About Income Tax

Taxation according to a persons ability to pay is universally accepted principle, and income is considered a satisfactory though not a sufficient index of such ability to pay. Income Tax is, therefore, generally recognized as a highly equitable form of taxation. A tax levied on income can normally be shifted to others and thus its incidence is on those for whom it is intended. Since income tax is progressive in nature, it tends to reduce economic disparity. Tax rates and method of calculating taxable income varies with fiscal status of the tax payer. Following are the broad categories of taxpayers:-

Companies Association of Persons (AOP) Non Salaried Individuals Salaried individuals

Capital Value Tax

It is payable by individuals, firms and companies which acquire an asset by purchase or a right to use for more than 20 years.

Corporate Asset Tax

It is levied through section 12 of the Finance Act, 1991. This is one time levy payable by a company as defined in Companies Ordinance, 1984, on the value of fixed assets held by the company on the "specified date".

Messages from the Board

Chairman

Withholding Taxes collected by Federal Board of Revenue are significant contributors to the exchequer. The collection is on the rise over the years. Nonetheless, visible gaps have been observed between the actual collection of Withholding Taxes and their true potential in the economy. One of the Study Groups has quite recently identified that 110 % gap exist in collection from Salary & Wages alone. In order to streamline the management for exploiting the true potential of Withholding Taxes, the Director General (Withholding Taxes) is mandated with the task of spearheading the task of streamlining the Withholding Taxes. The DG (Withholding Taxes) has laid a strong foundation that I am sure will help bridge the yawning gap in revenue collection.

Member Direct Taxes

In view of the falling revenue syndromes and apparent difficulty in meeting the everincreasing budgetary targets, it is imperative to explore the possible avenues for bringing in the extra revenues for the Government. Withholding taxes were unanimously considered the most potential source. In order to have a unified approach in streamlining this source of revenues, the Director General (WHT) has been established. I am confident that the guidelines contained herein and those in the linked pages will be extremely helpful to all the stakeholders, to explore the potential avenues and identify the loopholes for improving the management of Withholding Taxes thereby increasing the overall collection of the FBR.

Director General Withholding Taxes

The revenue collection authorities throughout the world are focusing on facilitation of taxpayers as a extended service. The Information Technology has become a tool and medicine of such service. The importance of usage of Information Technology has been recognized by the Directorate General (WHT). This web page contains all the relevant provisions of law, rules, regulations, guidelines etc. that I expect to benefit the field officers in monitoring of WHAs in discharging their legal obligations.

Income Tax>> Withholding Tax>> Forms

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Withholding Tax

Introduction

Major sources of Tax Revenue in the country are federal taxes comprising of Income Tax, Sales Tax, Custom duties and Federal Excise Duty. Out of total collection of Rs.581 (b) for current financial year up-to February, 2008 the share of Income Tax comes to Rs. 212(b) i.e. 37 % of the taxes collected by FBR. Within total Direct Tax revenue, 41% comes from various withholding taxes, which are characterized by their adjustable and presumptive nature. Withholding taxes are part of tax system ever since imposition of direct taxes by the governments. In recent years, globalization has forced many countries to alter their economies to harmonize tax policies and alignment thereof with new trade and investment policies embodied in the free trade agreements. The concept of Hang Together is more relevant today than ever before. Countries can neither close their borders nor their economies. Tax policies can not be isolated from the international economies either. Tax competition is almost an un-alloyed evil, working as a constraint on governmental over-reach. Countries, therefore, have to take positive steps to protect the integrity of their individual and corporate tax systems from the competition so engendered.

Withholding Taxes in Pakistan Short history

Withholding is an act of deduction or collection of tax at source, which has generally been in the nature of an advance tax payment. It is an effective mechanism and important/timely source of revenue. Their contribution is about 41 percent of total direct tax revenues. Increase from Rs.5 (b) in 1991 to above Rs 169(b) in 2007 speaks of exponential growth and consequential heavy reliance on withholding taxes in Pakistan. Under the repealed Income Tax Act, 1922, tax was deducted from two main sources of income; namely, salaries and interest on securities. Over the period of time, Withholding Tax net was extended, by steadily introducing different Provisions in the Tax Laws. The repealed Income Tax Ordinance, 1979, brought in all the provisions of the Income Tax Act, 1922. However, in the 1990s, withholding tax net was expanded extensively by providing for withholding tax on a wider variety of transactions and making most of them presumptive. Provisions of the Income Tax Ordinance, 2001, are more or less the same, except for a few changes and additions. Important withholding provisions relate to salary, imports, exports, commission and brokerage, dividend, contracts, profit on debt, utilities, vehicles tax, stock exchange-related provisions and non-residents, etc., with varying rates.

