Taxation - Pakistan

By : Asif Al-Amin
December 15, 2022
Session - 11
Permanent establishment (PE)
A PE is a place of business through which the business of a non-
resident is wholly or partly carried out.
In particular PEs are a place of management, branch, office, factory or
workshop, premises for soliciting orders, warehouse, permanent sales
exhibition, or sales outlet, except a liaison office, mines and other
places of extraction of natural resources, as well as building site; a
construction, assembly, or installation project; or supervisory activities
connected with such site or project
Permanent establishment (PE)
If such activity continued for more than 90 days within any 12-month
period, an agent acting on behalf of the company has and habitually
exercises authority to do business on behalf of the company, including
furnishing of services.
The definition of a PE provided in a DTT will prevail in cases where a
DTT is executed by Pakistan with the related country of origin of the
PE.
Default Surcharge
Default surcharge is a penalty levied on taxpayer upon non-payment of ant amount of tax or penalty
under any provision of the Income Tax Ordinance, 2001. Refer below table.

Section Default Rate Period (From) Period (To)

137 (6) Payment of tax installments 12% per annum Due Date Date of Payment

161 (8) Failure in deduction or payment of tax at 12% per annum Due Date Date of Payment
source
205 (1) Failure of payment of tax other than 12% per annum Due Date Date of Payment
advance tax
205 (1) Non-payment of penalty 12% per annum Due Date Date of Payment

205 (1) Non-payment of tax by a person who 12% per annum Due Date Date of Payment
hold money etc on behalf of tax payment specified in
and demanded by Commissioner IR. notice
Default Surcharge
Section Default Rate Period Period (To)
(From)
205 (1) Non-payment of tax by liquidator 12% per annum Due Date Date of Payment

205 (1A) Non-payment of advance tax 12% per annum Due Date Date of Payment

205 (1) Non-payment of tax with return or less 12% per annum Due Date Date of Payment
payment of tax as payable u/s 137
205 (1B) Non-payment of advance less than 12% per annum on 1st day of The date of
90% of the tax chargeable for the the amount falls April in that assessment or 30th
relevant tax year short of 90% year June of the next
financial year,
whichever is earlier.
Reduction in Default Surcharge
Where in consequence of any order made under the Income Tax Ordinance, 2001, the
amount of tax or penalty is reduced, the default surcharge on such tax or penalty, if any, shall
also be reduced accordingly.
Exemption from payment of Default Surcharge
The Federal Government may,

• by notification in the official Gazette, or

• by an order published in the official Gazette

for reasons to be recorded in writing, exempt any person or class of persons from payment of
the whole or part of the penalty and default surcharge payable to such conditions and
limitations as may be specified in such notification or, as the case may be
Penalties – Section 182
The Income Tax Ordinance, 2001, imposes certain penalties for non-compliance with requirement of
law
Section Offence Penalty

114 Failure to furnish Income Tax Return 0.1% of tax payable for each day max 50% of tax
payable or Rs.40,00 which ever is higher.
165 & 165A Failure to furnish statement within due Rs. 5,000 if tax withheld is paid.
date In all the cases Rs.2,500 for each day of default
subject to minimum penalty of Rs. 10,000
148,149, 150- Failure to collect or deduction as required Rs. 25,000 or 10% of the amount of tax, which ever
156, 158, 234 under law is higher
etc
181C & D Failure to display NTN or business Rs. 5,000
license at business place
181 Failure to declare Bank account Rs. 10,000 per day from date application filed or
account opening date with minimum amount Rs.
100,000.
WHAT IS A SOLE TRADER?

A sole proprietorship also known as a sole trader/sole owner, or simply proprietorship is a type of
business entity which is owned and run by one individual and where there is no legal distinction
between the owner and the business. All profits and all losses accrue to the sole owner (proprietor /
trader).
All assets of the business are owned by the owner (proprietor / Sole trader)and all debts of the
business are his/her debts and he/she must pay them from their personal resources. This means that
the owner has unlimited liability. It is a “sole” proprietorship in the sense that the owner has no
partners (partnership).
This is the most straightforward structure for a business. Basically it means the business decisions are
being made by one person. Of course, it doesn’t necessarily mean that the business has only one
worker. The sole trader can employ others to do any or all of the work in the business.
A sole proprietor may do business with a trade name other than his or her legal name. This also allows
the proprietor to open a business account with banking institutions.
Feature of Sole Prop Business
Procedure of Sole Prop Business Registration in Pakistan