Mr.

Zia, on UNO’s special assignment, stayed in Pakistan from January 1, 2018 to February 28,
2018. Determine, for the tax year 2018, his residential status under related provisions of the
Income Tax Ordinance 2001. (5 Marks)

Answer: Mr. Zia is non-resident for the tax year 2018 because his stay in pakistan for the tax
year 2018 is 59 days that is less than 183 days and he is not the employee of federal Government
or provincial government posted abroad in tax year 2018 and according residential status of
individual ,section 82 of ITO 2001:

• An individual shall be a resident individual for a tax year if the individual-

• is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and
eighty-three days or more in the tax year; or
• Is an employee or official of the Federal Government or a Provincial Government posted
abroad in the tax year?

Zee Limited is a non-listed company incorporated under the Companies Ordinance, 1984. The
Govt. of Punjab is holding 59% of the equity in this company. Briefly state under the related
provisions of the Income Tax Ordinance 2001 whether the company would be assessed both as a
company and a resident for the tax year
2018? (5 Marks)

Answer: Zee limited company is a resident company because it is incorporated under the
Companies Ordinance 1984, and secondly Govt of Punjab is holding its 59% of its equity. So
according to Income Tax Ordinance 2001
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 or almost wholly
in Pakistan at any time in the year; or
(c) it is a Provincial Government or local authority in Pakistan.

1. Carefully read the appended excerpt from an article “Tax Structure and Revenue
Generation in Nigeria” and answer the following
questions: (6+4 Marks)

a. Give an example for each of the following types of tax structure in which any
government applies tax.
i. Progressive
ii. Regressive
iii. Proportional

Progressive Taxes
This tax structure is based on the “capacity to pay” principle of taxation. In this , the rate of tax
increase as the income increase.
In progressive tax system, the taxes assessed on the basis of income or business profits are based
on the taxable amount, and follow an accelerating schedule.High income class pay more than
low income class and the tax rate, along with tax liability, increases as an individual or
entity's wealth increases. Thus the high income class pay a higher percentage of taxes and more
money in taxes than do lower-income class .This sort of system effect upper-class people more
than low- or middle-class individuals – to reflect the fact that they can afford to pay more.

The government of Pakistan current system for levying tax on salaried persons is
progressive.

Estate taxes are another example of progressive taxes, as they mainly affect on high net worth
individuals, and rise with the size of the estate.

Regressive Taxes:
Regressive tax system is based on the benefits received principle. A type of tax that takes a larger
percentage from the income of low-income people than the income of high-income people is
called regressive tax.

Under a regressive tax system, individuals and entities with low incomes pay a higher amount of
that income in taxes compared to high-income earners, the government assesses tax as a
percentage of the asset that the taxpayer purchases or owns.

Sales tax on the purchase of everyday products or services, such as food and clothing, is
assessed as a percentage of the item bought, and is the same for every individual or entity. If a
person makes Rs. 200,000 a year and pays Rs.10,000 in sales taxes on clothing and other
consumer goods, then 5% of his annual income goes to sales tax. If a person makes Rs. 1000,000
a year and pays the same Rs.10,000 in sales taxes, then only 1% of his income goes to sales tax.

Proportional Taxes: sales taxes;’

These taxes are levied with the same percentage. For example, sales tax is levied at the rate.

A proportional tax system, also referred to as a flat tax system, assesses the same tax rate
regardless of income or wealth. It is meant to create equality between marginal tax rate and
average tax rate paid.

For example, under a proportional income-tax system, individual taxpayers would pay a set
percentage of their annual income, regardless of the size of that income. Say the fixed rate is
10%. Since it does not increase or decrease as income rises or falls, an individual who earns
Rs.200,000 annually pays Rs. 20,000, while someone who earns Rs.2000,000 each year pays Rs.
200,000 in taxes.

b. Which type is adopted by the government of Pakistan for levying tax on salaried persons?
Justify your answer.
 Answer: Government of Pakistan has adopted progressive tax structure for levying tax on
salaried persons.

The current income tax structure for salary individuals are progressive tax system. Its schedule
of marginal tax rates imposes a higher income tax rate on people with higher incomes, and a
lower income tax rate on people with lower incomes. As taxable income increases, the
percentage rate increases at each interval as the income level moves across the schedule. With a
marginal tax rate, each rupee the individual earns places him into a bracket or category, resulting
in a higher tax rate once the rupee amount enters a new category. For example up to Rs. 400,000
tax rate is 0%. But as income increases from Rs. 400,001 to Rs. 500,000, tax rate is 2%
exceeding Rs. 400,000. And when taxable income increases to Rs. 1 and become Rs.500,001
then its places individual in next tax bracket or category , resulting in a higher tax rate i.e.; Rs.
500,001 to Rs. 750,000 , the applicable tax rate is 2000 +5% exceeding 500,000 and so on.

Tax structure

Tax structures are measured by the share of major taxes in total tax revenue. There are three
general ways that a government can apply tax rates. Taxes can be levied on regressive basis, a
progressive basis or proportional basis. A regressive tax structure shifts the burden of taxation to
low income taxpayers because they pay a disproportionately higher rate of taxes. A progressive
tax structure shifts the burden of taxation to high income taxpayers because they pay a
disproportionately higher rate of taxes. A proportional tax structure theoretically does not shift
the tax burden onto any one group because the same tax rate applies to all taxpayers. Some argue
that certain proportional taxes have regressive effects. The primary economic goals of
developing countries are to increase the rate of economic growth and hence per capita income,
which leads to a higher standard of living. Progressive tax rate can be employed to achieve
equitable distribution of resources. Government can also increase or decrease the rates of tax,
increase or decrease the rate of capital allowances to encourage or discourage certain industries
or may give tax holidays to pioneer companies. Income tax therefore can be used as an agent of
social change if employed as a creative force in economic planning and develop.