1.

Introduction
a) b) c) d) e) f) g)

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Introduction and Principles of taxation Tax system and economy Role of Taxes in a Society Tax System in Pakistan, History, Features and Problems Tax Reforms: Past efforts and future strategies Role of Federal oard of Re!enue, Pakistan" Taxation as a career

2.

Income Tax Ordinance, 2001.
a) b) c) d) e) f) g) +) i) ,) k) l) m) n) o) p) 1) r) s) t) u) !)

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#efinitions of terms under Income Tax $rdinance, %&&'" (xemptions Income from Salary Income from House Property Income from usiness and Profession Income from )apital *ains Income from ot+er sources )alculation of tax Tax reductions and credits -ssessment of indi!idual on F R Tax Return Form .salaried and non/salaried) #epreciation )apital and Re!enue Tax -ccounting -ssessment procedure Set off and carry for0ard of losses Self assessment procedure Penalties Income tax aut+orities -ppeals -ssessment of -ssociations of persons -ssessment of companies Practical problems23umerical of indi!iduals, -$Ps and )ompanies"

3.

Sales Tax Act, 1990.
Introduction to )onsumption Taxes 4alue added tax .4-T) and present Sales Tax system History of sales tax la0s in Pakistan #efinitions of terms under Sales Tax -ct, '55& Registration of firm under t+e Sales Tax -ct, '55& 6egal pro!isions regarding furnis+ing of returns

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a) b) c) d) e) f) Chapter #1

Direct tax means the tax which is paid from the pocket of the person on whom it is levied) This tax cannot be shifted to anyone else) !t means the incidence *final burden) and impact *initial money burden) of this tax is on the same person) !ncome tax+ property tax+ wealth tax+ and inherited tax are examples of this kind of tax) ) Indirect Tax: .tax in which the rate of tax increases with the increase of level of income is called progressive tax) !n #akistan+ income tax is progressive tax) This is explained by the following table) !ncome &ate of Tax .p to $//+/// rupees %0 .rom one lac one rupee to two lac "/0 percent .rom fifty thousand to one lac rupees 1/ percent .p to .p to //+/// rupees %0 ..irst fifty thousand rupees % percent ..&egressive tax is opposite to progressive tax) The lower income level is the more rate of tax will be and the higher income level is the less rate of tax will be) !t means the rate of tax decreases with the increase in income and vice versa The following table clearly explains it) !ncome &ate of Tax .p to 1//+/// rupees %0 .rom three lac one rupee to four lack 1/0 percent .tax in which the arte of tax remains the same on every level of income is called proportional tax) This is explained by the following table) !ncome &ate of Tax .rom one lac one to two lac rupees / percent .indirect tax means the tax which is not paid from pocket of the person on whom it is levied)rahter the burden of this tax is shifted to another person) !t means the incidence and impact of this tax is on different persons) .Introduction to tax Tax:-Tax is a necessary contribution by the people to government treasury to meet the expenditures of the government for the common benefit of the people Kinds of taxes The following are the kinds of taxes 1) Direct Tax ) !n-direct Tax ") #roportional Tax $) #rogressive Tax %) &egressive Tax ') (alue added Tax 1) Direct Tax: .rom two lac one rupee to three lac rupees /0 percent .p to more than $//+/// rupees %0 $) Progressive Tax: .or example sales tax+ excise duty+ custom duty etc) the entrepreneurs or traders pay these taxes for the time being but they include the amount of this tax in the prices of goods and receive from the buyers) ") Proportional tax: .p to first one lac rupees $/0 percent .rom two lac one to three lac rupees "/ percent 1ore than three lac rupees $/ percent %) Regressive Tax: .p to "//+/// rupees %0 .

