value of taxable supply.
(3A) A person mentioned in clause (e) of sub-rule (2) of rule 1, who receives advertisement services, provided or rendered
by a person based in Pakistan or abroad, shall deduct the amount of sales tax as mentioned in the invoice issued by
the service provider from the payment due to the service provider. In case the sales tax amount is not indicated on
the invoice, the recipient shall deduct sales tax at the applicable rate of the value of taxable services from the
payment due to the service provider.
(4) Where the purchases are made by a government department, the following procedure shall be observed, namely:-
(a) the Drawing and Disbursing Officer (DDO) preparing the bill for the accounting office shall indicate the amount
of sales tax withheld as prescribed above. The accounting office shall adopt the procedure as indicated below:
(i) in case of purchases made by a department under the Federal Government, the office of the
Accountant General of Pakistan Revenue shall account for the amount deducted at source during a
month under the Head of Account "B02341-Sales Tax" and send an intimation to the Chief
Commissioner, Regional Tax Office, Islamabad, by the 15th of the following month;
(ii) in case of purchases by departments under provincial or district governments, the Accountant General
of the province or the District Accounts Officer, as the case may be, shall credit the amount deducted at
source during a month to the head of account "GI2777- Sales Tax Deductions at Source under Sales
Tax Special Procedure (Withholding) Rules, 2007'. Cheque for the amount will be prepared by the
Accountant General or the District Accounts Officer, as the case may be, in the name of Collector
having jurisdiction by debit to the aforesaid head of account and sent to the Collector by the 15th of the
following month; and
(iii) where the purchases are made by the departments falling in purview of Military Accountant General,
the MAG shall account for the amount deducted at source during a month under the Head of Account
"B0234l-Sales Tax" and send intimation to the Chief Commissioner, Regional Tax Office, Rawalpindi,
by the 15th of the following month. The amount so deducted at source shall be reported by MAG office
to AGPR through civil exchange accounts; and
(b) the concerned Drawing and Disbursement Officer shall prepare the return in the form as in the Annexure to
these rules for each month and forward the same to the Collector having jurisdiction by the 15th of the
following month.
(5) In case of purchases, not covered by sub-rule (4) or sub -rule (6), the sales tax deducted at source shall be deposited
by the withholding agent in the designated branch of NBP under relevant head of account on sales tax return-cum-
payment challan in the form set out at Annexure to these rules, by 15th of the month following the month during which
the purchase has been made. The return-cum-payment challan shall be prepared and deposited with the bank in
triplicate and the bank shall send the original to the Collectorate of Sales Tax having jurisdiction, return the duplicate
to the depositor and retain the triplicate for its own record:
Provided that a single return-cum-challan can be filed in respect of all purchases for which the payment has been
made in a month.
(6) In case the withholding agent is also registered under the Sales Tax Act, 1990, or the Federal Excise Act, 2005, he
shall deposit the withheld amount of sales tax along with return filed for the month in which the purchase was madein
the manner as provided under Chapter II of the Sales Tax Rules, 2006, along with other tax liability and such person
shall not be required to file the return in the term as set out in the Annexure to these rules:
Provided that in case the withholding agent is not registered for sales tax or federal excise duty but holds a national
tax number assigned under the Income Tax Ordinance, 2001, he shall file the return, as set out in the Annexure to
these rules; electronically and deposit the amount deducted at source in the manner as provided for persons filing
returns electronically under rule 18 of the Sales Tax Rules, 2006:
Provided further that any other withholding agent may also opt to file the prescribed return electronically and deposit
the deducted amount in the manner as provided in this sub-rule.
(7) The withholding agent shall furnish to the Collector of Sales Tax having jurisdiction all such information or data as
may be requested by him for carrying out the purposes of these rules.
(8) A certificate showing deduction of sales tax shall be issued to the supplier by the withholding agent duly specifying
the name and registration number of supplier, description of goods and the amount of sales tax deducted.
Responsibility of the registered supplier [Rule 3]
(1) The registered supplier shall issue sales tax invoice as stipulated in section 23 of the Sales Tax Act, 1990, in respect
of every taxable supply made to a withholding agent.
(2) The registered supplier shall file monthly return as prescribed in the Sales Tax Rules, 2006, and shall adjust total
input tax against output tax under sections 7, 8 and 8B of the Sales Tax Act, 1990, taking due credit of the sales tax
deducted by the withholding agent, in the manner as prescribed in the return under Chapter II of the Sales Tax Rules,
2006.
Responsibility of the Collector [Rule 4]
(1) The Collector shall keep a list of all withholding agents falling in his jurisdiction and monitor payment of tax deducted
by withholding agents falling in his jurisdiction and shall also ensure that the return prescribed under these rules is
filed.
(2) The Collector shall ensure that the return received from the bank is duly fed in the computerized system as referred to
in clause (5AA) of section 2 of the Sales Tax Act, 1990.
(3) The Collector shall periodically ensure that the suppliers mentioned in the return filed by the withholding agents, as
fall under his jurisdiction, are filing returns u/s 26 of the Sales Tax Act, 1990, read with Chapter II of the Sales Tax
Rules, 2006, and are duly declaring the supplies made to withholding agents.
Exclusions [Rule 5]
The provisions of these rules shall not apply to the supplies of the following goods and services if made by a registered
person, namely:-
(i) Electrical energy;
(ii) Natural gas;
(iii) Petroleum products as supplied by petroleum production and exploration companies, oil refineries, oil marketing
companies dealers of motor spirit and high diesel; and
(iv) registered persons paying sales tax under Chapter XI of the Sales Tax Special Procedure Rules, 2007, except those
paying sales tax on ad valorem basis at standard rate;;
(v) vegetable ghee and cooking oil; and
(vi) telecommunication services.
(vii) goods specified in the third Schedule to the Sales Tax Act, 1990; and
(viii) supplies made by commercial importers who paid value addition tax on such at the time of import of prescribed under
chapter X of the Sales Tax Special Procedure Rules, 2007.
Application of other provisions [Rule 6]
All the provisions of the rules and notifications made or issued under the Sales Tax Act, 1990, shall apply to supplies as
aforesaid not inconsistent with the provisions of these rules.
DETAIL OF SALES TAX DEDUCTED DURING THE MONTH (attach additional sheets if required)
S. No. Name of supplier NTN No. of invoices Total Sales Tax Sales tax
charged deducted
the provisions of the Sales Tax Act, 1990, and Rules and Notifications issued thereunder.
Date (dd/mm/yy)_______________Stamp________________Signature____________________
Chapter
13
SOLVED PAST PAPERS SALES TAX NUMERICALS OF ICMAP
STAGE IV - (2003 TO 2015)
Note: All the following questions have been solved under the Sales Tax Act effective from July 1st 2015,
except as provided in the Finance Act, 2015.
Q.No. 6(a) March 2015 Karven Limited is a company registered under the Sales Tax Act, 1990. The company is
engaged in the manufacturing, import and export of chemical products. Following activities were carried out by the
company dating the month of January 2015:
Rs. 000
Purchases:
Local:
Raw materials from registered suppliers 800,000
Raw materials from non-registered suppliers 400,000
Imports:
Invoice value (converted into pak Rupees) 150,000
Customs duty 37,500
Value inclusive of customs duty 187,500
Federal excise duty 6,250
Manufacturing and other costs 220,000
Supplies:
Sales to registered customers 1,400,000
Sales to non-registered persons (commercial/industrial Customers) 600,000
Sales of exempted supplies 400,000
Exports 220,000
Additional Information:
Sales tax of Rs. 50,000, Rs. 20,000 and Rs. 16,000 was paid in cash on account of electricity, gas and telephone bills
respectively, directly consumed for taxable activities.
Required:
In the light of the provisions of the Sales Tax Act, 1990, compute the net sales tax payable for the month of January
2015. Substantiate your answer with notes.
Solution:
Karvan Limited
Computation of Sales tax payable / refundable
For the period of January 2016
Exports -
340,000
Input tax
On taxabale supplies 128,960
On utilities bills ( 50,000 + 20,000 + 16,000) 86,000
A 214,960
or 90 % of 340,000 B 306,000
Lower of A and B (214,960)
Sales Tax payable 125,040
Add: 2% further sales tax on 400,000 8,000
Sales tax payable with return 133,040
Notes - 1
Manufacturing and other costs will be
Q.NO. 5(b) August 2014 Sitara Manufacturers (SM) deals in the taxable and exempted supplies. SM provided following
information for determination of its sales tax liability for the month of June, 2014.
SMmadepurchasesamountingRs.800,000fromElahi&Sonswhoisregisteredperson.
Mr.AhsaninvoicedRs.150,000toSMwithoutcharginganysalestax.
SMfurtherincurredmanufacturingandothercostamountingRs.150,000.
Outoftotalstock,SMsuppliedgoodsofworthRs.1,500,000toSidra&Co.,whichisaregistered
company under the Sales Tax Ac t, 1990.
In addition to above SM made exempted supplies of Rs. 600,000 and supplied goods of worth Rs. 500,000 to non-
registered person.
SMalsopaidsalestaxonelectricitybillamountingRs.18,000.
Required:
Compute sales tax liability of SM under the Sales Tax Act, 1990 for the month of June, 2014.
Solution
Sitara Manufacturing
NTN #
STRN #
Computation of Sales tax payable / refundable
For the month of June 2016
692____________________
___________________________________________________________Conceptual Approach to Taxes
Chapter 13 Solved Past Papers Sales Tax Numericals of ICMAP Stage IV - (2003 to 2015)
Output tax
Sales to registered person 1,500,000 255,000
Sales to un-registered person 500,000 85,000
Exempt supplies 600,000 -
340,000
Input tax
Input tax admissible W-1 118,462
or 90 % of 340,000 306,000 (118,462)
221,538
2% further tax on Rs. 500,000 10,000
Sales tax payable with return 231,538
Q .NO. 6 Spring 2014 Beta (Pvt.) Limited is engaged in imports, trading and local manufacturing of certain
taxable consumer goods including products like detergents which are subject to levy of sales tax on retail price
basis. During the month of December, 2013 the following information of the company is complied:
Additional Information:
Retail price of detergents (imported and locally manufactured) is Rs. 250 per packet of 1.5 kilograms each.
Required: In the light of the provisions of the Sales Tax Act, 1990 and rules made there under, calculate the sales
tax liability of Beta (Pvt.) Limited for the month of December, 2013.
Solution:
Beta (Pvt.) Limited
(N - 1) As the registered person given in this question is engaged in various types of activities and none of the
clause under SRO 647(I)/2007 dated June 27, 2007 is applicable therefore 90% of output tax limitation
on input is applicable U/S 8B of the Sales Tax Act, 1990.
(N - 2) 2% further sales tax u/s 3(1A) has not been charged as the supplies are made to registered wholesalers and
further final consumers (against supplies made) are not required to be registered under the Sales Tax Act,
1990.
Spring - 2013 Q. 5 b
Hassan Associates manufactures and supplies Product A and Product B. Hassan Associates is registered under the
Sales Tax Act, 1990. Following information has been extracted from its records for the month of May 2013:
Rupees in million
Purchase of raw material from registered person
To manufacture Product A 900
To manufacture Product B 300
Purchase of raw material from unregistered person
To manufacture Product A 150
To manufacture Product B 200
Import of raw material to manufacture Product A and B 450
Sale of Product A
To registered person 800
To unregistered person 250
Sale of Product B
To registered person 500
To unregistered person 150
Sale return during the month
Product A 50
Product B 30
Sales tax paid on electricity bill 15
Further information:
694____________________
___________________________________________________________Conceptual Approach to Taxes
Chapter 13 Solved Past Papers Sales Tax Numericals of ICMAP Stage IV - (2003 to 2015)
ProductBisexemptfromthesalestax.
