FTR Lecture

 Wealth statement is only filed by individuals; AOPs and

companies don’t file wealth statement.
 Tax deductible or collectible at source related to the
items of FTR…. (previously the words were deducted
or collected, but later change to leave margin for
incorrect deduction or collection)
 Someone with only FTR income doesn’t have to file
normal tax returns, but they will have to file statement
for FTR u/s 115(4).
 Under FTR assessment orders for audit purpose are
not made because statement for FTR u/s 115(4) is
deemed final assessment order unless there is a case
of concealment or fraud.
 Normal return of income also includes FTR
information.
 For FTR accounting income is meaningless; but
companies must maintain proper accounts becaue
they are required by the Comapies Ordinance. So if an
individual or AOP has only FTR income eg they are only
involved in exports (which are under FTR) they are
 dispisded with this requiment oto maintain accounts as
per ITO via circular 14 of 2002.
 We don’t invest indicidually but buy units of collective
investment scheme or a mutual fund. Now if these two
invest more than 70% of their invested pool in equity
shares of companies, ie not debt securities then they
will be called as per section 2(61A).
 The tax on dividend is imposed at differenct rates on
the investor depending upon as to whether the portion
of total income of the stock fund is more from
dividient income or capitals gains.
 “Other corporate and non-corporate shareholders”
means that we have purchased shares in companies
indivualyy, ie not via mutual funds, REITs etc.
 Adjustable/refundable: adjustable means it will be set
off againsgt some other tax liability; refundable means
you will get money back from FBR.
 Section 55(1): if lets suppose a comapany’s income is
exempt, then even though that comapy wont pay
income tax, the dividents you will get will be taxed.
Similarly the salary income of that company will also
be taxable. However, if a comapney is involved in
agricultural business, then in addition to company’s
 income the dividentd income of shareholders will also
be exempt; such comapneis are called ‘corporate
agricultural enterprises’.
 Tax deduction at source vs collection at source:
deduction is on income in money terms; collection is
on income in kind eg we won bike in a lottery. Now we
will only get that bike if we give say 20% tax.
 Many petrol pumps in Pakistan; though this is business
income but we cant expect every one of them to
maintain proper accounts and pay income tax under
NTR. Hence they are charges on FTR basis. Petrolium
product distributors eg PSO supply petrol etc to petrol
pumps and meanwhile collect (not deduct) tax on the
gross amount of commission (without decucting any
expenses). Same is the case with CNG stations.
 Commission or brokerage [sec 233] can come under
FTR or NTR depending on from whom it is received.
Following tax deducting agencies ie govenrmnet,
comapnny and AOP (registered firm only) can deduct
tax at source as withholding tax. That tax deducted will
be full and final fro me ie it is FTR. However if we
receive commission from an individual or non-
registered firm, they cant deduct tax at source, hence
 my commission income will be taxed as normal income
with expenses deducted with normal slab rates under
NTR with usual rebates allwed as in NTR.
 If we give an ad in a non-resident media person eg a
media house then we will deduct 10% (subject to
yearly change in tax rate) tax which will be full and
final. But if an ad is made outside Pakistan and
provided and aired in Pakistan then that income will
not be taxable cz foreign source income of a non-
resident is not taxable. To counter this, in sec 101 it is
mentioned that if a non-resident person receives
payment from a Pakistani business entity then that will
be considered Pakistan source income. However as he
is still non-resident, his taxability will be subject to tax
treaty with that country.
 Similar concept is Sec. 236Q: Payment to residents for
use of machinery and equipment. We decuct 10% as
final tax on made made to non-resident proveders of
machinery and equiupment.
 Interest income sec 151/7B/8: example of interest
income which is not under special provision eg loan
given by a director to his company and received
interest income… this is unique because no security is
 issued for loan purpose…this interest income will not
come under FTR. similarly banks giving loans to
companies under loan agreements. (c) excludes shares
issued by a company
 Company receiving interest income is under NTR… in
case of interest income FTR and withholding rates are
different… normally they are same.
 Inland back to back LC: I export but don’t have a
manufacturing facility… I open an foreign LC for
exports and then another local LC is opened for
supplies from indirect exporter viz one from whose
factory I am buying goods for export
 Most of the circulars related to FTR are of 1992, 1993,
1994, 1995 because concept of FTR was first time
introduced in 1991…so lots of confusin hence many
circulars….. almost as much chunk of FTR is in circulars
as is in ITO.
 Supply of goods against international tenders can be
both local supplies as well as exports…. Exports will be
FTR but under international tenders local supplies are
also considered exports and hence under FTR with 1%
tax as usual.
 Refund is neither in FTR nor in minimum tax case
 I am a textile exporter and I take tool manufacturing
services of embriodry from someone… I will deduct
only 1% under FTR in the payments made to that toll
manufacturer as opposed to 10% in the usual case of
such services – that 10% is minimum tax..it could be
more.(these are services provided by toll
manufacturers because material is not of the
embrioder) this arrangement is only applicable to
embroidery for export order of garments…however if
the exporter gives him local order he will decuct 10%
minimum tax.
 Minimum tax is more dangerous as compatred to FTR…
 If some of the exports (not more than 20%) could not
be exported due to for example quality control issues
and were sold locally then they can also be considered
as exports… this arrangement was offered to exporters
because despite negligible local supply they had to
apportion all expenses etc etc. also exports would
exercise this option cz they do away with audit as
these negligible supplies are also considered FTR and
not subject to audit.
 Duty draw-back: if you import raw material and export
the products you receive a duty draw-back or custom
 rebate because you have exported againt that import.
You receive a cheque in theis regard. But this amount
is not an income…it is an expense which is recovered…
but this expense is not deductible because it was
incurred againt FTR scheme ie against exports. So DDB
is neither taxable in FTR nor in normal income.
 Firm export order… commissioner will issue and submit
it to customs department to avoid double taxation….
imports are exported – no double taxation
 Income from export of IT and IT enabled services is
exempt from both FTR and NTR.
 For exorts to afghanistaan, no foreign LC is opened and
hence no mechanism for FTR decuction by banks.
Hence, collector of customs collects tax at the time of
clearing of goods under FTR.