rupees .-dam smith is of the opinion that tax should be levied on the time+ when the tax payer can easily pay it) Therefore it is necessary that tax should be collected in installments and at the time when the tax payer get their salaries or incomes) .This is a kind of tax which in imposed on every stage of production of a good) !t means the tax is imposed on the value added at every stage of production) .-ccording to this canon both the tax payer should clearly know the amount of tax+ at the time of payment+ the+ method of payment and the place of payment so that there may not be any difficulty in the payment of tax) The government should also be certain about the amount of tax so that it can include correct estimates of income in the budget) ") Canon o" Convenience: .-ccording to this canon the amount collected from taxes should be enough to meet all government expenditures) !f a government has not enough amounts+ it has to borrow loans or print currency notes) !t results in inflation and prices of goods rise up) ') Canon o" Si&plicit%: .or example (-T for bread will be received first from farmer on wheat then after grinding when it becomes flour but on the difference of value added between wheat and flour then after baking the bread on the difference of value between flour and bread and finally from the retailer on selling the bread) CANONS O TA!ATION .rom four lac one rupee to five lac rupees %0 percent This tax can also explained in the way) !f a tax is imposed on the goods which are consumed more by the poor than the rich e)g+ tax on floor+ pulses+ cotton cloth etc then certainly more burden of tax will be on the poor than the rich) ') Value Added Tax: .government should take into account the following cannons while levying taxes The first for have been presented by #rof)-dam 2mith 1) Canon o" #$ualit%: .or this purpose efficient honest and limited number of individuals should be appointment on the collection of taxes) 2o that most of the amount of taxes should go to the treasury after the payment of their salaries) %) Canon o" Productivit%: .-ccording to this canon+ the system of taxation should be simple and easy to understand for a common man) The tax payers may easily understand how to pay taxes) !f procedure of payment of taxes is simple then the tax payer will not feel any difficulty in paying the tax and government income from taxes will increase) .-ccording to this canon the cost of collecting tax should be kept low as possible) -ll amounts of taxes should not be spent on the salaries of tax-collectors) .or example tax should be collected from the farmers after the harvest of their crops and the employees when they receive their salaries) $) Canon o" #cono&%' .it means that all the individuals should pay tax accordance with their incomes thus canon of e3uality does not mean every individual should pay e3ual tax or every individual should pay tax with same rate) !n fact it means every body should pay e3ually sacrifice for public finance) !t is not only possible when the rich pay tax at higher at rate than the poor) !n this case their sacrifice of payment of tax will be e3ual) !n the light of this canon then present governments levy direct taxes i)e) income tax and wealth tax etc at the progressive rate ) Canon o" Certaint%: .

-ccording to this canon+ system of taxation should be elastic) !f the incomes of the peoples increase+ the government tax revenues should also increase) !f the incomes of the people decrease+ the government tax revenue should also decrease) !n the same way+ it should be possible to increase or decrease the rate of taxes with the income of decrease in government expenditures) 5) Canon o" Diversit%: .uman &esource 1anagement) Director :eneral *Training and &esearch) -ppellate Tribunal !nland &evenue (aluers Organi)ation structure o" *R .or the proper and efficient working of any system it is necessary that proper 3ualified persons are appointed at different levels so that they can guide the activities to achieve the desired results) Keeping in view these goals sections /4+ /5 and 5 of income tax ordinance //1 provide us the details of officials and bodies appointed to run the income tax machinery of the country) -uthorities given in the section /4 of income tax ordinance //1 are:8oard 7hief 7ommissioner inland revenue 7ommissioner inland revenue 7ommissioner !nland &evenue *appeals) -dditional 7ommissioner inland revenue Deputy 7ommissioner inland revenue -ssistant 7ommissioner inland revenue 6fficer inland revenue !nland &evenue audit officer 2uperintendent !nland &evenue !nspector inland revenue -uditors9 !nland &evenue There are some other authorities besides the authorities given in section /4 are gine below:Director :eneral *!nformation 1anagement 2ystem) Director :eneral *!ntelligence and !nvestigation) Director :eneral *!nspection and -udit) *direct tax) Director :eneral *.variety of taxes should be introduced so that taxes should neither become a burden on one class nor an individual may avoid their payment) The system should consist of many direct taxes and indirect taxes so that all the people can share government expenditures) Tax:-Tax is a necessary contribution by the people to government treasury to meet the expenditures of the government for the common benefit of the people) !ncome Tax 6rdinance //1 7onsist of 1" chapters+ 4 schedule and $/ sections divided into sections+ sub-sections+ clauses and sub-clauses) Inco&e Tax Authorities Introduction' ( .-ccording to this canon+ system of taxation should be multidimensional) .4) Canon o" #lasticit%: .