SalestaxcreditbroughtforwardfrompreviousmonthamountedtoRs.25million.
AnimportbilldatedNovember10,2012amountingtoRs.25millionhadnotbeenclaimed
inadvertently. This oversight was detected during the month.
Salestaxispayableattherateof16%.Alltheaboveamountsareexclusiveofsalestax.
Required:
In the light of the Sales Tax Act, 1990 and rules made there under, calculate the following for the month of
May 2013;
Salestaxpayable/refundable
Inputtaxtobecarriedforward,ifany.
Solution:
HASSAN ASSOCIATES
SALES TAX LIABILITY
TAX PERIOD: MAY 2016
WORKING
W-1
Residual input tax :
(Note - 1) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it
shall also not be considered for the computation of 90% limitation on output tax.
(Note - 2) As it is case of a manufacturer and none of the clause under SRO 647(I)/2007 dated June 27, 2007 is
applicable therefore 90% of output tax limitation on input is applicable U/S 8B of the Sales Tax Act,
1990.
Autumn - 2013 Q. 5
Bashir corporation is registered with the sales tax department as manufacturer, exporter and the distributor, it has the
following transactions for the month of january, 2013:
Rupees
Purchases from registered persons 6,000,000
Purchases from non-registered persons 720,000
Exports 1,000,000
During a tax period the company supplied goods worth Rs.7,000,000. As per normal business practice, the
company sells the goods at a discount of 20 % of the retail price,
Required:
Compute the sales tax liability of Bashir corporation for the month of junuary 2013.
Solution:
(N - 1) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June
27, 2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990. Howeve the same
has not been shown as the available input tax is already less than 90% of the total output tax.
(N - 2)
Retail price of goods after discount 7,000,000
(N - 3) As purchases from non-registered persons are without sales tax invoices hence the same shall be
without sales tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax
in not applicable.
Pak Manufacturing Company Limited is engaged in manufacturing of both taxable and exempted supplies. Following are
the transactions for the month of June:
696____________________
___________________________________________________________Conceptual Approach to Taxes
Chapter 13 Solved Past Papers Sales Tax Numericals of ICMAP Stage IV - (2003 to 2015)
Rupees
Supplies to registered manufacturers 4,250,000
Supplies to non-registered retailers 3,250,000
Sales of exempted supplies 600,000
Purchases from registered persons 3,000,000
Purchases from non-registered persons 2,100,000
Import of raw material 1,750,000
Required:
Compute the sales tax liability of Pak Manufactur ing Company for the month of June.
(W-1)
Residual input tax
Purchases from registered persons (Rs. 3,000,000 x 17%) 510,000
Purchases from non-registered persons (N - 2) -
Import of raw material (Rs. 1,750,000 x 17%) 297,500
807,500
Allocation of residual input tax: [U/R 25 of the Sales Tax Rules, 2006]
Supplies Residual input tax
Rs. Rs.
Supplies to registered manufacturers 4,250,000 423,688
Supplies to non-registered retailers 3,250,000 323,997
Sales of exempted supplies 600,000 59,815
8,100,000 807,500
(Note - 1) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it
shall also not be considered for the computation of 90% limitation on output tax.
(Note - 2) As purchases from non-registered persons are without sales tax invoices hence the same shall be
without sales tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax
in not applicable.
(Note - 3) As it is case of a manufacturer and none of the clause under SRO 647(I)/2007 dated June 27, 2007 is
applicable therefore 90% of output tax limitation on input is applicable U/S 8B of the Sales Tax Act,
1990.
Mr. Folad is registered under the Sales Tax Act, 1990 and is engaged in the business of manufacture and supply of
home appliances. Following information has been extracted from the records of Mr. Folad for the month of February
2012.
Rupees
Purchases Local
From registered suppliers 70,250,000
From un-registered suppliers 15,750,000
Supplies:
Local taxable supplies to registered persons 72,870,000
Local taxable supplies to un-registered persons 9,850,000
Exports to Canada and USA 12,700,000
(i) A new machine purchased for Rs. 12 million was commissioned into operations during February 2012.
(ii) Sub-standard supplies amounting to Rs. 4,500,000 were returned to vendors. Proper debit/credit notes were raised in
this regard.
(iii) Goods worth Rs. 7,200,000 were returned by different customers. Proper debit/credit notes were raised within the
specified period.
(iv) An amount of Rs. 820,000 on account of purchases made from a registered supplier is outstanding since July 2011.
The related input tax was accounted for in the relevant tax period.
(v) Sales tax credit brought forward from previous month amounted to Rs. 910,500.
Sales tax is payable at the rate of 16%. All the above figures are exclusive of sales tax.
Required:
Compute sales tax payable/refundable and input tax credit to be carried forward, if any.
Solution:
Mr. Folad
Computation of sales tax liability
Rs. Rs.
Output tax:
On net local supples from registered persons (Note 2) less related to 7,351,347
fixed assets (Rs.9,119,832 - Rs. 1,768,485)
On purchases from un- registered persons -
Input tax b/f 910,500
(A) 8,261,847
698____________________
___________________________________________________________Conceptual Approach to Taxes
Chapter 13 Solved Past Papers Sales Tax Numericals of ICMAP Stage IV - (2003 to 2015)
(N - 1) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990. The said limitation is not
applicable on input tax paid on acquistion of fixed assets.
(N - 3) It has been assumed that 2% further tax u/s 3(1A) is applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 hence the same shall be accounted for and paid
seperately without adjustment of the same against input tax / refund of the registered person and further it
shall also not be considered for the computation of 90% limitation on output tax.
The following information relate to XYZ (Pvt) Ltd., for the month ended December 31, 2010:
Rs.
Taxable supply 5,000,000
Exempt supply 1,000,000
Zero-rated supply 2,000,000
Total supply 8,000,000
Required:
Compute the amount of sales tax liability / refund of the company.
Solution:
Rs.
Output tax:
On taxable supply U/S 3 (Rs. 5,000,000 x 17%] 850,000
On exempt supply [U/S 6 read with 6th Schedule] -
On zero rated supply [U/S 5 read with 5th Schedule] -
850,000
Input tax:
Purchase of raw materials used in taxable supplies (N - 2) 546,429
Purchase of raw materials used in exempt supply -
(A) 546,429
(N - 1) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27,
2007, therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
Winter - 2008 Q. 5
Karsaz Limited is engaged simultaneously in manufacturing and supply of taxable as well as exempted goods. Summary
of its transactions for the month of October is given below:
Rupees Rupees
Purchase of goods to be used for taxable supplies 600,000
Purchase of goods to be used for exempt supplies 900,000
Purchase of goods to be used for both taxable and exempt supplies 3,000,000
Total input tax on all purchases 675,000
Supply of wholly taxable goods 1,500,000
Supply of wholly exempt goods 1,800,000
Solution
Karsaz Limited
Computation of sales tax liability
Rs.
Output tax:
On supply of wholly taxable goods U/S 3 255,000
On supply of wholly exempt goods [U/S 6 read with 6th Schedule] -
On supply of partly taxable and partly exempted goods
Taxable supplies U/S 3 637,500
Exempt supplies [U/S 6 read with 6th Schedule] -
892,500
Input tax:
On purchase of goods to be used for taxable supplies (W-1) 90,000
On purchase of goods to be used for exempt supplies -
On share of taxable supplies in purchase of goods for both 375,000
taxable and exempt supplies (W - 2) (A) 465,000
Working:
W - 1:
Tax on purchase of goods to be used for taxable supplies
(675,000 / 4,500,000 x 600,000) 90,000
700____________________
___________________________________________________________Conceptual Approach to Taxes
Chapter 13 Solved Past Papers Sales Tax Numericals of ICMAP Stage IV - (2003 to 2015)
W - 2:
Tax on purchase of goods for both taxable and exempt supplies
(675,000 / 450,0000 x 3,000,000) 450,000
(N - 1) As it is case of a manufacturer and none of the clause under SRO 647(I)/2007 dated June 27, 2007 is
applicable therefore 90% of output tax limitation on input is applicable U/S 8B of the Sales Tax Act,
1990.
Winter - 2004 Q. 6
Mr. Fakhar Rizvi is a commercial importer of taxable goods. During the month of July, 2004 he imported goods valuing
Rs. 1,500,000. On these imports he paid custom duty @ 10%, general sales @ 15% and income tax @ 6%. He also
opted to pay Sales Tax on value addition at the time of imports.
1. All imported goods were sold during the month of import i.e. July, 2004.
4. GST paid on utility bills during the tax period amounted to Rs. 5,000.
Required:
(i) Work out output tax, input tax and sales tax payable for the tax period of July, 2004.
Solution
(i)
Output tax:
Assessed value (N - 2) 1,650,000
14% value addition 231,000
Output tax @ 17% 1,881,000 319,770
319,770
Excss sales tax paid [ Output tax - Input tax ] (See note below) (10,230)
(N - 1) The importer is not entitled to claim refund on commercial imports sold at less than minimum value addition
that is presently 18.75%. Provided that all the available stock in sold by registered person.
(N - 2)
Assessed value
Import value 1,500,000
Custom duty @ 10% 150,000
Assessed value 1,650,000
(ii) (A)
Sales tax on imports is collected by the Collector of Custom @ 17% on assesed value and 3% additional tax
of the same value as minimum value addition at the time of import clearance.
(ii) (B)
Last date of filing of sales tax return is 15-08-2015 as no sales tax is payable by the registered person.
Summer - 2004 Q. 8
M/s Safi Electronics are engaged in manufacturing of electronic goods and are registered under Sales Tax Act, 1990 as
Manufacturer-cum-Exporter. During the month of March, 2004 their Sales/Purchases data were recorded as under:
Rs.
(i) Local purchases:
(a) From registered persons 4,500,000
(b) from un-registered persons 1,200,000
(ii) Imports 2,300,000
(iii) Utility bills, (exclusive of GST Rs. 75,000) 500,000
(iv) Sales to Registered Persons 3,200,000
(v) Sales to Un-registered persons 3,600,000
(vi) Exports 3,000,000
Notes:
1. All the above figures are exlusive of sales tax paid or recovered.
2. The owner also took goods worth Rs. 200,000 for his private use.
3. Purchases include an invoice of Rs. 100,000 dated: 27-2-2004 which was not included in the Sales Tax Return for
February, 2004, due to it's late receipt.
4. Unadjusted imput tax carried forward from last month amounted to Rs. 45,000.
Required:
(i) Calculate Sales Tax payable by M/s Safi Electronics for the month of March 2004.
702____________________
___________________________________________________________Conceptual Approach to Taxes
Chapter 13 Solved Past Papers Sales Tax Numericals of ICMAP Stage IV - (2003 to 2015)
Sales tax credit c/f (A) less (B) 222,000
Explanations:
(N - 1) Goods taken for private use are chargeable to sales tax @ 17%.
(N - 2) Invoice not claimed in previous month can be claimed in six succeeding tax periods.
(N - 4) As the zero rated supplies are less than 50% of all taxable supplies under SRO 647(I)/2007 dated June 27, 2007,
therefore 90% limitation is applicable U/S 8B of the Sales Tax Act, 1990.
(N - 5) It has been assumed that 2% further tax u/s 3(1A) is not applicable on local taxable supplies to unregistered
persons under SRO 648(I)/2013 dated July 09, 2013 otherwise further tax shall be accounted for and paid seperately
without adjustment of the same against input tax / refund of the registered person and further it shall also not be
considered for the computation of 90% limitation on output tax.
