Introduction to Taxation-New

INTRODUCTION
TO
TAXATION
INTRODUCTION
Tax
– To tax (from the Latin taxo; "I estimate")
– Word Origin: 1250–1300;
– To impose a financial charge or other levy
– Upon Taxpayer (an individual or legal entity) by a
state or the functional equivalent of a state
– Such that failure to pay is punishable by law
Historical Background
• EGYPT
Tax collectors were known as scribes  Tax on cooking oil
• GREECE
War of the Athenians imposed a tax referred to as eisphora
No one was exempted
• ROMAN EMPIRE 60 A.D
Tax on imports and exports called portoria
• GREAT BRITAIN
First tax assessed in England was during occupation by the
Roman Empire
Lady Godiva - 11th century
Taxation in Pakistan
• Pakistan's Current Taxation system is defined by In-

come Tax Ordinance 2001 (for direct taxes) and Sales
Tax Act 1990 (for indirect taxes) and administrated by
Federal Board of Revenue (FBR).
Pakistan Taxation History
INCOME TAX ACT OF 1922

The Income Tax Act of 1929 was prevalent during
the British Raj and was inherited by both the governments
of India and Pakistan upon independence and partition in
1947. This act initially formed the basis of both coun-
tries' Income Tax codes.
INCOME TAX ORDINANCE (1979)

The Income Tax Ordinance was the first law on
Income Tax which was promulgated in Pakistan from
1 July 1979 by the Government of Pakistan.
INCOME TAX ORDINANCE 2001
To update the tax laws and bring the country's tax
laws into line with international standards, the Income Tax
Ordinance 2001 was promulgated on 13 September
2001. It became effective from 1 July 2002.
IT RULES 2002
IT (Income Tax) rules 2002 were promulgated by
the Federal Board of Revenue (FBR) on 1 July 2002 in
exercise its powers granted under section 237 of the
Ordinance.
Pakistan Taxation System
Direct Tax & Indirect Tax

Constitutional Provision on Taxation
ETHICS: Canon of Taxation
PERSON
 An Individual;
 A Company or Association of Persons incorporated,

formed, organized or established in Pakistan or elsewhere;
 The Federal Government, a foreign government, a political

subdivision of a foreign government, or public
international organization
SCOPE OF TAXABLE INCOME
Note:
RESIDENT:
 183 or more days,
 Half day consider full day
 The definition of resident now also includes an individual who
is present in Pakistan for 120 days in any one tax year and in
aggregate 365 days in four preceding years.
 Only transit days are excluded.
Note:
RESIDENT:
 183 or more days,
 Half day consider full day
 The definition of resident now also includes an individual who
is present in Pakistan for 120 days in any one tax year and in
aggregate 365 days in four preceding years.
 Only transit days are excluded.
EXAMPLES: Residential Status
SOLUTIONS: Residential Status
Taxes in Pakistan
Types of taxes
• Direct Taxes: • Indirect Taxes
– Sales Tax
– Income Tax (Sales tax 1990)
(Income Tax Ordinance 2001)
– Custom
(Custom Act 1969)
– Federal Excise Duty

(Federal Excise Act 2005)
Technical terms in tax
• Ordinance vs. Act
• Supplies
• Services
• Exempt
• Individual
• AOP (Association of Persons)
• Company
Withholding taxes in pakistan
• Withholding Income Tax
• Withholding Sales Tax on Supplies
• Withholding Sales tax on Services

Income from Salary Chart
Taxable Income Income Tax Rate in Pakistan
Where taxable income exceeds Rs. 600,000 but does not exceed
5% of the amount exceeding Rs. 600,000
Rs. 1,200,000
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 30,000 plus 10% of the amount exceeding
Rs. 1,800,000 Rs. 1,200,000
Rs. 2,500,000 Rs. 1,800,000
Where taxable income exceeds Rs.2,500,000 but does not exceed Rs. 195,000 plus 17.5% of the amount exceeding
Rs. 3,500,000 Rs. 2,500,000
Rs. 5,000,000 Rs. 3,500,000
Where taxable income exceeds Rs. 5,000,000 but does not exceeds Rs. 670,000 plus 22.5% of the amount exceeding
Rs. 8,000,000 Rs. 5,000,000
Where taxable income exceeds Rs. 8,000,000 but does not exceeds Rs. 1,345,000 plus 25% of the amount exceeding
Rs. 12,000,000 Rs. 8,000,000
Where taxable income exceeds Rs. 12,000,000 but does not exceeds Rs. Rs. 2,345,000 plus 27.5% of the amount exceeding
30,000,000 Rs. 12,000,000
Where taxable income exceeds Rs. 30,000,000 but does not exceeds Rs. Rs. 7,295,000 plus 30% of the amount exceeding
50,000,000 Rs. 30,000,000
Where taxable income exceeds Rs. 50,000,000 but does not exceeds Rs. Rs. 13,295,000 plus 32.5% of the amount exceeding
75,000,000 Rs. 50,000,000
Rs. 21,420,000 plus 35% of the amount exceeding