The federal board of revenue presently comprises 7hairman and eleven members appointed by the federal government as follow:Three line members which include member *Direct taxes)+ 1ember *2ales Tax and .iscal *&esearch and 2tatistics)+ 1ember *human &esource 1anagement)+ and 1ember *-udit) ands 1ember *-dministration) 2upport members include member *<egal)+ 1ember *Tax #olicy and &eforms)+ 1ember *!nformation 1anagement systems) and 1embers *.ederal excise) and 1ember *7ustoms) .igh 7ourt or the -ppellate Tribunal !nland &evenue) 1%) 1odify the original orders if the orders of the tribunal or the high court are changed at the higher appellate forum) 1') Take all necessary and appropriate actions for recovery of tax from a tax payer) 14) &ecover the tax from a person who holds money on behalf of the tax payer) 15) @otify and recover the tax from the li3uidator of a company which has gone into li3uidation 1?) -llow a person to make a payment without deducting tax at source) /) !ssue an exemption certificate) 1) =xtend the period for filling of different statements) ) -uthoriAe a person to maintain the prescribed records+ books+ accounts etc) ") =nter and search premises) $) !ssue notice in order to obtain information or evidence) %) 2elect any person for audit) ') !mpose penalties for different defaults) 4) -ppoint any of his sub-ordinate authority with the approval of the board) 5) &ectify any mistake in his order+ apparent from the record) ?) -ppoint an expert for the purpose of valuation+ audit etc) .our members are 1embers .acilitation and Tax =ducation) Co&&issioner Inland Revenue 7ommissioner !nland &evenue en>oys the following powers and has to perform the following functions under the law: 1) -llow an employee to p/ay tax on his retirement payments and golden hand shake payments as per normal procedure or pay tax on the basis of average rate of tax based on the three proceeding tax years) ) -llow an employee to pay tax on salary received in arrears in the tax year in which services were rendered) ") =xtend the date of selection out of the options available to an employee) $) -llow a person to change his method of accounting) %) #ermit the change of stock valuation method) ') -llow a person to use special tax year) 4) -llow a person to use normal tax year instead of special tax year) 5) &e3uire a person or his representatives to furnish the return of income) ?) =xtend the time for filling a return) 1/) 1ake assessment order to give effect to an order of an appellate authority or a court) 11) 1ake an assessment order if the tax payer has not furnished his return of income) 1 ) 1ake an amended assessment order) 1") 1ake a provisional assessment order) 1$) 1ake an assessment in the light of a point of law decided by the .

or the year /1"+ relief in tax will be provided if the person makes any of the following payments:1) Donation for charitable purposes) *2ection '1) ) !nvestment in shares or life insurance premium paid *section ' ) ") 7ontribution to approved pension fund *section '") .ees are the amount received from the employer on the basis of work performed) 7ommission implies the work done on a remuneration agreed on the basis of percentage of the income of employer ."/) !nitiate prosecution for offences committed by a tax payer) Scope+Co&ponents o" salar% inco&e The word Bsalary9 has been used in broader sense in the income tax ordinance //1 as compared to its use in our daily conservation) The following groups of receipts are included in the term salary under section 1 ) 1) 2alary and wages ) -nnuity ") .ees+ commission+ or allowances $) #er3uisites and %) #rofits in lieu of or in addition to salary or wages =xplanation let us briefly discuss each of the above groups 2alary means fixed weekly or monthly remuneration) Cages means amount earned by laborers and artisans+ normally payable on hours+ daily pr piece work basis) -nnuities are amounts paid bye the employers annually) #ension the amount received from the past employer after retirement) :ratuity is a lump sum amount given by the employer normally at the time of retirement) .or example a) (alue of rent free accommodation provided by the employer) b) (alue of an accommodation provided by the employer at the concessional rate) c) !nsurance premium paid by thee employer to effect life insurance for the benefit of employee) d) .debt of employee paid by the employer and e) (alue of conveyance facility provided by the employer The following are the examples of profits in lieu on termination of employment a) 7ompensation received from employer on termination of employment b) 7ompensation on modification of terms of employment c) -mount received from provident fund or any other fund which is contributed by the employer) d) 6vertime payments received from employer) e) -llowances such as dearness allowances+ utilities allowances+ etc received from employer) f) 8onus received from employer) (aluation of per3uisites+ allowances and benefits To determine the above values first of all the following terms must be clearly understood AV#R.A# R#-#I :overnment allows tax concession on some expenditures and investments) .or example 1/0 of profit+ 0 of sales etc) #er3uisites s means facilities or benefits provided by the employer to his employee) .