704____________________
___________________________________________________________Conceptual Approach to Taxes
Third, Fifth and Sixth Schedules Chapter-14
Chapter
SCHEDULES
THE FIRST / SECOND / FORTH & SEVENTH SCHEDULES (Omitted)
SR. DESCRIPTION
1. Fruit juices & vegetable juices
2. Ice Cream
6. Toilet soap
7. Detergents
8. Shampoo
9. Toothpaste
10. Shaving cream
11. Perfumery & cosmetics
12. Tea
13. Powder drinks
14. Milky drinks
15. Toilet paper & tissue paper
16. Spices sold in retail packing bearing brand names & trade marks
17. Shoe polish & shoe cream
18. Fertilizers
19. Cement sold in retail packing
(iii) S UPPLIES OTHER THAN (iv) Supply of equipment & machinery for pilot age, salvage or towage services.
THE ABOVE [( FROM ( III ) (v) Supply of equipment & machinery for air navigation services.
TO ( VI)].
(vi) Supply of equipment & machinery for other services provided for the handling of ships
or aircraft in a port or Customs Airport.
2. S UPPLY TO DIPLOMATS , covered under various Acts, Orders, Rules, Regulations & Agreements passed by the
DIPLO MATIC MISSIONS , Parliament or issued or agreed by the Government of Pakistan.
PRIVILEGED PERSONS AND
PRIVILEGED ORGANIZATIONS
3. S UPPLIES TO DUTY FREE Provided that in case of clearance from duty free shops against various baggage rules
SHOPS issued under the Customs Act, 1969, the supplies from duty free shops shall be treated as
import for the purpose of levy of ST.
5. S UPPLIES
OF SUCH LOCALLY - To petroleum & Gas sector Exploration & Production companies,
MANUFACTURED PLANT AND
MACHINERY
- Their contractors & sub-contractors
as may be specified by the Federal Government, by notification in the official Gazette,
subject to such conditions and restrictions as may be specified in such notification.
6. S UPPLIES OF LOCALLY (i) Plant and machinery, operated by power of any description, as is used for the
MANUFACTURED PLANT AND manufacture or production of goods by that manufacturer;
MACHINERY OF THE
(ii) Apparatus, appliances and equipments specifically meant or adapted for use in
FOLLOWING
conjunction with the machinery specified in clause (i);
SPECIFICATIONS , TO
MANUFACTURERS IN THE (iii) Mechanical and electrical control and transmission gear, meant or adapted for use in
E XPORT P ROCESSING conjunction with machinery specified in clause (i); and
Z ONE , SUBJECT TO THE (iv) Parts of machinery as specified in clauses (i), (ii) and (iii) identifiable for use in or with
CONDITIONS , such machinery.
RESTRICTIONS AND
Conditions, restrictions and procedures:-
PROCEDURE GIVEN BELOW ,
NAMELY :- (a) the supplier of the machinery is registered under the Act;
(b) proper bill of export is filed showing registration number;
(c) the purchaser of the machinery is an established manufacturer located in the Export
Processing Zone and holds a certificate from the Export Processing Zone Authority to
that effect;
(d) the purchaser submits an indemnity bond in proper form to the satisfaction of the
concerned CIR that the machinery shall, without prior permission from the said
Commissioner, not be sold, transferred or otherwise moved out of the Export
Processing Zone before a period of five years from the date of entry into the Zone;
(e) if the machinery is brought to tariff area of Pakistan, sales tax shall be charged on the
value assessed on the bill of entry; and
(f) breach of any of the conditions specified herein shall attract legal action under the
relevant provisions of the Act, besides recovery of the amount of sales tax along with
default surcharge and penalties involved.
7. S UPPLIES MADE TO Subject to the observance of procedures, restrictions and conditions prescribed therein.
EXPORTERS UNDER THE D UTY
AND TAX RE MISSION R ULES ,
2001
8. I MPORTS OR SUPPLIES MADE Excluding vehicles falling under heading 87.02 of the Pakistan Customs Tariff, subject to
TO G AWADAR S PECIAL such conditions, limitations and restrictions as the Board may impose.
E CONOMIC Z ONE
11. RAW MAT ERIALS , If imported or purchases locally for use in the manufacturing of such plant and machinery
COMPONENTS , SUB as is chargeable to sales tax at the rate of zero percent subject to the condition that the
COMPONENTS AND PARTS importer or purchaser of such goods holds a valid sales tax registration showing his
registration category as manufacturer; and in case of import, all the conditions,
restrictions, limitations and procedures as are imposed by notification under section 19 of
the Customs Act, 1969 shall apply.
12. S PECIFIED GOODS The following goods and the raw materials, packing materials, sub components,
components, sub assemblies and assemblies imported or purchases locally for the
manufacture of the said goods subject to the conditions, limitations and restrictions as
specified in chapter XIV of the Sales Tax Special Procedure Rules, 2007:-
(i) Colours in sets
(ii) Writing, drawing and marking inks
(iii) Erasers
(iv) Exercise books
(v) Pencils sharpeners
(vi) Geometry boxes
(vii) Pens, ball pens, markers and porous tipped pens
(viii) Pencils including color pencils
(ix) Milk
(x) Preparations for infant use put up for retail sale
(xi) Fat filled mild
(xii) Bi cycles
32. Import of articles of household and personal effects including vehicles & also the goods for donation to projects established
in Pakistan imported by any of the rulers of Gulf Sheikhdoms who is in possession of residential accommodation in Pakistan
and goods including vehicles by the UAE dignitaries as are listed in column (2) against heading No. 99.05 in column (1) of
the First Schedule to the Customs Act, 1969 for their personal use and for donation to welfare projects established in
Pakistan subject to the similar conditions as are envisaged for the purposes of applying zero-rate of customs duty on such
goods under the said Act.
33. Goods imported or supplied under grants-in-aid for which a specific consent has been obtained from the Board; supplies &
imports under agreements signed by the Government of Pakistan before the 30-06-1996, provided the agreements
contained the provision for exemption of tax at the time of signing of agreement.
34. Import of all goods received, in the event of a natural disaster or other catastrophe, as gifts & relief consignments, including
goods imported for the President's Fund for Afghan Refugees, relief goods donated for Afghan Refugees, gifts for
President's Fund for Assistance of Palestine and gifts received by Pakistani organizations from Church World Services or
the Catholic Relief Services subject to the similar conditions as are envisaged for the purposes of applying zero-rate of
customs duty under the Custom Act.
35. Articles imported through post as unsolicited gifts, subject to the same conditions as are envisaged for the purposes of
applying zero-rate of customs duty under the Customs Act, 1969.
36. Imported samples, subject to the same conditions a'. are envisaged for the purposes of applying zero-rate of customs duty
under the Customs Act, 1969.
37. Goods imported by or donated to hospitals run by the Federal Government or a Provincial Government; and non-profit
making educational & research institutions subject to the similar restrictions, limitations, conditions and procedures as are
envisaged for the purpose of applying zero-rate of customs duty on such goods under the Customs Act, 1969.
38. Goods supplied to hospitals run by the Federal Government or Provincial Government or charitable operating hospitals of
fifty (50) beds or more or the teaching hospitals of statutory universities of two hundred (200) or more beds.
39. Import of all such gifts as are received, and such equipment for fighting tuberculosis, leprosy, AIDS and cancer and such
equipment and apparatus for the rehabilitation of the deaf, the blind, crippled or mentally retarded as are purchased or
otherwise secured by a charitable non-profit making institution solely for the purpose of advancing declared objectives of
such institution, subject to the similar conditions as are envisaged for the purposes of applying zero-rate of customs duty
under the Customs Act, 1969.
40. Educational, scientific & cultural material imported from a country signatory to UNESCO Agreement or a country signatory to
bilateral commodity exchange agreement with Pakistan, subject to the same conditions as are envisaged for the purposes
of exemption under the Customs Act, 1969.
41. Import of replacement goods supplied free of cost in lieu of defective goods imported, subject to similar conditions as
are envisaged for the purposes of applying zero-rate of customs duty under the Customs Act, 1969.
43. Goods (including dry fruits imported from Afghanistan) temporarily imported into Pakistan, meant for subsequent exportation
charged to zero-rate of customs duty subject to the similar restrictions, limitations, conditions & procedures as are envisaged
for the purpose of applying zero-rate of customs duty on such goods under the Customs Act, 1969.
44. Import of ship stores, subject to the procedures, conditions & restrictions as may be specified by the Collector of Customs in
this behalf including those consignments of such stores that have been released without charging sales tax since 01-07-
1998, but excluding such consignments of ship stores as have been cleared on payment of ST.
45. Artificial kidneys, eye cornea, hemodialysis machines, hemodialyzers, A.V. fistula needles, hemodialysis fluids & powder,
blood tubing tines for dialysis & reverse osmosis plants for dialysis, double lumen catheter for dialysis, catheter for renal
failure patient & peritoneal dialysis solution & angioplasty equipment (balloons, catheters, wires and stents), subject to the
similar conditions and procedures as are envisaged for the purpose of applying zero-rate of customs duty on these goods
under the Customs Act, 1969.
46. Contraceptives & accessories thereof.
47. Goods produced or manufactured in & exported from Pakistan which are subsequently imported in Pakistan within 1 year of
their exportation, provided conditions of section 22 of the Customs Act, 1969 are complied with.
48. Personal wearing apparel & bonafide baggage imported by overseas Pakistanis & tourists, if imported under various
baggage rules & is exempt from Customs duties.
49. Goods & services purchased by non-resident entrepreneurs & in trade fairs & exhibitions subject to reciprocity & such
conditions & restrictions as may be specified by the Board.
50 Goods and services purchased by non-resident entrepreneurs and in trade fairs and exhibitions subject to reciprocity and
such conditions and restrictions as may be specified by the Board.
52 Milk
53 Milk and cream, concentrated or containing added sugar or other sweetening matter, excluding that 04.01 and 04.02 sold in
retail packing under a brand name
54 Flavored milk, excluding that sold in retail packing under a brand name
58 Desi ghee, excluding that sold in retail packing under a brand name
61 Processed cheese not grated or powdered, excluding that sold in retail packing under a brand name
61 Cotton seed
62 Frozen, prepared or preserved sausages and similar products of poultry meat or meat offal
63 Meat and similar products of prepared frozen or preserved meat or meat offal of all types including poultry meat and fish
(a) filled infusion solution bags imported with or without infusion given sets;
(b) scrubs, detergents and washing preparations;
(c) soft soap or no-soap soap;
(d) adhesive plaster;
(e) surgical tapes;
(f) liquid paraffin;
(g) disinfectants; and
(h) cosmetics andtoilet preparations
85 Raw materials for the basic manufacture of pharmaceutical active ingredients and for manufacture of pharmaceutical
products, provided that in case of import, only such raw materials shall be entitled to exemption which are liable to customs
duty not exceeding ten per cent advalorem, either under the First Schedule or Fifth Schedule to the Customs Act, 1969 or
under a notification issued under section 19 thereof.
86 Import of Halal edible offal of bovine animals.
87 Import and supply of iodized salt bearing brand names and trademarks whether or not sold in retail packing.
88 Components or sub-components of energy saver lamps, namely:-
(a) Electronic Circuit (b) Plastic Caps (Upper and Lower)
(c) Base Caps B22 and E27 (d) Tungsten Filaments
(e) Lead-in-wire (f) Fluorescent Powder (Tri Band Phosphor)
(g) Adhesive Additive (h) Al-Oxide Suspension
(i) Capping Cement (j) Stamp Pad Ink
(k) Gutter for Suspension
89 Goods imported temporarily with a view to subsequent exportation, as concerned by the Board, including passenger service
item, provision and stores of Pakistani Airlines.
