TAX

Definition A fee charged ("levied") by a government on a product, income, or activity. If tax is levied directly on personal or corporate income, then it is a direct tax. If tax is levied on the price of a good or service, then it is called an indirect tax. The purpose of taxation is to finance government expenditure. One of the most important uses of taxes is to finance public goods and services, such as street lighting and street cleaning. Since public goods and services do not allow a non-payer to be excluded, or allow exclusion by a consumer, there cannot be a market in the good or service, and so they need to be provided by the government or a quasi-government agency, which tend to finance themselves largely through taxes.

Taxation System
Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes. A broad description regarding the nature of administration of these taxes is explained below: Direct Taxes Direct taxes primarily comprise income tax, along with supplementary role of wealth tax. For the purpose of the charge of tax and the computation of total income, all income is classified under the following heads: 1. Salaries 2. Interest on securities; 3. Income from property; 4. Income from business or professions 5. Capital gains; and 6. Income from other sources. Personal Tax All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the rates ranking from 10 to 35 per cent. Tax on Companies All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at corporate rate of 39%. However, the effective rate is likely to differ on account of allowances and exemptions related to industry, location, exports, etc.

1

Other companies are taxed at the rate of 20%. Proportionate relief is allowed on such income at an average rate of tax in Pakistan or abroad. The rate structure of customs duty is determined by a large number of socio-economic factors. whichever is lower. 1. Dividends paid to all non-company shareholders by the companies are subject to with holding tax of 10% which is treated as a full and final discharge of tax liability in respect of this source of income.000/-.5%. 2. provided it does not exceed Rs. 7. They also lay down some basic principles of taxation which cannot be modified unilaterally Customs Goods imported and exported from Pakistan are liable to rates of Customs duties as prescribed in Pakistan Customs Tariff. if such income has already been subjected to tax outside Pakistan. Customs duties in the form of import duties and export duties constitute about 37% of the total tax receipts. These agreements lay down the ceilings on tax rates applicable to different types of income arising in Pakistan. 10. Dividend received by non-resident from the state enterprises Mutual Fund set by the Investment Corporation of Pakistan.Inter-Corporate Dividend Tax Tax on the dividends received by a public company from a Pakistan company is payable at the rate of 5% and at the rate of 15% in case dividends are received by a foreign company. 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. Dividends received from a domestic company out of income earned abroad provided it is engaged abroad exclusively in rendering technical services in accordance with an agreement approved by the Central Board of Revenue. Unilateral Relief A person resident in Pakistan is entitled to a relief in tax on any income earned abroad. However.e. the general scheme envisages higher rates on luxury items as well as on less essential goods. Treatment of Dividend Income Dividend income received as below enjoys tax exemption. Inetr-corporate dividends declared or distributed by power generation companies is subject to reduced rate of tax i. 2 .. Agreement for avoidance of double taxation The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries including almost all the developed countries of the world.

· there is an in-built system of input tax adjustment and a registered person can make adjustment of tax paid at earlier stages against the tax payable by him on his supplies. 5.Central Excise Central Excise duties are legible on a limited number of goods produced or manufactured. PERSON Manufacturer CONDITION Value of Taxable supplies does not exceed Rs. Retailer Supplies will be exempted under Sr. 5. · all supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him. Thus the tax paid at any stage does not exceed 15% of the total sales price of the supplies. and services provided or rendered in Pakistan. Person is liable to be Registered. it permits the adjustment of input charged in acquisition of fixed assets in twelve 3 . chargeable to duty on the basis of weight or quantity.000. however. Importer Wholesaler / Supplier including Dealer and Distributor As per newly inserted Section 8B of the Act. a registered person is restricted to claim adjustment of input tax to the extent of ninety percent of output tax for that tax period. LIABILITY EXEMPTION Supplies will be exempted under Sr. All exports are exempted from Central Excise Duty Sales Tax · Sales Tax is levied at various stages of economic activity at the rate of 15 per cent on: · all goods imported into Pakistan.000 during the last 12 months. payable by the importers.000 in any period during the last twelve month or whose annual utility bills do not exceed Rs 600.000.000 in any period during the last twelve month. Further. Classification of goods is done in accordance with the Harmonized Commodity Description and Coding system which is being used all over the world. Some items are. 42 of the Sixth Schedule. Person is liable to be Registered. 42 of the Sixth Schedule. Value of supplies does not exceed Rs. On most of the items Central Excise duty is charged on the basis of value or retail price.