le purposes Tax concession is granted if a person donates any amount in cash or kind during the year to a non-profit making institutionD organiAation) a) -ny board of education in #akistan or university in #akistan established by or under any federal or provincial law or any educational institution in #akistan established or run by government or local authority) b) -ny hospital in #akistan established or run by government or by a local authority) c) -ny relief fund approved by government) d) -ny non-profit organiAation) ) !f any donation is given in kind the value of such articles or goods donated would be ascertained by the board) ") The total donation son which tax concession may be granted should not exceed the following limits) a) !n case of a company twenty percent of taxable income) b) !n case of individual or association of person thirty percent of taxable income) -ll the donations given in cash will be entitled to tax concession only if the amount is paid by a crossed che3ue drawn on a bank+ or fair market value of any property given as donation) Invest&ent in shares and insurance -s a measure to promote savings and investment in the country+ incentive has been provided through this tax credit scheme) The details are as follow: a) !f the resident person *deriving income from salary or bonus) pays insurance premium to a life insurance company registered by the securities and exchange commission of #akistan or .$) #rofit on debt *section '$) .person should be original allot tee of these shares) c) The amount of relief allowed will have to be surrendered by the person+ if he sells or transfers these shares within three years of the purchase) d) Thorough an amendment in finance act // the limit for amount eligible for relief has been enhanced up to twenty percent of taxable income or 1//+//+/// whichever is less moreover the holding period has been reduced to two years) These changes will be applicable with effect from tax year /1") Contri.ollowing is the detail regarding these concessions: Donation "or charita.resident person purchases either new shares offered by a public company listed on stock exchange in #akistan or listed shares sold by privatiAation commission of #akistan) b) .ution to an approved pension "und -ny #akistani individual salaried person or businessman who contributes as premium in approved pension fund during the year is entitled to a tax incentive on such payment the details are as follow) a) The person contributing should posses a valid national tax number or 7@!7) b) The concession is available for contribution to only one approved employment pension or annuity scheme .

ailure to furnish any statement .urther details are as under: a) The loan is utiliAed for construction of new house or the ac3uisition of a house) b) The amounts will not the return of capital) c) The amount should not have been deducted from Fincome from propertyG) d) The amount eligible for relief will be restricted to forty percent or taxable income of the person or &s) %//+/// whichever is less however from tax year /1/ onwards the limits has been increased to fifty percent of taxable income or &s) 4%/+/// whichever is less) Tax credit for registration under sales tax act =very manufacturer registered under the sales tax act+ 1??/+ shall be entitled to a tax credit of )%0 of tax payable for a year) This concession will apply if: a) @inety percent his sales are to the person who is registered under then sales tax act 1??/ and b) 7omplete details of the buyers are provided to the authorities) !t must be noted that tax concession is given on five categories: a) Donations made to the approved institutions sub>ect to maximum limits mentioned in section '1) b) !nvestment in shares of life insurance premium paid *section ' )) c) 7ontribution to an approved pension fund *section '")) d) 1ark up on housing finance scheme *section '$)) e) 1anufacturers registered under sales tax act+ 1??/) @o) 1) ) ") $) 6ffences .ailure to issue receipts .c) The amount eligible for relief will be restricted to twenty percent of taxable income of eligible person) d) if a person >oins this scheme at the age of forty one years or above the limit of twenty percent as mentioned in E above will be enhanced by two percent for each year above forty however + the contribution in such cases should not exceed %/0 of taxable income of latest tax year) /ar0 up on housing "inance sche&e1 This concession has been provided by the finance ordinance //1+ and is advantageous for those individuals who have not rented out their property) @ow+ if the person has received a loan from scheduled bank or a non-banking financial institution under a house finance scheme approved by then state bank of #akistan or advanced by government or local authority or a statutory body or listed public company and pays mark up or share in rental income and shares towards appreciation in the value of house on such loan+ this allowance will be provided) .ailure to furnish the return .ailure to furnish the wealth statement .ine 1inimum /+/// fine or %/0 of tax payable or /)10 of tax per day %// per day or %/+///rs 1//rs per day %/// or higher "0 of tax payable amount .

ine H !mprisonment %/+/// fine -nd Iyrs !mprisonment 1//+///rs and " yrs !mprisonment %//+///rs and yrs !mprisonment %/+/// and yrs !mprisonment %/+///rs and yrs !mprisonment yrs !mprisonment 1 year !mprisonment .%) ') 4) 5) ?) 1/) 11) 1 ) 1") @o) 1) ) ") $) %) ') 4) .ailure .ails to pay advance tax+ submits tax return+ wealth statement + in response to notice + provide records etc) #rosecution for false statement in verification #rosecution for concealment of income #rosecution for failure to maintain records #rosecution improper @T@ #rosecution for making false or misleading statement #rosecution for obstructing a tax officer %///rs %///rs !) %0of tax !!) %0 of tax !!!) %/0 of tax .ailure .ailure .ailure to apply for registration .ailure to notify a change of material nature .ailure to deposit additional tax against i) @o reply 1st notice ii) @o reply to nd notice iii) @o reply to "rd notice .ailure #rosecution .ailure .ailure .