90 The following items with dedicated use of renewable source of energy like solar and wind, subject to certification by the
Alternative Energy Development Board (AEDB), Islamabad:-
(a) Solar PV panels;
(b) LVD induction lamps;
(c) SMD, LEDs with or without ballast, with fittings andfixtures;
(d) Wind turbines including alternators and mast;
(e) Solar torches;
(f) Lanterns and related instruments;
(g) PV modules along with related components, including invertors, charge controllers and batteries.
91 White crystalline sugar
92 Following cardiology/cardiac surgery, neurovascular, electrophysiology, endosurgery, endoscopy, oncology, urology,
gynaecology, disposables and other equipment:-
A. ANGIOPLASTY PRODUCTS
1. Coronary Artery Stents
2. Drugs Eluting Coronary Artery Stents
3. Coronary Artery Dialatation Catheters (Balloons)
4. PTCA Guide Wire
5. PTCA Guiding Catheters
6. Inflation Devices/Priority Packs
B. ANGIOGRAPHY PRODCUTS
1. Angiography Catheters
2. Sheaths
3. Guide Wires
4. Contrast Lines
5. Pressure Lines
6. Manifolds
C. CONTRAST MEDIA FOR ANGIOGRAPHY/ ANGIOPLASTY
1. Angiography Accessories
2. ASD Closure Devices
3. ASD Delivery Systems
4. VSD Closure Devices
5. VSD Delivery System
6. Guide Wires
7. Sizing Balloons
8. Sizing Plates
9. PDA Closure Devices
10. PDA Delivery system
D. TEMPORARY PACEMAKER (with leads, connectors and accessories)
E. PERMANENT PACEMAKER (with leads, connectors and accessories)
F. HEART FAILURE DEVICES (with leads, connectors and accessories)
G. IMPLANTABLE CARDIOVERTES (with leads, connectors and accessories)
H. CARDIAC ELECTRO PHYSIOLOGY PRODUCTS
1. Electrophysiology catheters
2. Electrophysiology cables
3. Electrophysiology connectors
I. LEAR CARDIOLOGY PRODUCTS
1. Radioactive isotopes
2. Cold kits (Cardioloite MAA, DTPA etc)
J. CARDIAC SURGERY PRODUCTS
1. Oxygenators
2. Cannulas
3. Prosthetic Heart
4. Valves
5. Luminal Shunts for heart surgery
6. Artificial limbs and appliances
K. EQUIPMENT
1. Cardiac Angiography Machine
2. Echocardiography Machines
3. ETT Machines
4. Gamma Camera for Nuclear cardiology studies
L. PERIPHERAL INTERVENTIONS EQUIPMENT
Disposables and other equipment for peripheral interventions including stents (including carotid and wall stents), balloons,
sheaths, catheters, guide wires, filter wires coils, needles, valves (including rotating homeostatic valves), connecting cables,
inflation devices adaptors.
93 High Efficiency Irrigation Equipment. (If used for agriculture sector)
(1) Submersible pumps (up to 75 lbs and head 150 meters)
(2) Sprinklers including high and low pressure (center pivotal) system, conventional sprinkler equipment, water reel
traveling sprinkler, drip or trickle irrigation equipment, mint irrigation sprinkler system.
(3) Air release valves, pressure gauges, water meters, back flow preventers, andautomatic controllers.
94 Green House Farming and Other Green House Equipment consisting of plastic covering and mulch film, anti-insect net and
shade net.(If used for agriculture sector)
1. Tunnel farming equipment
2. Green houses (prefabricated).
95 Plant, machinery and equipment Respective imported for setting up fruit headings processing and preservation units in Gilgit-
Baltistan, Balochistan Province and Malakand Division subject to the same conditions and procedure as are applicable for
import of such plant, machinery and equipment under the Customs Act, 1969 (IV of 1969).
th
96 Plant, machinery and equipment imported for setting up industries in FATA upto the 30 June, 2019 subject to the same
conditions and procedure as are applicable for import of such plant machinery and equipment under the Customs Act,
1969 (IV of 1969).
Blood Bag CPDA-1 with blood transfusion set pack in aluminum foil with set. Respective headings
Maintenance kits for use in trainer aircrafts of PCT headings Respective headings
Spare parts for use in aircrafts, trainer aircrafts or simulators Respective headings
Machinery, equipment and tools for setting up maintenance, repair and overhaul (MRO) workshop by MRO company
recognized by Aviation Division Respective headings
Operational tools, machinery, equipment and furniture and fixtures on one-time basis for setting up Greenfield airports by a
company authorized by Aviation Division Respective headings
Import of plant, machinery and production line equipment used for the manufacturing of mobile phones by the local
manufacturers of mobile phones duly certified by the Pakistan Telecommunication Authority. Respective headings
Table 2
(Exempt Local Supplies only) (Total 14 classes)
2. SUPPLY OF LOC ALLY Supply of locally produced crude vegetable oil obtained from the locally produced seeds,
PRODUCED CRUDE except cooking oil, without having undergone any process except the process of washing.
VEGETABLE OIL
4. IN HOUSE USE OF Raw material & intermediary goods manufactured or produced, & services provided or
MATERIAL & SERVICES rendered, by a registered person, consumed in-house for the manufacture of goods
BY RP subject to sales tax.
5. LIMITATIONS ON INPUT Supply of fixed assets against which input tax adjustment is not available under a
ST ON FIXED ASSETS notification issued in terms of clause (b) of sub-section (1) of section 8 of the Sales Tax
UNDER NOTIFICATION Act, 1990.
6. FOOD ITEMS Breads prepared in tandoors & bakeries, vermicillies, nans, chapattis, sheer mal, bun,
rusk.
7. FOODSTUFF COOKED OR and served in messes run on the basis of mutuality & industrial canteens for workers.
PREPARED IN- HOUSE
8. FOODSTUFF & OTHER in the flight kitchens & supplied for consumption on-board in local flights.
EATABLES PREPARED
Raw and pickled hides and skins, wet blue hides and skins
13. Supplies made by having annual turnover less than five million rupees even if their annual utility bill is more than
manufacturers of eight hundred thousand rupees.
marble and granite
th
14. B RICKS up to 30 June, 2018
th
15. Crushed stone up to 30 June, 2018
NOTES:
1. For the purposes of this Schedule, for entries against which classification of headings or sub-headings has been specified,
exemption shall be admissible on the basis of description of goods as mentioned in column 2 of this Schedule Pakistan
Customs Tariff classification of headings is provided for ease of reference & commodity classification purposes only.
2. For the purposes of determining classification of any goods, the general rules for interpretation of the First Schedule to the
Customs Act, 1969 & Explanatory Notes to the Harmonized Commodity Description and Coding System (relevant version)
as amended from time to time shall be considered authentic source of interpretation.
3. For the purposes of exemption of Sales tax under table 1 under various serial numbers (where applicable) of this Schedule,
the definitions, restrictions, limitations, conditions and procedures and all the provisions of Chapter 99 of the First Schedule
to the Customs Act, 1969, for the purposes of applying zero-rate of customs duty shall, mutatis mutandis, apply and shall be
deemed and construed to be part of this Schedule
Chapter
EIGHTH SCHEDULE
[See clause (aa) of sub-section (2) of section 3]
(Sesame Cake),
2306.9000 (Sesame
Meal/other Meal),
2842.1000 (Double or
complex silicates,
including
aluminosilicates whether
or not chemically
defined), 2301.2010
(Fish Meal), 0505.9000
(Poultry by product
Meal), and the following
items only of Feed
Grade:
2827.6000 (Potassium
Lodide), 2833.2990
(Manganese Sulphate),
2833.2600 (Zinc
Sulphate), 2817.4000
(Zinc Oxide), 2833.2500
(Copper Sulphate),
2833.2910 (Ferrous
Sulphate), 2915.5000
(Propionic acid, its salts
and esters), 2930.4000
(DL Methionine),
2930.4000 (Methionine
Hydroxy Analogue
(liquid)), 2922.4100
(Lysine Monohydro
Chloride /sulphate),
2923.2000 (Lecithins),
2923.9000 (Betafin),
2922.4290 (Arganine),
2934.9910
(Furazolidone),
2922.5000 (Threonine),
2835.2600 (Mono
Calcium Phosphate),
16. Incinerators of disposal of 8417.8000, 5%
waste management, 8430.2000 and
motorized weepers and 8479.8990
snow ploughs
17. Re-importation of foreign 99.18 5% Subject to similar conditions as are envisaged for
origin goods which were the purposes of customs duty under the Customs
temporarily exported out Act, 1969, and taxable value shall be the value
of Pakistan determined under PCT heading 99.18 of the said
Act increased by customs duty payable.
18. Reclaimed lead Respective headings 5% If supplied to recognized manufacturers of lead
and lead batteries
19. Waste paper 47.07 5% If supplied locally
20. Plant, machinery, Respective headings 5% The Alternative Energy Development Board
equipment and specific (AEDB), Islamabad shall certify in the prescribed
items used in production manner and format as per Annex-B, as given in the
of biodiesel Sixth Schedule, that the imported goods are
bonafide project requirement.
The goods shall not be sold or otherwise disposed
of within a period of five years of their import
except with the prior approval of the FBR and
payment of customs duties and taxes leviable at
the time of import
21. Rapeseed, sunflower 1205.0000, 1206.0000 16% On import by solvent extraction industries
seed and canola seed
22. Soya bean seed 1201.1000 6% On import by solvent extraction industries, subject
to the condition that no refund of input tax shall be
admissible;
23. Second hand and worn 6309.0000 5%
clothing or footwear
25. Agricultural tractors 8701.9020 10%
26. Tillage and seed bed 8432.8010 7%
preparation equipment: 8432.2910
(i) Rotavator (ii) 8432.8090
Cultivator (iii)
8432.3090
Ridger
8432.8090
(iv) Sub soiler
8432.1010
(v) Rotary slasher
8432.1090
(vi) Chisel plow
8432.2990
(vii) Ditcher
8432.2100
(viii) Border disc
8432.2990
(ix) Disc harrow
8432.1090
(x) Bar harrow
8430.6900
(xi) Mould board
plow 8430.6900
(xii) Tractor rear or 8432.8090
front blade 8432.1090
(xiii) Land leveller 8432.8090
or land planer 8432.8090
(xiv) Rotary tiller 8701.9020
(xv) Disc plow 8430.6900
(xvi) Soil-scrapper
(xvii) K.R.Karundi
(xviii) Tractor
mounted trancher
(xix) Land leveller
27. Seeding or planting 7%
equipment:
(i) Seed-cumfertilizer drill 8432.3010
(wheat, rice barley, etc.)
