TAXATION

01 Revision
 BASIC TERMS
- Tax
- Fiscal and Monetary Policy
- Canons of Taxation
- Ethics
- Direct and Indirect taxes
- Provincial vs Federal
- Tax avoidance vs evasion
- Tax Haven
- Double Taxation
a) Person
b) Tax Year
c) Total Income
d) Deductable Allowance

Deductible Allowance
a) Zakat
b) WWF (companies)
c) WPPF (companies)
d) House loan interest
e) Education Expenses
a) Individual
b) Company
c) Association of Person
d) Federal / Foreign Govt.

Company
Body Corporate
Modaraba
Foreign Company
Cooperative/Finance Society
NPO
Trust
Foreign Association
Provincial/Local Govt
Small Company
PERSON
“firm” means the relation between
persons who have agreed to share the
profits of a business carried on by all or
Individual any of them acting for all
HUF, Firm, Artifical Juridical person,
Association of body of persons formed under foreign
Persons law

Company Company, Body Corporate, Modaraba,

Cooperative Society, Finance Society,
Federal or Foreign Non-Profit Organization, Trust,
Provincial & Local Government
Government
Tax Rates
Tax Rates
1 July 2015 – 30 June 2016 Tax Year 2016

1 July 2016 – 30 June 2017 Tax Year 2017

• Special Tax Year Demonstration:
Sugar: 1.10.2014 – 30.9.2015
Closing date: 30.09.2015 falls between which normal
tax year?
1.Jul.2015....30.09.2015....30.06.2016

Tax Year: 2016

• Special Tax Years:
Sugar: 1.10.2014 – 30.9.2015 Tax Year 2016
Banks: 1.1.2016 – 31.12.2016 Tax Year
2017
Insurance Companies:
1.1.2017 – 31.12.2017 Tax Year 2018
Atlas Honda Limited (special permission)
1.4.2015 – 31.3.2016 Tax Year 2016
 Heads of Income
Salary XXX
Income from Property XXX
Income from Business XXX
Capital Gains XXX
Income from Other Sources XXX
Sub-Total XXX
Less: Zakat XXX
Less: WWF XXX
Less: WPPF XXX
Less: Interest on House Loan XXX
Less: Education Expense XXX
Taxable Income XXX
 Salary
Pay XXX
Wages XXX
Leave Pay XXX
Payment in lieu of leaves XXX
Overtime XXX
Bonus XXX
Commission XXX
Fee XXX
Work Condition Supplement XXX
Cost of Living Allowance (COLA) XXX
House Rent Allowance XXX
Utilities Allowance XXX
Education Allowance XXX
Entertainment / Travel Allowance XXX
Conveyance Allowance XXX
 i.e. Golf Club Subscription /
Credit Card Bill

a) Enter into
contract
b) Conditions /
change in
conditions
c) Termination
(separately
taxed
according to
average rate
of tax of last
three years)
 Valuation of Accommodation (Income Tax Rules, 2002)

Accommodation = House Rent Allowance paid if the accommodation

was not provided, or 45% of salary
 Valuation of Conveyance (Income Tax Rules, 2002)

Partly personal and partly official = 5% of Cost of Car

For personal use only = 10% of Cost of Car
 Changes in Last 2 Years
• Tax rates revised for salaried and non-salaried persons
• Tax credits reduced
• Charitable Donations tax credit (no income reduction)
• No tax credit on mutual fund / new shares investment
• Income reduction on house loans eliminated
• Relief for Faculty Members, and Full Time researchers
at an HEC recognized institution or University is now
25%.
Ali worked as manager in XYZ Ltd. at monthly salary of
Rs. 80,000 per month till December 2023. From
January 2024, his salary was increased to Rs. 100,000
per month. Salary is credited on 1 st of next month of
service. He gets a 10% medical allowance. XYZ Ltd.
pays Rs. 5,000 per month for Ali’s Golf Club
membership. On 1.1.24, Ali was provided with a car
costing Rs. 1,200,000 for both personal and official use.
He is also provided with a company flat since 1.7.22.
XYZ Ltd. paid Ali bonus of Rs. 150,000 for the year
2022 in August 2023. Find Tax Liability for TY 2024?
Basic Salary 80,000 x 7 months = 560,000
Basic Salary 100,000 x 5 months = 500,000
Medical Allowance = Exempt
Golf Club subscription (5,000 x 12 months) = 60,000
Car 1,200,000 x 5% x 6/12 = 30,000
Accommodation (45% of 1,060,000) = 477,000
Bonus (received in TY24) = 150,000
Salary 1,777,000
Tax on 1,200,000 15,000
12.5% on 577,000 72,125
87,125
We do not make a P&L for Salary. Tax on Tax
Zahid, CEO of a company, gets a cash salary of Rs. 7 million
every month. His employer pays the income tax on Zahid’s
income.
Salary = 7,000,000 x 12 months = 84,000,000
Tax on 84 million:
On 6,000,000 1,095,000
78,000,000 x 35% = 27,300,000
Tax on Salary = 28,395,000
Tax is paid by employer so is a benefit to the employee
Tax on Tax 28.395m x 100/65 43,684,615
Why 100 / 65? 65 is 100 – tax rate of 35%
TO CHECK OUR CALCULATION:
Salary = 7,000,000 x 12 months = 84,000,000
Tax on Tax: = 43,684,000
127,684,615