diagnostic processes. 1984 upon furnishing a statement along with annual audited accounts duly certified. Payback and DCF analysis including cost assessment and revenue projections. 2. audit tool. competition and macro economic forces and designing strategies to manage it to your advantage. businesses need trusted advisers. whether it is in Pakistan and/or abroad. Investment Advisory Services All investment carries some risk and thus needs careful analysis and expert advice. It combines a rigorous risk assessment. Feasibility studies including preparation of projected financial statements and project.equal monthly installments after the start of production of a new unit. However. The key to be a successful investor is to achieve appropriate risk/return trade off by identification of risks that exist and their proactive management. In other cases. Identification of suitable business partners and conducting due diligence. IRR. Our audit approach focuses on understanding the clients’ business and control issues from the inside out. Our audit specialists take the time to understand your business as well as the industry in which you operate. incorporation. executing. Our state of the art. Appraisal through NPV. adjustment may be allowed as per specific notification issued by the Board. obtaining of necessary permissions and help in dealing with local regulators. reporting. the input tax inadmissible in excess of 90% of the output tax. In case of a registered person whose accounts are subject to audit under the Companies Ordinance. may be allowed on yearly basis in the second month following the end of the financial year of the registered person subject to the following condition namely: 1. Audit System supports all phases of the audit process including planning. Sensitivity analysis Tariff and pricing studies      4 . Our range of services includes:  Advice on analyzing investment prospects and mode of doing business in Pakistan including advising on the form of legal entity. Performing a High Quality Audit In today's ever changing global economy. The Board is empowered to exclude any person from the above purview. Our Investment Advisory Service professionals specialize in identifying risks arising from regulation. and audit testing procedures as well as a continuous assessment of our clients’ service performance.

while allowing employers to receive tax deductions for contributions to plan funds. For the middle class and lower classes. prior to payment. Some believe that income tax is a violation of a citizen's individual freedom. In the United States. In countries in which average age of the population is increasing. In return for a pension schemes tax advantaged status. Especially Libertarians argue that tax on earnings violates the individual’s right to decide how to use the money he earns. many governments give privately funded retirement plans a tax advantaged status in order to encourage more people to contribute to such arrangements. governments typically enact restrictions to discourage access to a pension fund's assets before retirement. Payments to retirees and their beneficiaries also sometimes receive favorable tax treatment. If the proportion of pensioners to working-age people rises. or tax-free. Governments often exclude such contributions from an employee's taxable income. tax-reduced. an earnings tax may be a financial hardship.Tax advantage Tax advantage refers to the economic bonus which applies to certain accounts or investments that are.    5 . Disadvantages of a tax  The collection of a tax on earnings is generally thought to more difficult than a consumption tax which would be levied at the point of sale. the rapid onset of Baby Boomer retirement is currently causing such a problem. the contributions needed from working people will also rise proportionately. tax advantages may put pressure on pension schemes. by statute. where benefits are funded on a pay-as-you-go basis. the benefits paid to those receiving a pension come directly from the contributions of those of working age. For example. Investment earnings in pension funds are almost universally excluded from income tax while accumulating. regardless of the amount. Governments establish the tax advantages to encourage private individuals to contribute money when it is considered to be in the public interest. tax-deferred. In order to reduce the burden on such schemes. People paid “under the table” may be able to evade paying any income taxes.

Sign up to vote on this title
UsefulNot useful