(ii) Cotton or maize
8432.3090
planter with fertilizer
attachment 8432.3090
(iii) Potato planter
8432.3090 8432.3090
(iv) Fertilizer or manure
spreader or broadcaster 8432.4000
8432.4000
(v) Rice transplanter
8432.3090
(vi) Canola or sunflower 8432.3090
drill 8432.3010
(vii) Sugarcane planter 8432.3010
8432.3090
8432.3090
28. Irrigation, drainage and 7%
agro-chemical application
equipment:
8421.2100,
(i) Tubewells filters or
718 Conceptual approach to Taxes
Eighth and Ninth Schedules Chapter-15
strainers 8421.9990
(ii) Knapsack sprayers 8424.2010
(iii) Granular applicator 8424.2010
(iv) Boom or field 8424.2010
sprayers 8424.2010
(v) Self propelled sprayers 8424.2010
(vi) Orchard sprayer
Table-2
Plant, machinery, equipment and apparatus, including capital goods, specified in column (2) of the Annexure below,
falling under the HS Codes specified in column (3) of that Annexure, shall be charged to sales tax at the rate of 5%
except goods mentioned in serial numbers 1, 4 and 5 of the Annexure which shall be at the rate of 10% subject to the
following conditions, besides the conditions specified in column (4) of the Annexure, namely:-
(i) the imported goods as are not listed in the locally manufactured items, notified through a Customs General Order
issued by the Board from time to time or, as the case may be, certified as such by the Engineering Development
Board.
(ii) the Chief Executive, or the person next in hierarchy duly authorized by the Chief Executive or Head of the importing
company shall certify in the prescribed manner and format as per Annex-A that the imported items are the company's
bonafide requirement. He shall furnish all relevant information Online to Pakistan Customs Computerized System
against a specific user ID and password obtained under section 155D of the Customs Act, 1969. In already
computerized Collectorates or customs stations where the Pakistan Customs Computerized System is not operational,
the Project Director or any other person authorized by the Collector in this behalf shall enter the requisite information
in the Pakistan Customs Computerized System on daily basis, whereas entry of the data obtained from the customs
stations which have not yet been computerized shall be made on weekly basis; and
(iii) in case of partial shipments of machinery and equipment for setting up a plant, the importer shall, at the time of arrival
of first partial shipment, furnish complete details of the machinery, equipment and components required for the
complete plant, duly supported by the contract, lay out plan and drawings.
Explanation.-In this Table the expression, capital goods mean any plant, machinery, equipment, spares and
accessories, classified in chapters 84, 85 or any other chapter of the Pakistan Customs Tariff, required for-
(a) the manufacture or production of any goods, and includes refractory bricks and materials required for setting
up a furnace, catalysts, machine tools, packaging machinery and equipment, refrigeration equipment, power
generating sets and equipment, instruments for testing, research and development, quality control, pollution
control and the like; or
(b) usein mining, agriculture, fisheries, animal husbandry, floriculture, horticulture, livestock, dairy and poultry industry.
Annexure
PCT
S. No Description Conditions
heading
(1) (2) (3) (4)
1 Machinery and equipment for development of Respective Nil
grain handling and storage facilities.
Headings
2 Cool chain machinery and equipment. Respective Nil
Headings
3 Respective
1. Machinery, Machinery, equipment 1. This concession shall be available to those
materials, capital goods specialized Headings Mineral Exploration and Extraction Companies
vehicles (4x4 non luxury) i.e. single or or their authorized operators or contractors
double cabin pickups accessories, spares, who hold permits, licenses leases and who
chemicals and consumables meant for enter into agreements with the
mineral exploration phase. Government of Pakistan or a Provincial
Government.
2. Temporarily imported goods shall be
2. Construction machinery, equipment and
cleared against a security in the form of a
specialized vehicles, excluding passenger
post-dated cheque for the differential
vehicles, imported on temporary basis as
amount between the statutory rate of
required for the exploration phase.
customs duty and sales tax and the
amount payable under notification, along
with an undertaking to pay the customs
duty and sales tax at the statutory rates in
case goods are not re-exported on
conclusion of the project.
3. The goods shall not b sold or otherwise
disposed of without prior approval of the
FBR and the payment of customs duties
and taxes liable at the time of import.
These shall however be allowed to be
transferred to other entitled mining
companies with prior approval of the
Board.
4 Complete plants for relocated industries Respective Nil
headings
5 Machinery, equipment and other capital goods
meant for initial installation, balancing,
modernization, replacement expansion of oil
refining (mineral oil, hydro- cracking and other
value added petroleum products) petrochemical and
petrochemical downstream products including
fibers and heavy chemical industry, cryogenic
facility forethylene storage and heading.
Annex-A
Header Information
NTN/FTN of importer Regulatory Authority No. Name of Regulatory Authority
(1) (2) (3)
Details of Input goods (to be filled by the chief executive of the Goods imported (Collectorate of Import)
importing company)
Date of CRN/Mach
Quantity imported
Custom Duty rate
CRN/Mach No.
Collectorate
(applicable)
Description
(applicable
HS Code
Quantity
Specs
WHT
UOM
No.
(4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)
CERTIFICATE. It is certified that the description and quantity mentioned above are commensurate with the project
requirement and that the same are not manufactured locally. It is further certified that the above items shall not be used for
any other purpose.
NOTE:- In case of clearance through Pakistan Customs Computerized System, the above information shall be furnished on
line against a specific user I.D. and password obtained under section 155D of the Customs Act, 1969.
Explanation.-
Chief Executive means.-
1. owner of the firm, in case of sole proprietorship; or
2. partner of firm having major share, in case of partnership firm; or
3. Chief Executive Officer or the Managing Director in case of limited company or multinational organization; or
4. Principal Officer in case of a foreign company.
Header Information
NTN/FTN of importer Approvel No.
(1) (2)
Details of Input goods (to be filled by the authorized office of Goods imported (Collectorate of Import)
Regulatory Authority)
Date of CRN/Mach
Quantity imported
Custom Duty rate
CRN/Mach No.
Collectorate
(applicable)
Description
(applicable
HS Code
Quantity
Specs
WHT
UOM
No.
(3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14)
CERTIFICATE Before certifying the above-authorized officer of the Regulatory Authority shall ensure that the goods are
genuine and bonafide requirement of the project and that the same are not manufactured locally.
Signature ________________________
Designation ________________________
NOTE:- In case of clearance through Pakistan Customs Computerized System, the above information shall be furnished on
line against a specific user I.D. and password obtained under section 155D of the Customs Act, 1969.]
"NINTH SCHEDULE
[See sub-section (3B) of section 3]
TABLE
(1) (2) (3) (4) (5)
S. No. Description/Specification Sales tax on Sales tax Sales tax on supply (
of Goods import or local chargeable at the payable at time of
supply at the time time of registration supply by CMOs)
of import of IMEI number by
CMOs
1. Subscriber Identification - - Rs. 250
Module (SIM) Cards
2. A. Low Priced Cellular Rs. 300 Rs. 300 -
Mobile Phones or Satellite
Phones
i. All cameras: 2.0 mega-
pixels or less
ii. Screen size: 2.6 inches or
less
iii. Keypad
B. Medium Priced Rs. 500 Rs.500 -
Cellular Mobile
Phones or Satellite
Phones
i. One or two
cameras: between
2.1 to 10 mega-pixels
ii. Screen size:
between 2.6 inches
and 5.0 inches
iii. Micro-processor:
less than 2 GHZ
C. Smart Cellular Rs. 1,000 Rs. 1,000
Mobile Phones or
Satellite Phones
i.one or two cameras:
10 mega-pixels and
above
ii. Touch Screen: 5.0
inches and above
iii. 4GB or higher
memory
iv. Operating system
of the type of IOS,
Android V2.3,
Android Gingerbread
or higher, Windows 8
or Blackberry RIM
v. Micro-processor
2GHZ or higher, dual
core or quad core
(i) In case of goods specified against S. No. 1 of the Table, the liability to charge, collect and pay sales tax shall be on
the Cellular Mobile Operator (CMO) at the time of supply. In case of the goods specified against S. No. 2, the liability
to pay sales tax at the time of import shall be on the importer and the liability to charge, collect and pay sales tax
payable on supplies shall be on Cellular Mobile Operator at the time of registering International Mobile Equipment
Identity (IMEI) number in his system.
(ii) The cellular Mobile Operators shall, if not already registered, obtain registration under the Sales Tax Act, 1990.
(iii) No IMEI shall be registered in his system by a Cellular Mobile Operator without charging and collecting the sales tax
as specified in the Table.
(iv) The Cellular Mobile Operator shall deposit, the sales tax so collected through his monthly tax return in the manner
prescribed in section 26 of the Sales Tax Act, 1990, and rules made there under.
(v) The Cellular Mobile Operator shall maintain proper records of all IMEI numbers registered for a period of six years,
and such records shall be produced for inspection, audit or verification, as and when required, by an authorized
officer of Inland Revenue.
(vi) The Pakistan Telecommunication Authority shall provide data regarding IMEI numbers registered with other Cellular
Mobile Operators to prevent double taxation on the same IMEI number in case of switching by a subscriber from one
operator to another, and to provide data regarding registration of IMEI numbers to the Board on monthly basis.
(via) The sales tax as indicated in column (3) of the table above shall be paid by the importer in case of imports and by the
manufacturer in case of locally manufactured cellular mobile phones.
(vii) No adjustment of input tax shall be admissible to the Cellular Mobile Operator or any purchaser of cellular mobile
phone against the sales tax charged and paid in terms of this Schedule.
(viii) The tax specified in column (4) of the Table shall be charged, collected and paid with effect from such date as may be
specified by the Board and the sales tax specified in column (3) shall stand withdrawn from the date so specified.
Note:- Notwithstanding anything contained in any other law for the time being in force, the levy, collection and payment of
sales tax under Notification No. S.R.O. 460(I)/2013 dated the 30th May, 2013, shall be always deemed to have been
lawfully and validly, levied, collected and paid.
Chapter
Acquisition on an asset;
Acquisition of a right to use an asset for more than 20 years or renewal of the lease or any premium paid thereon;
and
Purchase of modaraba certificate or a registered instrument of redeemable capital as defined in the Companies
Ordinance, 1984
The acquisition of an asset or right to use asset may be by purchase; gift; exchange; power of attorney other than revocable
and time bound (not exceeding 60 days) executed between spouses, father and son or daughter, grand parents and grand
children, brother and sister or surrender or relinquishment of rights by owner.
The acquisition may be effected orally or by deed or obtained through court decree. The acquisition should not be by
inheritance, or gift from spouse, parents, grand parents, a brother and a sister. In case of a bank, the capital value tax shall
be paid when general power of attorney is used to sell the mortgaged property offered as collateral other than traded
security for obtaining loan.
Provided that in case of a bank, the capital value tax shall be paid when general power of attorney is used to sell the
mortgaged property offered as collateral other than traded security for obtaining a loan.
ADDITIONAL TAX:
Where any person fails to collect or having collected fails to pay the CVT, as required, he shall be personally liable to pay
the tax along with additional tax @ 15% per annum.
WHO WILL COLLECT CVT AND WHEN:
1. The person responsible for registering or attesting the transfer of an asset, in respect of which the tax is payable,
shall collect CVT at the time of registering or attesting the transfer.
2. In case of motor vehicle purchased from a manufacturer in Pakistan, the manufacturer shall collect CVT before
making the delivery of the vehicle.
3. In case of motor vehicle imported into Pakistan, the collector of customs, at the time of Customs clearance collect
CVT on the value of such vehicle as increased by customs duty, sales, income and any other charges payable before
removal of the vehicle from custom area.
OTHER PROVISIONS:
- The proceeds of the tax collected under CVT shall be credited to the Federal Consolidated Fund under the head
specified by the Federal Government.
- The Commissioner Inland Revenue, on an application by assesses may revise any order made for CVT.
- The CBR may, by Notification in the Official Gazette, make provisions relating to the collection and recovery of, any
other matter relating to the CVT.
- The Federal Government G may, by Notification in the Official Gazette, exempt, any person or class of persons or
asset or class of assets from the CVT subject to such conditions as may be specified in the notification.
