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Transcript of 0006 Abdul Qadir Memon
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Income Tax Bar Association Karachi
WORKSHOP ON INCOME TAX
Hotel Sheraton, Karachi29 30 August, 2005
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In the name of Allah,the most gracious and most merciful.
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Income Tax Bar AssociationKarachi
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PAYMENT ANDREFUND OF TAX
By
Abdul Qadir Memon
Former President, Income Tax Bar Association Karachi
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In this world nothing is certain,but death and taxes.--- Benjamin Franklin
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CONTENTS
Payment and Refund of Tax
Advance TaxPresumptive tax regimeWithholding taxWithholding tax statements
Additional tax & Penalties
Collection & recovery of taxRefunds
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ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE
Historical background & Concept of Advance Tax
The concept of Advance Tax wasintroduced in the sub-continent as a war measure to combat inflation and to withdraw a part of the unprecedented amountin circulation. However in the casePrushottamdas vs CIT 48 ITR (SC) 206,211; the honorable superior court hasobserved that like many other innovations in taxation legislation, thisinnovation also has outlived its exigencywhich gave it birth. It was further observed that Government rest on theprinciple of pay as you earn i.e. payingtax by instalments in respect of the
income of the very year in which the taxis aid.
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ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE
Historical background & Concept of Advance Tax
The Income Tax Ordinance, 2001provides for following three modes of collecting taxes in advance , which wewill discuss in detail :-
Advance Tax directly liable to be paid;
Deduction at source ; or Collection at source
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I) ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Who is liable to pay advance tax?Every taxpayer, whose income was charged
to tax for the latest tax/assessment year shall be liable to pay advance tax for theyear other than the following:
a) Income chargeable to tax under the headCapital Gains;
b) Income chargeable to tax under theheads:-
i) Dividend (under section 5)ii) Tax on Certain payments to Non
Residents (under section 6);iii) Shipping and Air Transport (under
section 7);
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
c) Income chargeable to tax at source under thehead Property Income ;
d) Income subject to deduction of tax at sourceunder the head Salary ;
e) Income under the following heads of income
on which tax has been collected as final taxliability and no tax credit is allowed as resultof sub-section (3) of section 168.i) Imports [section 148 (7)].ii) Payments for goods and services
[section 153 (6) or (7)].iii) Export [section 154 (4)].iv) Prizes and Winnings [section 156 (3)].v) Transport business [section 234 (5)].
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
f) The provision of this section does notapply to an individual or association of persons (AOP) where the individuals or
AOPs latest assessed taxable incomeexcluding items mentioned above is less
than Rs.200,000/-.In my humble view although the limit of Rs.
200,000/- has been fixed after exclusionof certain incomes; but no machinery hasbeen provided to calculate the share of tax on such excluded incomes in order toarrive the figures of last assessed tax for the purpose of advance tax.
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
When advance tax is payable?
For a Quarter of Date of Payment
September
On or before 15th day of
September
December On or before 15th day of December
MarchOn or before 15th day of March
JuneOn or before 15th day of June
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
When advance tax is payable?In the case of Oswal Woolen Mills Ltd vs CIT
(Central) Patiala 122 ITR 789 it was heldthat the date of payment of tax is the datewhen the cheque is presented and not the
date, when it is encashed by thedepartment. It was also held in the case of Life Bond Fabric vs CIT 216 ITR 529, thatany advance tax paid after the due date butbefore the end of the relevant financial year
should be treated as advance tax. However,payment of tax after the end of financialyear can not be regarded as advance taxand an erroneous credit can be with drawnin rectification proceedings.
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
What is the method of payment of advance tax?
CompanyThe tax assessed to the taxpayer for the
latest tax/assessment year to be paidin four quarterly instalments. Thetaxpayer shall be allowed to deductthe tax paid in the quarter for whichtax credit is allowed under section168, other than tax deduced onIncome from Salary and Property.
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Individuals and Association of PersonsWhere the tax payer having latest
assessed income of two hundredthousand rupees or more (after exclusion of incomes mentionedabove); the tax assessed to thetaxpayers for the latesttax/assessment year to be paid in four quarterly instalments. However, any
tax deducted in the quarter on Salaryor Income from Property shall not beallowed as deduction while providingthe credit of tax collected or deducted
in such quarter.
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Whether any taxpayers income which islikely to be reduced can file estimates of his income and pay advance taxaccordingly ?
Yes, the tax payer at any time beforethe last instalment is due, may furnishto the Commissioner an estimate of
the amount of the tax payable by him,and there after pay balance estimatedamount in equal instalments on suchdates as have not expired.
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ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
In which Order the credit shall beapplied, in case there are more than onetax Credits?a) any foreign tax credit allowed under
section 103; thenb) any tax credit allowed under Part X of
Chapter III (Charitable donations,Investment in shares, RetirementScheme, Profit on Debt and etc.); andthen
c) any tax credit allowed under sections147 (Advance Tax); and 168 (Creditfor tax collected or deducted).