Introduction & Procedure of Advance Ruling Introduction

With a view to remove any confusion and to avoid disputes in respect of determination of the income tax liability of a non-resident person, a procedure of Advance Rulings has been brought on statute by way of incorporating Section 206A into the Income Tax Ordinance, 2001, w.e.f. 1.7.2003. Through this facility non-residents can obtain, in advance, a binding ruling on the issues that could arise in determining their tax liabilities at a later stage. Therefore, time

consuming and expensive legal disputes can be avoided. The Centre Board of Revenue is empowered to determine any question of law or of fact as specified in the application made before it in respect of a transaction which has been undertaken or is proposed to be undertaken by a non-resident in Pakistan on its own or in combine with a resident concern. The detailed procedures for obtaining an advance ruling are contained in Rule 231A and 231B of the Income Tax Rules, 2002. An application form for the purpose has also been prescribed in Rule 231B, stipulating the information required to be divulged and the documents to be attached.

Composition of the Advance Ruling Committee

The application for advance ruling is considered and decided upon by a committee headed by the Chairman, Central Board of Revenue, after giving due opportunity to the applicant of explaining his case. Other members of the committee are Member (Direct Taxes), Central Board of Revenue, and Additional Secretary, Law, Justice, and Human Rights Division, Government of Pakistan.
Procedure

The applicant may seek advance ruling by making an application to the Central Board of Revenue in the prescribed form and manner.

The application for advance ruling should be presented in the form prescribed for the purpose by the applicant in person or by an authorized representative to the Secretary, International Taxes Operations, Room No. 424, 5th Floor, FBR House, Constitution Avenue, Islamabad. The application and the accompanying annexures may be neatly typed on one side of plain paper of A-4 size leaving a minimum margin of 30mm on all the four sides and may be duly indexed. Legible photocopies of the relevant documents may be attached. No information as required in the prescribed application form may be withheld. Provision of complete and correct information would help the applicant in getting an early decision. The question(s) of law or fact on which advance ruling is sought may be stated clearly in the application using a text box.

Signing of Application

The application, its verification and the annexures, statements and documents accompanying it, are required to be signed by a person competent to do so. Where a person signing the application and other documents claims to have been duly authorized to do so, the application

must be accompanied by a power of attorney authorizing him to sign.

Authorized Representative

The applicant is entitled to present his case before the Advance Ruling Committee either personally or through an authorized representative. If the applicant desires to be represented by an authorized representative, a duly authenticated document authorizing him to appear for the applicant should be enclosed.
There is no fee for seeking an advance ruling from the Central Board of Revenue.

Rulings Issued

S.NO.

QUESTION

RULING

DATE OF ISSUE

The assessee being non-resident, Whether the payment of Rs. the income accruing or arising on 50 million received by a non- account of merger and transfer of resident as a result of bank operations with the new entity AR No. 01 01.12.2004 amalgamation with resident is revenue receipts in the hands of concern is taxable in the applicant, and being Pakistan Pakistan or not? source income, is liable to tax under the Income Tax Ordinance, 2001. The assessee being non-resident, the amount received against seismic Whether the amount to be data processing/re-processing received by non-resident services as a result of contract company for rendering AR No. 02 executed in Pakistan is liable to tax 05.01.2005 seismic data processing in Pakistan under the head services is chargeable to tax business income in view of the in Pakistan or not? provisions of section 6 of the Income Tax Ordinance, 2001. Whether the amount of The amount received from the State Rs.373 million received from Bank of Pakistan by a non-resident AR No. 03 the State Bank of Pakistan on conversion of capital account 27.04.2005 by a non-resident on (maintained in Euros) to Pakistan conversion of excess rupees for off setting accumulated