Provided that with a view to facilitate to the process of privatization, the sale of assets of Kot Addu Power Station
shall be exempt from payment of CVT with effect from 27-06-1996.
Q.6(c) Spring 2014 The tax on the capital value of the assets is called the Capital Value Tax. Identify the situations where
capital value tax would be payable.
Chapter
1 DEFINITIONS
2. Definitions. - In this Act, unless there is anything repugnant in the subject or context,
(1) "adjudicating authority" means any authority competent to pass any order or decision under this Act or the
rules made there under, but does not include the Board or Appellate Tribunal;
(2) "adjustment" means deduction of amount of duty paid on goods used in the manufacture or production of
other goods from the amount of duty payable on such other goods in the prescribed manner;
(3) "Appellate Tribunal" means Appellate Tribunal Inland Revenue established under section 130 of the ITO,
2001;
(4) "Board" means the Federal Board of Revenue established under the Central Board of Revenue Act, 1924 (IV
of 1924) and on the commencement of the Federal Board of Revenue Act, 2007, the Federal Board of
Revenue established under section 3 thereof.
(4A) "Chief Commissioner" means a person appointed as Chief Commissioner Inland Revenue under section
29;"
(5) "Commissioner" means an person appointed as Commissioner Inland Revenue under section 29 of this Act;
(6) Commissioner" means any means of transport used for carrying goods or passengers such as vessel,
aircraft, vehicle or animal etc.:
(8) "Distributor" means a person appointed by a manufacturer in or for a specified area to purchase goods from
him for sale to a wholesale dealer in that area;
(8a) "due date", in relation to furnishing a return under section 4, means the 15th day of the month following the
end of the month, or such other date as the Federal Government may, by notification in the official Gazette,
specify.
(8b) "dutiable goods" means all excisable goods specified in First Schedule except those which are exempt
u/s16;
(8c) "dutiable supply" means a supply of dutiable goods made by a manufacturer other than a supply of goods
which is exempt under section 16 of the Act;
(8d) "dutiable services" means all excisable services specified in the First Schedule except those which are
exempt under section 16 of the Act;
(9) "duty" means any sum payable under the provisions of this Act or the rules made there under and includes
the default surcharge and the duty chargeable at the rate of zero per cent;
(9a) "duty due" means duty in respect of supplies made or services provided or rendered during a month and shall
be paid at the time of filing of return;
(10) "establishment" includes an undertaking, firm or company, whether incorporated or not, an association of
persons and an individual:
manufactured, or wherein or in any part of which any manufacturing process connected with the production of
the part of which goods are
(11) "factory" means any premises, including the precincts thereof, wherein or in any goods is being carried on
or is ordinarily carried on;
(12) "Officer of Inland Revenue" means any officer appointed by the Board as officer of Inland Revenue under
section 29 or any person including an officer of the Provincial Government invested by the Board with any of
the powers of an officer of Inland Revenue under this Act or rules made there under;
(12a) "franchise" means an authority given by a franchiser under which the franchisee is contractually or otherwise
granted any right to produce, manufacture, sell or trade in or do any other business activity in respect of goods
or to provide service or to undertake any process identified with franchiser against a fee or consideration
including royalty or technical fee, whether or not a trade mark, service mark, trade name, logo, brand name or
any such representation or symbol, as the case may be, is involved
(13) "goods" means goods leviable to excise duty under this Act or as specified in the First Schedule and includes
goods manufactured or produced in non-tariff area and brought for use or consumption to tariff area;
(14) "goods insurance" includes fire, marine, theft, accident and other such miscellaneous insurance;
(15) "import" and "export" mean respectively bringing into, and taking out of Pakistan by sea, land or air and
shall be deemed to have always been so defined;
(15a) "KIBOR" means Karachi Inter Bank Offered Rate prevalent on first day of each quarter of the financial year;"
(b) any process of re-manufacture, remaking, reconditioning or repair and the processes of packing or repacking
such product, and, in relation to tobacco, includes the preparation of cigarettes, cigars, cheroots, biris,
cigarette and pipe or hookah tobacco, chewing tobacco or snuff or preparation of unmanufactured tobacco
drying, cutting and thrashing of raw tobacco, and the word "manufacturer" shall be construed accordingly and
shall include,-
(i) any person who employs hired labour in the production or manufacture of goods; or
(ii) any person who engages in the production or manufacture of goods on his own account if such goods
are intended for sale; and
(iii) any person who, whether or not he carries out any process of manufacture himself or through his or any
other person, gets any process of manufacture carried out on his behalf by any person who is not in his
employment;
Provided that any person so dealing in goods shall be deemed to have manufactured for all purposes of this Act,
such goods in which he deals in any capacity whatever;
(16a) "non-fund banking services" includes all non-interest based services provided or rendered by the banking
companies or non-banking financial institutions against a consideration in the form of a fee or commission or
charges;
(17) "non-tariff area" means Azad Jammu and Kashmir, Northern Areas and such other territories or areas to
which this Act does not apply;
(18) "person" includes a company, an association, a body of individuals, whether incorporated or not, a public or
local authority, a Provincial Government or the Federal Government;
(19) "prescribed" means prescribed under this Act or by rules made there
(19a) "franchise" means an authority given by a franchiser under which the franchisee is contractually or otherwise
granted any right to produce, manufacture, sell or trade in or do any other business activity in respect of goods
or to provide service or to undertake any process identified with franchiser against a fee or
consideration including royalty or technical fee, whether or not a trade mark, service mark, trade name, logo,
brand name or any such representation or symbol, as the case may be, is involved;
(20) "registered person" means a person who is registered or is required to be registered under this Act provided
that a person who is not registered but is required to be registered shall not be entitled to any benefit or
privilege under this Act or rules made there under, unless he is registered and such benefit and privilege,
unless allowed by Board, shall be confined to period of registration;
(21) "sale" and "purchase" with their grammatical variations and cognate expressions, mean any transfer of the
possession of goods or rendering and providing of services by one person to another in the ordinary course of
trade or business for cash or deferred payment or other consideration;
(21a) "sales tax mode" means the manner of collection and payment under the Sales Tax Act, 1990, and rules
made there under, of the duties of excise chargeable under this Act specified to be collected and paid as if
such duties were tax chargeable under section 3 of the said Act and all the provisions of that Act and rules,
notifications, orders and instructions made or issued there under shall, mutatis mutandis, apply to the excise
duty so chargeable; and
(23) "services" means services, facilities and utilities leviable to excise duty under this Act or as specified in the
First Schedule read with Chapter 98 of the Pakistan Customs Tariff, including the services , facilities and
utilities originating from Pakistan or its tariff area or terminating in Pakistan or its tariff area;
(23a) "supply" includes sale, lease or other disposition of goods and shall include such transaction as the Federal
Government may notify in the official Gazette from time to time;
(24) "tariff area" means area other than the non-tariff area;
(24A) "whistleblower" means whistleblower as defined in section 42D of the Federal Excise Act, 2005;
(25) "wholesale dealer" means a person who buys or sells goods wholesale for the purpose of trade or
manufacture, and includes a broker or commission agent who, in addition to making contracts for the sale or
purchase of goods for others, stocks such goods belonging to others as an agent for the purpose of sale; and
"Zero-rated" means duty of Federal excise levied and charged at the rate of zero per cent under section 5 of
this act.
Q.NO.6(b) August 2014 Define the following terms as per section (2) of the Federal Excise Act, 2005:
(i) Franchise.
(ii) Property Developers or Promoters
Q. No. 6(b) Spring 2014 Define the following terms as per section (2) of the Federal Excise Act, 2005:
(i) Establishment
(ii) Non-Fund Banking Services
Q. No. 6(b) Spring 2013 Define the term sales tax mode as provided under section 2(21A) of Federal Excise Act,
2005. Under what circumstances federal excise duty is payable in sales tax mode as per section 7 of the
Federal Excise Act, 2005? Explain any three
Q. No. 7(a)(ii) February 2013 Define the following terms under the provisions of the Federal excise Act, 2005:
- Adjustment
- Duty due
Q.6 (c) APRIL 2012 In the light of the Federal Excise Act, 2005, define the following terms:
(i) Establishment
(ii) Conveyance
(iii) Import and export
6 (b) SUMMER-2009 Under the Federal Excise Act, 2005, explain the following:
(i) Basis of duty charged
(ii) Establishment and Franchise
6 (a) SUMMER-2008 Define the following terms as used in the Federal Excise Act, 2005:
(i) Factory
(ii) Sale and Purchase
6 (a) WINTER-2007 Define the following terms as used in Federal Excise Act, 2005
(i) Non-tariff area
(ii) Establishment
(iii) Import and export
6 (a) SUMMER-2007 What is meant by due date as per section 2(8a) of the Federal Excise Act, 2005?
8 (b) WINTER-2006 Define the following in terms of the Federal Excise Act, 2005
(i) Duty due section 2(9a)
(ii) Goods section 2(13)
(iii) Zero rated section 2(26)
Chapter
(a) on the production capacity of plants, machinery, undertakings, establishments or installations producing
manufacturing such goods; or
(b) on fixed basis, as it may deem fit, on any goods or class of goods or on any services or class of
services, payable by any establishment or undertaking producing or manufacturing such goods or
providing or rendering such services.
(3A) Subject to the provision of sub-section (3) of section 6 or any notification issued there under, where excisable
goods and services are supplied to a person who has not obtained registration number, the Federal
Government may, by notification in the official Gazette, charge, levy and collect, on the excisable goods and
services specified in that notification, a further duty at the rate of two per cent of the value in addition to the
rate specified in sub-sections (1), (3), (4) and (5) of this section.
(4) The FG may levy and collect duty on any class or classes of goods or services by notification in the official
Gazette at such higher or lower rate or rates as may be specified in such notification.
(5) The liability to pay duty shall be-
(a) in case of goods produced or manufactured in Pakistan, of the person manufacturing or producing such
goods;
(b) in case of goods imported into Pakistan, of the person importing such goods;
(c) in case of services, provided where services are rendered by the person out of Pakistan, the recipient
of such services in Pakistan shall be liable to pay Duty;
(d) in case of goods produced or manufactured in non-tariff areas and brought to tariff areas for sale or
consumption therein, of the person bringing or causing to bring such goods to tariff areas.
2. Filing of return and payment of duty etc. (U/S 4)
(1) For every month, a registered person shall furnish not later than the due date a true and correct return in such
manner and form as may be prescribed by the board by notification in the official Gazette.
(2) Duty due for the dutiable supplies made or services rendered during a month shall be deposited by the
registered person in the designated branch of the bank at the time of filing of his return as stated above:
Provided that FBR may, by notification in the official Gazette, prescribe any other manner of depositing the
duty.
(3) If during any month, there is a change in the rate of duty, a separate return showing the application of different
rates of duty shall be used in respect of each portion of such month.
(4) A registered person may, subject to approval of the CIR having jurisdiction, file a revised return within 120
days of the filing of return as above, to correct any omission or wrong declaration made therein.
(5) The FBR may, by notification in the official Gazette, require any person or class of person for any goods or
class of goods to furnish such summary or details of particulars pertaining to imports, purchases, utilization,
consumption, production, sales or disposal of such goods during any month or months in such formate and
manner as may be specified and provisions of this subsection shall apply equally in respect of services.
(6) The FBR may by an order, specify the manner and procedure for filing of return for the purpose of this Act or
rules made there under and for payment of duty by electronic means. The Board may specify the manner and
procedure for the submission, receipt and transmission of any information for the purpose of this Act or rules
made there under by electronic means.