Where taxable income exceeds Rs. 75,000,000
Rs. 75,000,000]
Example: Calculation of Tax on Salary amounting to Rs. 750,000/-
Taxable Salary 750,000
Tax on Taxable Salary
Exemption 600,000
Taxable income - Exempted Income

( 750,000 - 600,000 ) 150,000
Rate of Tax 5%
Tax on Taxable Salary 7,500

Example: Calculation of Tax on Salary amounting to Rs. 1,275,000/-
Taxable Salary 1,275,000
Tax on Taxable Salary

Tax upto Rs 1,200,000 30,000
Tax on amount Exceeding Rs 1,200,000/-

( 1,275,000 - 1,200,000 ) 75,000
Rate of Tax 10%
Tax on Amount Exceeding Rs 1,200,000/- 7,500
Total Tax on Taxable Salary Income

( 30,000 + 7,500 ) 37,500
Income tax (Heads of income)
• Income from Salary

• Income From Property (Rental Income)
• Income From Business
• Capital Gain
• Income from other source
Withholding of income tax
Supplies Services
Tax Status Other than Other than
Company Company Company Company
Filer 4.00% 4.50% 8.00% 10.00%
Non Filer 8.00% 9.00% 16.00% 20.00%
W.H Tax Calculation Steps:
• 1st step: Determine the transaction type (Supplies or
Services)
• 2nd Step: Determine the Corporate status of seller
(‘Company’ or ‘Other than Company (AOP /Individ-
ual)
• 3rd Step Determine the Tax status of the seller (Filer
or Non-Filer)
Withholding Income Tax
(Simple)
• Ahmed Associates purchased the 10 laptops for its employees
from Techno World ( a private limited company) who is active
filer in income tax. The price per laptop is Rs. 80,000/-. Calcu-
late the withholding Income tax & payment payable to Techno
World in the books of Ahmed Associates.
Withholding Income Tax
(Simple)
• Purchase price of Laptops:
• 10 x 80,000 = 800,000/-
• Calculation of Withholding Income tax:
• By the help of chart:
• Step1: Determine the Transaction type:
• Laptop is a supplies, so the transaction type is :”SUPPLIES”
• Step 2: Determine the Corporate Status:
• Techno World is a private Limited Company, so the corporate status is
“COMPANY”
• Step 3: Determining the Tax Status:
• As per given in question the Tax status is “Filer”
• So the Rates for ‘Supplies-Company-Filer’ i-e 4.00% will be applied on
the value of Rs. 800,000/-
• Withholding Income tax = 800,000 x 4.00% = 32,000
Thank
You..!

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Introduction to Taxation-New

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INTRODUCTION

• Pakistan's Current Taxation system is defined by In-

INCOME TAX ACT OF 1922

INCOME TAX ORDINANCE (1979)

Direct Tax & Indirect Tax

 A Company or Association of Persons incorporated,

 The Federal Government, a foreign government, a political

– Federal Excise Duty

• Withholding Sales Tax on Supplies

• Withholding Sales tax on Services

Rs. 21,420,000 plus 35% of the amount exceeding

Taxable Salary 750,000

Tax on Taxable Salary

Taxable income - Exempted Income

Tax on Taxable Salary 7,500

Taxable Salary 1,275,000

Tax on Taxable Salary

Tax on amount Exceeding Rs 1,200,000/-

Rate of Tax 10%

Tax on Amount Exceeding Rs 1,200,000/- 7,500

Total Tax on Taxable Salary Income

• Income from Salary

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