amount of capital account to losses is not chargeable to tax. Pak rupees for setting off against accumulated losses is chargeable to tax? Income of non-resident person is taxable in Pakistan irrespective of Whether the income of nonthe fact whether it is having PE or resident person not having not. Treatment of tax deducted, in AR No. 04 any permanent 31.05.2005 both the situations, will, however, be establishment in Pakistan different accordingly to provisions of will be taxable or not? section 153 of Income Tax Ordinance, 2001. In view of the applicants statement of interpretation of Income of OPIC under the credit law and facts of the case, is facility extending to Emerging the income of Overseas Markets Consultant (Pvt.) Ltd. would Private Investment be exempt in Pakistan from Income Corporation arising from the Tax and accordingly not liable to Credit Facility extended to AR No. 05 withholding tax under Section 152 of 23.01.2006 Emerging Markets the Income Tax Ordinance, 2001. Consulting (Private) Limited [This is a case-specific Ruling given is exempt from Pakistan under an existing investment treaty income tax and accordingly between Pakistan and the USA.] not liable to withholding tax under the Income Tax Ordinance, 2001? The income of Telcordia under the contract dated November 14, 2005 with Pakistan MNP Database (Guarantee) Limited is liable The sub-section (7) of section 153 of AR No. 06 to withholding tax at 6% the Income Tax Ordinance, 2001 under section 153(1) and has been omitted vide Fin further under the provisions of section 153(7) such withholding tax is the final tax liability.

ited Purpose Agreement

Sr#

Country Name (Alphabetical Order) Greece (Income from Airlines)

Sr#

Country Name (Alphabetical Order) India (Income from Airlines)

Greece (Income from Shipping)

3 5 7 Iran (Income from airlines) 4 6 Jordan (Income from Airlines) Saudi Arabia (Income from Airlines).

Iran (Income from Shipping)

Kenya (Income from Airlines & Shipping) SAARC (Limited Multilateral Agreement)

Income tax ordinance 2001 1. Short title, extent and commencement. (1) This Ordinance may be

called the Income Tax Ordinance, 2001. (2) It extends to the whole of Pakistan. (3) It shall come into force on such date as the Federal Government may, by notification in official Gazette, appoint . 2. Definitions. In this Ordinance, unless there is anything repugnant in the subject or context (1) "accumulated profits" in relation to 1[distribution or payment of] a dividend, 2[include] (a) any reserve made up wholly or partly of any allowance, deduction, or exemption admissible under this Ordinance;

Vide notification S.R.O.381(I)/2002 dated 15.06.2002 the Federal Government appointed the first day of July, 2002 on which the Ordinance shall come into force. 1Inserted by the Finance Act, 2003. 2The word includes substituted by the Finance Act, 2005.2 (b) for the purposes of 1[sub-clauses (a), (b) and (e) of clause

(19)] 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; andfor the purposes of 2[sub-clause (c) of clause (19)], includes all profits of the company including income and gains of a trust up to the date of its liquidation; 3 *(1A) amalgamation means the merger of one or more banking companies or non-banking financial institutions, 4[or insurance companies,] 5[or companies owning and managing industrial undertakings] 6[or companies engaged in providing services and not being a trading company or companies] in either case 7[at least one of them] being a public company, or a company incorporated under any law, other than Companies Ordinance, 1984 (XLVII of 1984), for the time being in force, (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of merger, as the amalgamated company) in such manner that (a) the assets of the amalgamating company or companies immediately before the amalgamation become the assets of the amalgamated company by virtue of the amalgamation, otherwise than by purchase of such assets by the company or as a result of distribution of such assets to the amalgamated company after the winding up of the amalgamating company or companies;

8(b) the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation Income Tax Rules, 2002 CHAPTER-I 1. Short title and commencement. (1) These rules may be called the Income Tax Rules, 2002. (2) They extend to the whole of Pakistan. (3) They shall come into force on the first day of July, 2002; except rules 3 to 9 which shall be applicable in respect of income earned on or after first day of July, 2002, and other rules covered by the rule on Saving. 2. Definitions. - (1) In these rules, unless there is anything repugnant in the subject or context, (a) 1*Federal Board of Revenue means the Federal Board of Revenue, established under the Federal Board of Revenue Act, 2007;] Note: Notification No. S.R.O..1102(I)/91 (Oct 5, 1991) the reference Board wherever appearing in the Rules includes a reference to Regional Commissioners of Tax and Commissioner of Tax, as the case may be. 2 (aa) Computerized Payment Receipt means a computer generated receipt issued by the State Bank of Pakistan or the National Bank of Pakistan acknowledging payment of tax;

(ab) digital certificate or digital signatures means a digital certificate or digital signatures issued by an agency approved by the 3[Federal Board of Revenue] to issue such certificate or signatures; (ac) e-intermediary means a person registered as,(i) Chartered Accountant with the Institute of Chartered Accountants of Pakistan; (ii) Cost and Management Accountant with the

Institute of Cost and Management Accountants of Pakistan;] (iii) a legal practitioner entitled to practice in any