(7) Every amount of duty due from any person on any other account shall also be deposited on the prescribed
return in the bank branch designated and in the same manner as aforesaid.
(8) The Board may, by rules made under this Act, prescribe a composite return.";
3. Zero rate of duty and drawback of duty etc. (U/S 5)
(1) Without considering the provisions of section 3, the goods exported out of Pakistan or such goods as may be,
by a notification in the official Gazette, specified by the FG shall be charged to duty at the rate of 0% and
adjustment of duty in terms of section 6 shall be admissible on such goods.
(2) The FBR may, by notification in the official Gazette, grant drawback of duty paid on any goods used in the
manufacture of any goods manufactured in and exported out of Pakistan, or shipped as provisions or stores
for consumption on board a ship or aircraft proceeding to a destination outside Pakistan, at such rate or rates
and subject to such conditions and limitations as may be specified in the notification.
(3) The Board may, by notification in the official Gazette, prohibit the payment of drawback, refund or adjustment
of duty upon the exportation of goods or any specified goods or class of goods to any specified foreign port or
territory.
Provided that no business enterprise or a part thereof shall be sold or transferred unless the outstanding duty
is paid and a NOC in this behalf from the Commissioner concerned is obtained.
(3) In case of termination of a business or part thereof involving any outstanding charge of duty, a person
terminating such business or part thereof shall be required to account for and pay the outstanding charge of
duty as if no such termination has taken place.
8. Applicable value and rate of duty (U/S 10)
The value and the rate of duty applicable to any goods or services shall be the value, retail price, tariff value and the
rate of duty in force,-.
(a) in the case of goods, on the date on which the goods are supplies for export or for home consumption;
(b) in the case of services, on the date on which the services are provided or rendered; and
(c) in the case of goods produced or manufactured outside the areas to which this Act has been applied and
brought to such areas for sale or consumption therein, the date on which the goods are brought to the areas.
9. Collection of excess duty etc (U/S 11)
Every person who for any reason whatever has collected or collects any duty, which is not payable as duty or which is
in excess of the duty actually payable and the incidence of which has been passed on to the consumer, shall pay the
amount so collected to the FG and all the provisions of this Act or rules made there under shall apply for the recovery
of such amount and claim for refund of any such amount paid or recovered shall not be admissible on any ground
whatever.
10. Determination of value for the purposes of duty (U/S 12)
(1) Where any goods are liable to duty under this Act at a rate dependent on their value, duty shall be assessed
and paid on the basis of value as determined in accordance with section 2(46) of the STA, 1990, excluding the
amount of duty payable thereon."
(2) Where any services are liable to duty under this Act at a rate dependent on the duty shall be paid on total
amount of charges for the services including the ancillary facilities or utilities, if any irrespective whether such
services have been rendered or provided on payment of charge or free of charge or on any confessional basis.
(3) Where any goods are chargeable to duty at the import stage, duty will be assessed and paid on the value
determined in accordance u/s of the Customs Act, 1969 including custom duties payable thereon.
(4) Where any good is chargeable to a duty on the basis of retail price, duty thereon shall retail price fixed by the
manufacturer, inclusive of all duties, charges and taxes, other than sales collected u/s 3 of the STA, 1990, at
which any particular brand or variety should be sold to the general body of consumers or, if more than one
such price is so fixed for the variety, the highest of such price and such retail price shall, unless otherwise
directed by the Board, be legibly, prominently and indelibly indicated on each good, packet, container,
package, cover or label of such goods:
Provided that where so and as specified by the Board, any goods or class of goods liable to duty on local
production as percentage of retail price, the provisions of this sub-section shall equally in case such goods are
imported from abroad:
Provided that the Board may through a general order specify zones or areas only for the purpose of
determination of highest retail price of any brand or variety of goods.
(5) The Board may fix the minimum price of any goods or class of goods, for the purpose of levying and collecting
of duty and duty on such goods shall be paid accordingly:
Provided that, where the price at which the goods or class of goods are sold, is higher than the price fixed by
the Board, the duty shall, unless otherwise directed by the Board, be levied and collected at such higher price.
11. Registration (U/S 13)
(1) Any person engaged in the production or manufacture of goods or providing or rendering services liable to
duty of excise under this Act shall, unless otherwise specified, be required to obtain registration in the
prescribed manner regardless of his annual turnover or volume of sales of such goods or services.
(2) Where a person who is already registered under the STA, 1990, shall not be required to take separate
registration for excise purpose and his sales tax registration shall be deemed to be a registration for the
purpose of this Act:
Provided that provisions of the STA, 1990, including those relating to exemption threshold shall not apply
where a person obtains or is liable to obtain registration for the purposes of this Act but does not have or is not
liable to registration under the STA, 1990.
12. Recovery of unpaid duty or of erroneously refunded duty or arrears of duty, etc. (U/S 14)
(1) Where any person has not levied or paid any duty or has short levied or short paid such duty or where any
amount of duty has been refunded erroneously, such person shall be serviced with notice requiring him to
show cause for payment of such duty provided that such notice shall be issued within 5 years from the
relevant date.
(2) The OIR, empowered in this behalf, shall after considering the objections of the person served with a notice to
show cause as above, determine the amount of duty payable by him and such person shall pay the amount so
determined along with default surcharge and penalty as specified by such officer under the provisions of this
Act;
Provided that an order under this section shall be made within 120 days of issuance of show cause notice or
within such extended period as the CIR may, for reasons to be recorded in writing, fix, provided that such
extended period shall in no case exceed 60 days:
Provided further that any period during which the proceedings are adjourned on account of a stay order or;
ADR proceedings or the time taken through adjournment by the petitioner not exceeding 30 days shall be
excluded from the computation of the periods specified in the first proviso.
(3) Where any amount of duty levied and penalty imposed or any other amount payable under this Act is due from
any person, such amount or sum shall be recovered in such manner as is prescribed under this Act or rules
made there under.
(4) Notwithstanding anything contained under any other law for the time being in force, where any business or
activity involving liability to charge, levy and pay duty under this Act is sold, discontinued or liquidated, the
amount of unpaid or recoverable duty shall be the first charge on the assets of the business.
Explanation: For the purpose of this section, refund includes drawback of duty and] the expression "relevant
date" means the date on which the payment of duty was due as above and in case where any amount of duty
has been erroneously refunded, the date of its refund.
13. Short paid amounts recoverable (U/S 14A)
Notwithstanding the provisions of this Act or the rules made there under, here a registered person pays the amount of
duty less than the duty due as indicated in his return, the short paid amount of duty along with default surcharge shall
be recovered from such person by stopping removal of any goods from his business premises and through
attachment of his business bank accounts without prejudice to any other action under this Act or the rules made there
under:
Provided that no penalty under this Act or rules made there under shall be imposed unless a show cause notice is
given to such person.
14. Application of the Customs Act, 1969 to Federal excise duties (U/S 15)
The FG may, by notification in the official Gazette, declare that any or all of the provisions of the Customs Act, 1969,
shall, with such modifications and alterations it may specify, consider necessary or desirable to adapt them to the
circumstances, be applicable in regard to like matters in respect of the duties levied by section 3 and 8.
15. Exemptions (U/S 16)
(1) All goods imported, produced or manufactured in Pakistan and services provided or rendered except such
goods and services as are specified in the First Schedule shall be exempt from whole of excise duties levied
under section 3:
Provided that goods and services specified in the Third Schedule shall be exempt from duty subject to such
conditions and restrictions, if any, specified therein and no adjustment in terms of section 6 shall be admissible
in respect of goods exempt from duty of excise whether conditionally or otherwise.
(2) The FG may pursuant to the approval of the Economic Coordination Committee of Cabinet, whenever
circumstances exist to take immediate action for the purposes of national security, natural disaster,
national food security in emergency situations, protection of national economic interests in situations
arising out of abnormal fluctuation in international commodity prices, removal of anomalies in duties,
development of backward areas and implementation of bilateral and multilateral agreements;
(3) Notwithstanding the provisions as above, the FG or the Board may, by a notification in the official Gazette, for
reasons to be recorded, exempt any person or class of persons from payment of the whole or part of the
default surcharge imposed u/s 8 and penalties subject to the conditions or limitations as may be specified in
such notification.
(4) The Federal Government shall place before the National Assembly all notifications issued under this
section in a financial year.
(5) Any notification issued, shall, if not earlier rescinded, stand rescinded on the expiry of the financial year in
which it was issued.
16. Records (U/S 17)
(1) Every person registered for the purposes of this Act shall maintain and keep for a period of 6 years "or till such
further period the final decision in any proceedings including proceedings for assessment, appeal, revision,
reference, petition and any proceedings before an ADRC finalized," at his business premises or registered
office in English or Urdu language the following records of excisable goods purchased, manufactured and
cleared (including those cleared without payment of excise duty) by him or by his agent acting on his behalf in
such form and manner as would permit ready ascertainment liability of duty, namely:
(a) records of clearances and sales made indicating the description, quantity and value of goods, and
address of the person to whom sales were made and the amount of the duty charged;
(b) records of goods purchased showing the description, quantity and value of goods, name, address and
registration number of the supplier and the amount of the duty, if any, on purchases;
(c) records of goods cleared and sold without payment of duty;
(d) records of invoices, bills, accounts, agreements, contracts, orders and other allied business matter
(da) record relating to gate passes, inward or outward, and transport receipts;
(e) records of production, stocks and inventory;
(f) records of imports and exports; and
(g) such other records as may be specified by the Board.
(2) For any person or class of persons registered under this Act, or for any goods or class of goods the board may
specify or prescribe;
(a) to keep any other records for the purposes of this Act;
(b) to use such electronic fiscal cash registers as may be approved by the Board; and
(c) the procedure or software for electronic maintenance of records and filing of statements, documents or
information by any person or class of persons,
(3) Above provisions shall apply mutatis mutandis on services provided or render person registered under this
Act.
17. Invoices (U/S 18)
(1) A person registered under this Act shall issue for each transaction a serially numbered at the time of clearance
or sale of goods, including goods chargeable to duty at the rate of zero percent, or providing or rendering
services containing the following particulars, namely:
I. name, address and registration number of the seller;
II. name, address and registration number of the buyer; date of issue of the invoice;
III. description and quantity of goods or as the case may be, description of services;
IV. value exclusive of excise duty;
V. amount of excise duty; and
VI. value inclusive of excise duty.
(2) Where a registered person is also engaged in making supplies taxable under the STA, 1990, such person
shall not be required to issue a separate invoice for excise purposes and the amount of excise duty and other
related information may in such cases be mentioned on the invoice issued for sales tax purposes.
(3) The Board may, by notification in the official Gazette, specify such modified invoices for different persons or
classes of persons as it may deem necessary.
(4) The Board may, by notification in the official Gazette, specify goods in respect of which a copy of the invoice
shall be carried or accompanied with the conveyance during their transportation or movement in such manner
and subject to such conditions as may be specified in this behalf either in such notification or otherwise.
(5) The Board may, by notification in the official Gazette, specify the goods or services in respect of which sales
invoice shall be issued electronically and prescribe the manner and procedure therein.
Chapter
(10) Any goods in respect of which any of the provisions of this Act or rules made or notifications issued there
under has been contravened shall be liable to confiscation along with the conveyance, if any, in which such
goods are laden or have been or being carried and all confiscations in this regard shall vest with the Federal
Government.
(11) Any person who attempts to commit any offence punishable under this Act, or abets the commission of the
offence, shall be liable to the punishment provided for the offence.