On 6,000,000 1,095,000
121,684,000 x 35% = 42,589,615
Tax on Salary = 43,684,615

This method will not work every time – will work only when
salary and (salary + tax) lie in the same tax slab
Salary XXXX
Car (Cost of car x 5%/10%) XXXX
Medical Allowance (Exempt upto 10%) XXXX
Driver’s Salary XXXX
Less: Reimbursed by employee (XXXX) XXXX
Bill for Electricity / Gas / Telephone XXXX
Less: Reimbursed by employee (XXXX) XXXX
Section 13(7): Interest free loan, or loan at a rate lower
than market value will be taxable at benchmark rate of
10%. This section is not applicable on loans of Rs.
1,000,000 or less.
Arif works at monthly salary of Rs. 750,000 per month. He is
provided a brand new Land Cruiser costing 15,000,000 with
unlimited fuel for both personal and official use. He is also provided
a driver, whose Rs. 25,000 per month salary is paid by the
company, although Arif has to reimburse Rs. 5,000 per month.
Arif is provided a company maintained flat. A domestic servant at a
salary of Rs. 20,000 per month is provided by the company to Arif.
During the year the company paid Rs. 210,000 for fuel and repairs
of Land Cruiser, and also paid electricity and gas bills of Arif’s flat
amounting to Rs. 155,000 . Rs. 6,000 per month were deducted
from Arif’s salary in relation to the electricity and gas bills. On 1 st
January 2024, Arif took an interest free loan of Rs. 2 million from
his company for personal reasons. On 30 th June 2024, Arif paid Rs.
1,000,000 of the loan back, while the remaining was written off.
Basic Salary 750,000 x 12 months = 9,000,000
Car (15,000,000 x 5%) = 750,000
Salary of Driver (25,000 – 5,000) x 12 = 240,000
Flat (9,000,000 x 45%) = 4,050,000
Salary of Servant (20,000 x 12 ) = 240,000
Fuel = (included with car valuation)
Electricity & Gas (155,000 – 72,000) 83,000
Interest free loan (2,000,000 x 10% x 6/12) = 100,000
Loan Written off by company = 1,000,000
15,463,000
Tax on 15,463,000
On 6,000,000 1,095,000
(15,463,000 – 6,000,000) x 35% 3,312,050
Tax Liability 4,407,050

What if the tax is also paid by the employer?

Tax on Tax will be 4,407,050 x 100 / 65= 6,780,077
Check if it is right?
Taxable income will be (15,463,000 + 6,780,077) = 22,243,080
On 6,000,000 1,095,000
(22,243,080 – 6,000,000) x 35% 5,685,077
Tax Liability 6,780,077
• Free medical treatment under terms of employment
contract is exempt, if the employee provides NTN
(National Tax Number) of the hospital or the clinic.
Medical treatment includes expense for
hospitalization. (Clause 139 of Second Schedule)
• If not entitled - then fully taxable.
• Cash medical allowance - exempt upto 10% of salary.
• Where the employee is allowed free medical
treatment under terms of his employment, as well as
provided a cash medical allowance, then free medical
treatment and hospitalization will be exempt, and the
cash allowance will be taxable.
Clause 139 of Second Schedule – Medical Expenses / Allowance
a) Medical facility or reimbursement of Fully exempt if NTN of medical
medical expenses: practitioner and employer’s attestation
o In accordance with terms of are available.
employment

Not in accordance with terms of Taxable

employment

b) Medical allowance Exempt up to 10% of basic salary

o Medical allowance in addition to Fully taxable

medical facility or reimbursement in
accordance with terms
Medical allowance in addition to
reimbursement of medical expense
not in accordance with terms
[medical facility or reimbursement is
exempt if NTN of medial practitioner
and employer’s attestation are
available]
Allowance is exempt up to 10% of
basic salary.
[Reimbursement is taxable]