Court in Pakistan; (iv) a member of the Association of Chartered Certified Accountants, UK; or (v) an Income Tax Practitioners, registered with Tax Bar affiliated with All Pakistan Tax Bar Association.] (b) electronic transmission" means a facsimile or electronic-mail transmission; (c) Ordinance means Income Tax Ordinance, 2001 (XLIX of 2001), where however, context so provides, Income Tax Ordinance, 1979 (XXXI of 1979) till its relevance in a

particular context;

INCOME TAX ORDINANCE, 1979 ORDINANCE NO. XXXI OF 1979 AN ORDINANCE

to consolidate and amend the law relating to income-tax and super-tax

WHEREAS it is expedient to consolidate and amend the law relating to income tax and super tax for the purposes hereinafter appearing;

AND WHEREAS the President is satisfied that circumstances exist which render it necessary to take immediate action;

NOW, THEREFORE, in pursuance of the Proclamation of the fifth day of July, 1977 read with the Laws (Continuance in Force) Order, 1977 (CMLA Order No.1 of 1977), and in exercise of all powers enabling him in that behalf, the President is pleased to make and promulgate the following Ordinance:-

INCOME TAX CALENDAR & SCHEDULE FOR PAYMENT OF ADVANCE TAX INDIVIDUAL, AOP

Quarter September December March June

Date of Payment 15th September 15th December 15th March 15th June

COMPANIES

Quarter September December March June

Date of Payment 15th October 15th January 15th April 15th June

CALCULATION OF QUARTERLY INSTALLMENT

In the case of individual or AOP, whose last assessed income is at least 200,000. The amount of advance tax due for a quarter shall be computed according to the following formula, namely:-

(A/4) - B Where

A is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed Ordinance; and B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 149 or 155.

In the case of a company, the amount of advance tax due for a quarter shall be computed according to the following formula, namely:(A/4) - B

Where

A. is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed Ordinance; and B. is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 149 or 155.

MANDATORY ESTIMATION OF TAX PAYABLE BY THE COMPANIES FOR THE RELEVANT TAX YEAR

where the taxpayer is a company who is required to make payment of advance tax in accordance with sub-section (4) of section 147, shall estimate the tax payable by him for the relevant tax year, at any time before the last installment is due. In case the tax payable is likely to be more than the amount he is required to pay under sub-section (4), the taxpayer shall furnish to the Commissioner an estimate of the amount of tax payable by him and thereafter pay such amount after making adjustment for the amount (if any) already paid in terms of section 147(4) of the Income Tax Ordinance, 2001.

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Universal Self Assessment and Income Tax Ordinance, 2001

Income Tax Ordinance, 2001 was promulgated on 13th September 2001. It shall come into force on July 01, 2002 and will be applicable from the said date. The new income tax law is in simple language and is easy to understand. You can now prepare your income tax return and compute your tax liability without any difficulty. The new income tax law will bring a complete change in the philosophy of income tax proceedings and it will make life easier. The salient features are:

No assessing officer will determine your income and compute your tax liability. Now you will yourself declare your income and determine your tax liability. Your income tax return shall be accepted without any conditions. There will be no compulsory enhancement of tax liability over previous year to qualify for acceptance. Even your loss return shall also qualify for acceptance. Filing of your income tax return itself will be an assessment order and your eligibility for

refund will flow from your tax return. A certain percentage of returns filed shall be selected for tax audit on the basis of risk assessment to verify the accuracy and correctness of your income tax return. Tax audit will not necessarily mean an amendment of the assessment originally made based by you in your return of income. Your original assessment can only be amended on the basis of information acquired during tax audit or any other source. If selected for audit, there will be no pre-designated auditors to carry out audit. The officials making selection for audit will be different from those who do actual audit. In other words you have no designated Income Tax Officer holding jurisdiction on you.

Thus universal self-assessment in its true sense will be available to all taxpayers irrespective of quantum, status, location or size. This is the first such experience in this part of the world.

You are Here: FATE>> Publications / Facilitation Brochures>> Income Tax

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Title

Basic Concepts Of Tax On Income ((Taxpayer's Facilitation Guide) Obligation To File Income Tax Declarations (Taxpayer's Facilitation Guide) Tax Reductions,Rebates And Credits Collection And Deduction Of Income Tax At Source (Withholding Agents Perspective) (Taxpayer's Facilitation Guide) Income Subject To Separate Charge,Final Tax,And Fixed Tax Regimes Of Income Tax (Taxpayer's Facilitation Guide) Depreciation,Initial Allowance,First Year Allowance And Amortization Of Capital Expenditures (Taxpayer's Facilitation Guide) Universal Self Assessment & Record Keeping (Income Tax)

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Income Tax Appeals Taxpayers' Charter