2. Appeals to Commissioner (Appeals) (U/S 33)
(1) Any person other than OIR aggrieved by any decision or order passed under this Act or the rules made there
under by OIR up to the rank of Additional CIR, other than a decision or order or notice given or action taken for
recovery of the arrears of duty under this Act or rules made there under may within 30 days of receipt of such
decision or order prefer appeal there from to the CIR(Appeals).
(1A) Where in a particular case, the Commissioner (Appeals) is of the opinion that the recovery of tax levied under
this Act, shall cause undue hardship to the taxpayer, he, after affording opportunity of being heard to the
Commissioner or officer of Inland Revenue against whose order appeal has been made, may stay the
recovery of such tax for a period not exceeding thirty days in aggregate.
(2) The CIR(Appeals) may, after giving both parties to the appeal an opportunity of being heard, pass such order
as he thinks fit, confirming, varying, altering, setting aside or annulling the decision or order appealed against:
"Provided that such order shall be passed not later than 120 days from the date of filing of appeal or within
such extended period, not exceeding 60 days, as the Collector (Appeals) may, for reasons to be recorded in
writing, extend.": "Provided further that any period during which the proceeding are adjourned on account of
stay order or ADR proceedings or the time taken through adjournment by the petitioner not exceeding 30 days
shall be excluded for the computation of these period."
(3) In deciding an appeal, the CIR (Appeals) may make such further inquiry as may be necessary provided that he
shall not remand the case for de novo consideration.
3. Appeals to the Appellate Tribunal and Reference to High Court (U/S 34)
(1) Any person or OIR aggrieved by any of the following orders may within 60 days of the receipt of such orders
file appeal to the ATIR against such orders,-
(a) an order passed by the CIR(Appeals); and
(b) an order passed by the Board or the CIR u/s 35:
Provided that the ATIR shall decide the appeal filed under this sub-section within 6 months of its filing of
appeal. Officer of lower rank than the CIR, and the reference or appeal is pending before appeal forum or the
Court, such reference or appeal shall be deemed to have been filed and shall be taken to have been always so
filed by the Commissioner.
(2A) The Appellate Tribunal may admit, hear and dispose of the appeal in accordance with procedure laid down in
section 131 and 132 of Income Tax Ordinance 2001 and rules made there under.
(2B) AII Appeals and proceedings under this act pending before the Customs, Excise and Sales Tax Appellate
Tribunal constituted under section 194 of the Customs Act, 1969, shall stand transferred to the Appellate
Tribunal constituted under section 130 of Income Tax Ordinance, 2001 with effect from the date of
promulgation of the Finance (amendment) Ordinance, 2009.
4. Reference to High Court (U/S 34A)
(1) Within ninety days of the communication of the order of the Appellate Tribunal under sub-section (2A) of
section 34, the aggrieved person or the Commissioner may prefer an application, in the prescribed form along
with a statement of the case, to the High Court, stating any question of law arising out of such order.
(2) The statement to the High Court (HC) referred to in sub-section (1), shall set out the facts, the determination of
the Appellate Tribunal and the question of law which arises out of its order.
(3) Where, on an application made under sub-section (1), the HC is satisfied that a question of law arises out of the
order referred to in sub-section (1), it may proceed to hear the case.
(4) A reference to the HC under this section shall be heard by a Bench of not less than two judges of the HC and
in respect of the reference, the provisions of section 98 of the Code of Civil Procedure, 1908 shall apply.
(5) The HC upon hearing a reference under this section shall decide the question of law raised by the reference
and pass judgment thereon specifying the grounds on which such judgment is based and the Tribunal's order
shall stand modified accordingly. The Court shall send a copy of the judgment under the seal of the Court to
the Appellate Tribunal.
(6) Notwithstanding that a reference has been made to the HC, the tax shall be payable in accordance with the
order of the Appellate Tribunal.
(7) Where recovery of tax has been stayed by the HC by an order, such order shall cease to have effect on the
expiration of a period of 6 months following the day on which it was made unless the appeal is decided or such
order is withdrawn by the HC earlier.
(8) Section 5 of the Limitation Act, 1908 shall apply to an application made to the HC under sub-section (1).
(9) An application under sub-section (1) by a person other than the Commissioner shall be accompanied by a fee
of Rs.100.
5. Powers of Board or Commissioner to pass certain orders (U/S 35)
(1) The Board or the Commissioner within his jurisdiction, may suo moto, or otherwise call for and examine the
records of any proceedings under this Act for the purpose of satisfying itself or, as the case may be, himself as
to the legality or propriety of any decision or order passed by a subordinate officer and may pass such order
as it or he may think fit.
(2) No order confiscating goods of greater value or enhancing any fine, or imposing or enhancing any penalty, or
requiring payment of any duty not levied or short-levied shall be passed under sub-section (1) unless the
person affected thereby has been given an opportunity of showing cause against it and of being heard in
person or through a counsel or other person duly authorized by him.
(3) No record of any proceedings relating to any decision or order passed by any officer of Inland Revenue shall
be called for or examined under subsection (1) after the expiry of two years from the date of such decision or
order.
Explanation.- For the purpose of sections 35, 45 and 46 and for removal of doubt, it is declared that the
powers of the Board, Commissioner or officer of Inland Revenue under these sections are independent of the
powers of the Board under section 42B and nothing contained in section 42B restricts the powers of the Board,
Commissioner or officer of Inland Revenue under these sections or to conduct audit under these sections.
6. Power to rectify mistakes in orders (U/S 36)
The Federal Government, the Board or any OIR may rectify any mistake which is apparent from the record in any
order passed by it or him under any of provisions of this Act or the rules made there under, on its or his own motion or
on an application made by a person affected by the order within 3 years of the passing of such order provided that no
such rectification which has the effect of enhancing any penalty or fine or requiring the payment of a greater amount
of duty shall be made unless the person affected by the proposed rectification has been given an opportunity of being
heard.
7. Deposit, pending appeal, of duty demanded or penalty levied (U/S 37)
(1) Where in any appeal, the decision or order appealed against relates to any duty demanded or penalty imposed
under this Act, the person desirous of appealing against such decision or order shall, pending appeal, deposit
the duty demanded or the penalty imposed provided that the Appellate Tribunal or Commissioner (Appeals)
may in any particular case dispense with such deposit subject to such conditions as it may deem fit to impose
so as to safeguard the interest of revenue.
(2) The order for such dispensation under sub-section (1) shall cease to have effect on the expiration a period of 6
months following the date on which order for dispensation was passed or until the order of dispensation is
withdrawn earlier or the case is finally decided earlier by the Appellate Tribunal or Commissioner (Appeals).
(3) Notwithstanding sub-sections (1) and (2), the Appellate Tribunal or Commissioner (Appeals) may direct that,
pending decision on the appeal, the duty demanded or penalty imposed, along with the default surcharge
payable under this Act, be paid by the appellant in suitable installments spread over a period not exceeding six
months from the date of such direction:
Provided that where a person has, at the time of filing appeal, deposited fifteen per cent of the liability covered
under the decision or order appealed against, he shall not be required to separately seek stay against recovery
and stay in such a case shall commence from the date of payment of such 15% amount and shall remain valid
till the expiry of a period of 6 months or till the decision of the appeal, whichever is earlier unless the case is
decided in his favour and the amount so paid is claimed to have become due for refund.
8. Alternative dispute resolution (U/S 38)
(1) Notwithstanding any other provisions of this Act, or the rules made there under, any registered person
aggrieved in connection with any dispute pertaining to;
(a) the liability of excise duty against the registered person or, as the case may be, admissibility of refunds;
(b) the extent of waiver of default surcharge and penalty; (c) the confiscation of goods;
(d) relaxation of any procedural or technical irregularities and condonation of any prescribed time limitation;
and
(e) any other specific relief required to resolve the dispute, may apply to the Board for the appointment of a
committee for the resolution of any hardship or dispute mentioned in detail in the application and if
dispute is under litigation in any Court of law or an Appellate authority, except in the cases where first
information reports ( F.I.R's ) have been lodged under this Act or criminal proceedings initiated or where
interpretation of question of law having larger revenue impact in the opinion of the Board is involved,
may apply to the Board for the appointment of a Committee for the resolution of dispute in appeal and
only such application may be entertained for dispute resolution under the provisions of this section.
(2) The Board may, after examination of the application of a registered person, appoint a committee within 30
days of receipt of such application in the Board, consisting of an OIR, not below the rank of an Additional
Commissioner and two persons from the notified panel consisting of retired Judges not below District and
Sessions Judge, chartered or cost accountants, advocates, representatives of trade bodies or associations, or
any other reputable taxpayers, for the resolution of dispute.
(3) The committee constituted under sub-section (2) shall examine the issue and may if it deems fit, conduct
inquiry, seek expert opinion, direct any OIR or any other person to conduct an audit and shall make
recommendations within 90 days of its constitution in respect of the dispute. If the committee fails to make
recommendations within the said period the Board shall dissolve the committee and constitute a new
committee which shall decide the matter within a further period of 90 days. If after the expiry of the period the
dispute is not resolved the matter shall be taken up by the appropriate forum for decision."
(4) The Board may, on the recommendation of the Committee, pass such order, as it may deem appropriate.
(4A) Notwithstanding anything contained in sub-section (4), the Chairman, FBR, and a member nominated by him,
may, on the application of an aggrieved person, for reasons to be recorded in writing and on being satisfied
that there is an error in order or decision, pass such order as may be deemed just and equitable.";
(5) The registered Board may, make payment of duty and other taxes as determined by the Board in its order
under sub-section (4), and such order of the Board shall be submitted before the forum, tribunal or the Court
where the matter is sub-judice, for consideration and orders as deemed appropriate.
(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section."
9. Exclusion of time taken for copy (U/S 39)
In computing the period of limitation specified for an appeal or application the day on which the order complained was
served, and if the party preferring the appeal or making the application was not furnished with a copy of the order
when the notice of the order was served upon him, the time requisite for obtaining a copy of such order shall be
excluded.
Chapter
(3) A person desiring to be granted a drawback of duty under sub-rule (1) in respect of goods in the manufacture
of which excisable goods have been used and which are to be exported shall make an application in
quadruplicate signed by him or his authorized agent to the Board declaring therein the name and address of
his business, the description, quantity and value of excisable and non-excisable goods used, the rate and
amount of excise duty levied and the value of goods for export.
(4) On the receipt of an application under sub-rule (3), the Board may cause such surveys or enquiries to be
made as it deems necessary to enable it to decide whether any drawback should be granted and if so, at what
rate or rates and from what date.
(5) In order to obtain payment of drawback the applicant shall produce before the officer authorized by the
Collector of Federal excise in this behalf, the shipping documents certifying the export of the consignment.
After satisfying himself that the claim is in order, officer shall sanction the payment of the drawback in
accordance with the relevant notification and these rules.
(6) If any of the particulars entered in the application submitted under this rule is found to be incorrect, either
before or after the export of goods, the applicant shall be liable:
(a) to a penalty under the Act and these rules for each breach of any provision of this rule;
(b) to refund to the Government the sums received by him as drawback; and
(c) to be deprived of the benefit of such drawback for a period of one year.
(7) No drawback shall be granted if the claim for drawback is filed after one hundred and twenty days of the
exportation or of the publication of notification, whichever is later.
10. Pecuniary competence to sanction drawback or refund (U/R 34)
The claims for refund or drawback .if duty of excise shall be decided by the following officers of Federal excise,
namely:
Assistant collector Not exceeding rupees two hundred thousand
Deputy collector Not exceeding rupees one million
Additional collector Unlimited