irst year allowance for depreciation @ormal allowance for depreciation -ccelerated depreciation &ate of tax %0 ?/0 #rescribe d in the ordinance ?/0 7onditions for depreciation Type of asset #lant and 1achinery ii) 8uilding #lant and 1achinery 8uilding+ computers + furniture and fixtures etc #lant and 1achinery i) $) @o Tax credited for 1) Donation to educational institution hospital+ @#6+ :ovt relief fund !nvestment in shares or life insurance premium paid section '1 7ondition i) ii) #roof of donations &ecogniAed body -llowable limit "/ 0 of taxable income /0 of taxable income or 1/+//+/// /0 of taxable income %/0 taxable income 6r 4%/)/// Chich ever is lesser ) ' ") $) 7ontribution to approved pension fund #ayment of mark up on loan for house finance '" '$ #ublic company ii) 6riginal alottee iii) &etained for yrs 7nicJ#akistan 6nly one pension fund i) 2cheduled bank ii) <oan utiliAe house i) .@o) Type of depreciation 1) ) ") !nitial allowances for depreciation .

ees challan) :rounds of appeal) #ower of attorney #rescribed form) 7!& K 7!& *appeals) and tribunals orders) .igh court -rticle 15%*") --- ---------- .ees challan) :rounds of appeal) #ower of attorney Deci Decisi sion on time 1 / days Cit h ext '/ days ' mon ths 7ancel asseme nt 1odify 6r =nhanc e 7ancel asseme nt 1odify 6r =nhanc e #oint of law Lorder L tribuna l Tribun al decisio n #oint of law Lorder L tribuna l Tribun al decisio n -ppeal fees 1/// for 7ompanie s // for individual ) -ppellate tribunal 7ommissi oner inland revenue *appeals) 1"1 and 1" ///rs ") .ees challan) :rounds of appeal) #ower of attorney) #rescribed form) 7!& order) .igh court Tribunal appellate inland revenue 1"" ?/ days --- 1//rs $) 2upreme court .ees challan) :rounds of appeal) #ower of attorney #rescribed form) 7!& K 7!& *appeals) and tribunals orders) .@o -ppeal to ) 1) 7ommissio ner inland revenue *-ppeals) -ppeal against the order of 7ommissi oner inland revenue 2ectio n 1 4+ 1 5 and 1 ? -pp eal time "/ days with ext) "/da ys '/ days Documents re3uired #rescribed form) 7!& order) .

eadings of advance tax -dvance tax on purchase of air ticket -dvance tax at the time of sale by auction -dvance tax on sale or transfer of immovable property -dvance tax on function or gathering -dvance tax on foreign produced T( plays and serials -dvance tax on cable operators and other electronic media -dvance tax on sale of distributors+ dealers and wholesalers -dvance tax on sale to retailer 7ollection of advance tax by educational institution &ate of tax %0 of gross amount 1/0 of gross sale /)%0 of gross amount 1/0 of bill 1//+/// per episode &ate specified in ordinance /)10 of gross sale /)10 of gross sale %0 of fee Assess&ent -ssessment scheme 1) <aw has empowered tax payer to calculate the tax and deposit the same to income tax authorities *.8&) ) -long with the payment of the proof+ valid return) ") !f assessment is complete than no more tax is due assessment is complete) $) 7!& *7ommissioner) !nland &evenue has the power to audit the tax payer record under section 144 of income tax ordinance //1) %) !f in audit more income is discovered than more tax is payable by the person) Incase o" invalid Return 7ir *7ommissioner !nland &evenue) can give a notice to tax payer) The notice can be given due to following reasons:Due to Deficiency of Documents) Due to not submitting in the said time) Due to not comply) !f assessment is not complete) *est 2udg&ent Assess&ent 8est >udgment can be made in the following cases:1) Tax payer fails to provide &e3uired documents) Cealth 2tatement 2tatement under section 1$" and 1$$) ) 7!& *7ommissioner !nland &evenue) has the power to use its own resources ") 7!& *7ommissioner !nland &evenue) can pass orders of assessment orders) $) @otice which contains i) Total income of the person according to his own resources ii) Tax payable by the person iii) Time and mode of payment iv) -nd penalty imposed .@o) 1) ) ") $) %) ') 4) 5) ?) .