Business Taxation: History of Income Tax Law in Pakistan

Business taxation
History of income tax law in Pakistan

Federal Board of Revenue
formerly known as Central Board of Revenue (CBR), is a federal

government organization of Pakistan that investigates tax crimes and
money-laundering. FBR operates through tax inspectors that keep tax
evaders under surveillance and perform special tasks for FBR
Headquarters. FBR performs role of collection of taxation in the
country from all individuals and businesses.
FBR also collects intelligence on tax evasion and administers tax
laws for the Government of Pakistan and acts as the central revenue
collection agency of Pakistan.
Background
Pakistan tax regime consists of four main revenue sources
1. General Sales Tax/indirect tax
2. Central Excise Duty
3. Customs Duty
4. Income Tax/direct tax
• Promulgation of income tax Act1922

• An applicability of income tax act,1922
• Formation of the taxation inquiry committee (1958)
• Recommendations of taxation inquiry committee (amendment in
income tax act 1922)
• Abolishment of super tax (before 1959)
• Expression of rate slab as a percentage of income
• Change in financial year (1960)
• Introduction of income tax committee (1961)
• Introduction of self assessment scheme (1965)

• Promulgation and enforcement of the income tax ordinance1979
• Formation of national tax reform commission (1985)
• Income tax survey 1999-2000
• Introduction of tax amnesty scheme
• Promulgation of the income tax ordinance 2001
• Short title of income tax ordinance 2001
• Applicability of income tax ordinace 2001
• Applicability of income tax ordinance 2001

• Enforcement date of income tax ordinance 2001 (1-7-2002)
• Status of the income tax ordinance 2001
• Purpose of the income tax ordinance 2001
• Income tax rules 2002
• Finance act 2017
Sources of income/Total income
• Income from salary sec-12
• Income from business sec-18
• Income from property sec-
• Income from capital gain sec-37
• Income from other sources sec-39
Definitions- Person according to income tax
ordinance 2001 sec-2
• Person Sec-2(42)
1. An individual
2. A company
3. An association of persons (AOP)
4. The federal government
5. A foreign government
6. A political sub division of a foreign government
7. A public international organization
Definitions
Company (80)
1. A company as defined under the companies act 2017
2. A body corporate formed under any law in force in Pakistan
3. A modaraba
4. A body incorporated or formed under any foreign law
5. A cooperative society, a finance society or any other society
6. A non profit organization
7. A trust, an entity or a body of persons established or constituted by or under any law for the
time being in force.
8. Any foreign association, declared by the FBR as company
9. A provincial government
10. A local government in Pakistan
11. A small company
Definitions
Small company sec-2(59A)
Small company means a company registered on or after 01-07-2005,
under the companies ordinance 1984 or companies act 2017 which
1. Has paid up capital plus undistributed reserves not exceeding rs.25
million
2. Has employees not exceeding 250 any time during a year
3. Has annual turnover not exceeding rs 25 million
4. Is not formed by the splitting up or the reconstitution of company
already in existence.
Association of persons;
Association of persons includes:
• A firm
• A hindu undivided family
• An artificial juridical person
• Any body of persons formed under a foreign law, but does not include
a company
Business taxation by ijaz ali waince Tax year 2021
Resident person sec-81
A person shall be a resident person for a tax year if the person is
a. A resident individual, resident company or resident association of
persons for the year
b. The federal government.
Resident individual sec-82
An individual shall be a resident individual for a tax year if the
individual:
a. Is present in Pakistan for a period of 183 days or more in the tax
year or
b. Is present in Pakistan for a period of 120 days or more in the tax
year and has been in Pakistan for a period of 365 days or more in
the four years preceding the tax year or
c. Is an employee or official of the federal government or a provincial
government posted abroad in the tax year.
Resident company sec-83
A company shall be a resident for a tax year if
a. It is incorporated or formed under any law in force in Pakistan
b. The control and a management of the affairs of the company is
situated wholly in Pakistan at any time in the year or
c. It is provincial government or local government in Pakistan
Resident association of persons (AOP) sec-84
An AOP shall be a resident for a tax year if the control and management
of the affairs of the association is situated wholly or partly in Pakistan
at any time in the year.
Non resident person sec-81
A person shall be a non resident person for a tax year if the person is
not a resident person for that year.
Total income sec-10&11
1. Salary income
2. Income from property
3. Income from business
4. Capital gains
5. Income from others sources
Types of tax system
1. Global tax system
2. Schedule tax system
Taxable income sec-9
Taxable income=total income-total of deductible allowances
Tax sec-2(63)
1. Penalty
2. Fee
3. Default surcharge
4. Any sum or amount leviable or payable under the ordinance.
Taxpayer sec-2(66)
1. Any representative of a person who derives an amount chargeable
to tax under the income tax ordinance, 2001
2. Any person who is required to deduct tax at source or collect tax in
advance
3. Any person which is required to furnish a return of income or pay
tax under the income tax ordinance,2001
Tax year sec-74
Types of tax year
1. Normal tax year (1-7-2020 to 30-6-2021) period of twelve months
2. Special tax year (period of twelve months other than 30 th june.
3. Transitional tax year (less than 12 months period)
4. Separate tax year (less than 12 months period)
Agricultural income (sec-41)
1. Any rent or revenue derived from land
2. Land should be situated in Pakistan
3. Land is used for agriculture purpose
4. Human efforts should involve
Non agriculture income
Partially agriculture/partial non agriculture income
Definitions: Income from salary
Employment: sec-2(22)
• A directorship or any other office involved in the management of a
company.
• A position entitling the holder to a fixed or ascertainable
remuneration
• The holding or acting in any public office.
Employee: sec-2(20) any individual engaged in employment.
Salary sec-12(2)
1. Pay, wages, leave pay, overtime payment, bonus, commission, fee,
gratuity or work conditions supplement or any other remuneration
2. Any perquisite, whether convertible into money or not
3. Amount of any allowance (which is given to remunerate an
employee)
4. Any expenditure reimbursed by the employer (that has not been
incurred in the performance of duties)
5. Profit in lieu of or in addition to salary.
6. Consideration of person agreement to enter into an employment
relationship
Salary sec-12(2)
1. Consideration for persons agreement to enter into an employment
relationship
2. Consideration for an employee agreement to any conditions for
employment or any change to the employee conditions of employment
3. Amount received on termination of employment
4. Amount received from provident fund or any other fund for employee
5. Consideration for agreement to a restrictive covenant
6. Pension, annuity or any supplement to pension or annuity.
7. Any amount chargeable to tax under employee share scheme under
sections 14.
Minimum time scale (MTS)
(20,000-5000-80,000) 12*20000=240000
• Basic salary= MTS+ annual increment
3rd year = 20,000+15000=35,000
2nd year =20,000+10000=30,000
1st year =20,000+5000 =25,000
Exemptions- income from salary
1. Salary of foreign government officials
2. Salary of services under an aid agreement
3. Salary of agha khan development network Pakistan (AKDNP)
4. Salary of seafarer
5. Perquisites in foreign country

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Business Taxation: History of Income Tax Law in Pakistan

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Business taxation

History of income tax law in Pakistan

formerly known as Central Board of Revenue (CBR), is a federal

• Promulgation of income tax Act1922

• Introduction of self assessment scheme (1965)

• Applicability of income tax ordinance 2001

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