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
Tax administrators all over the world andparticularly in the developing countries likePakistan face major problems of non-reporting and under-reporting of income.The Withholding Tax and Presumptive TaxRegimes are not new concepts. ThePresumptive Tax as initially introduced in
the Indian Income Tax Act, 1922 under section 18(3BB) through which tax wasimposed on Trading in Liquor, Timber andother Forest Produce in India.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
The scope of these provisions wasmade applicable in Pakistan throughvarious provisions of Income TaxOrdinance, 1979. In Pakistan Prior toJuly 1991, taxation on presumption wasrestricted only to the non-residents
deriving receipts from shipping, air transport business and having fee fromtechnical services.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
The Presumptive Taxation approachalthough has been advocated by theMusgrave and well known French ForfeitSystem and such law also exist incountries like UK, New Zealand, Nepal,India, Philippines, Hong Kong, China,
Indonesia, Mexico, Russia,Czechoslovakia, Channel Islands, Istleof Man and many other countries of theworld.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
However they are applicable to onlythose persons whose incomes are likelyto be difficult to determine accurately,easier to evade, or more likely to crossnational boundaries, but in Pakistan thislaw has been made applicable to almost
all the categories of tax payers not onlythat but they are being heavily punishedfor their inadvertent mistakes.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
Through Finance Act, 1991, provisionsof Section 80 C, 80 CC and 80 D wereintroduced. The then Finance Minister
while defending the introduction of suchprovisions stated that although thecontractors, suppliers and importers areliable to with-holding tax, however they
were subjected to inconveniencethrough cumbersome assessmentprocedures and delay in issuance of refunds.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
It is to relieve them from the pain, the taxdeducted at source is treated as full andfinal discharge of liability. The tax payer is not required to file any return and hedoesnt have to attend any proceedingsin the tax offices.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
It was further stated that the withholdingtax has not only proved a very effectiveinstrument for the recovery of directtaxes but a vast majority of tax payershave also expressed their confidenceand satisfaction in this system. In view of
these encouraging results, it wasdecided to extend the system.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
The with holding and Presumptive TaxRegimes since July 1991 have comeinto full force. The law which weavedthe indirect taxes into direct taxestexture resulted in thousands of WritPetitions; virus of which werechallenged by the tax payers in allround Pakistan on the ground of equity and also on the principles of real income and its taxability on thebasis of liability to pay in aprogressive manner.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
But in the case of M/s. Elahi Cotton Mills andOthers reported as 1997 PTD 1555, thehonorable Supreme Court of Pakistan heldthat the Presumptive Tax imposed u/s. 80C,
80CC and 80D is in consonance with Entry 52of the Federal Legislative List. The Indian HighCourts also in the cases of P.KunhammedKutty Haji and Others reported as (1989) 176ITR 481 and A.Samyasi Roa and Others
reported as (1989) 178 ITR 31 have upheldthe constitutional validity of the amendment inview of the clear objective of grabbling theevaders and inability of the Administrativemachinery to reach them otherwise.
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WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
According to latest statistics availablemore than 54% of total indirect taxeswas collected for the year ended 0n30 th June 2005 through withholdingtax regime. The analysis of netcollection of Indirect Taxes at183.889 billion is as follows:-
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WITHHOLDING TAX REGIME
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1. In view of section 148 (2), this section shallnot apply to
a) The re-importation of re-useable containersfor re-export qualifying for Custom duty andSales Tax exemption on temporary importunder the Customs notification No. SRO344(1)/95 dated 25.04.1995; or
b) The importation of the following petroleumproducts:-Motor Sprit (MS), Furnace Oil (FO), JP-1and MTBE
SECTION 148
[(50(5)] read with Part II of 1st Schedule
IMPORTS
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2. The Commissioner may issue areduced rate or exemption certificateto a manufacturer who imports raw-materials (other than edible oil)exclusively for its own use, provided
a) the aggregate of tax paid or collected
in a tax year equals the amount of taxpaid by the manufacturer in theimmediately preceding year; or
SECTION 148
[(50(5)] read with Part II of 1st Schedule
IMPORTS
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b) a manufacturer is liable to payadvance tax u/s.147; however, he maycancel the exemption certificateissued if manufacturer fails to pay anyinstalments payable u/s.147; or
c) the Commissioner is satisfied that the
income of a person during the tax year is exempt from tax or such person isnot likely to pay any tax (other than taxu/s.113) on account of depreciation or
brought forward of losses.
SECTION 148
[(50(5)] read with Part II of 1st Schedule
IMPORTS
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3. The tax collected under this sectionincluding tax collected on the import of
edible oil shall be final tax on theincome of importer arising from theimports except in the case of anindustrial undertaking importing goods
as raw-material, plant, machinery andequipment for its own use.
SECTION 148
[(50(5)] read with Part II of 1st Schedule
IMPORTS
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4. The Central Board of Revenue videSRO No.593(1)(91) dated 30.06.1991specified various classes of persons to
whom the above sub-section shall notapply and keeping in view the savingclause u/s.239(10) it will continue tobe applicable unless the same has
specifically been withdrawn. The CBRalso confirmed this position videCircular No.9 of 2002 dated29.06.2002.
SECTION 148
[(50(5)] read with Part II of 1st Schedule
IMPORTS
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6. The CBR vide circular letter No.1(38)WHT/91 dated 11.11.1993 inthe case of manufacturers whoseannual exports are not less than 80%,authorized the concernedCommissioner of Income Tax to issue
exemption certificate u/s.50(5) of theI.T.Ord., 1979 in case they fulfill theconditions prescribed under Circular No.20 of 1992 for assessment
u/s.80CC.
SECTION 148[(50(5)] read with Part II of 1st Schedule
IMPORTS
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7. Provision of this section shall notapply to the various items described in
certain clauses of Part IV of 2ndSchedule.
8. As per Sub-Section 148(9) and alsounder section 50(5) of the RepealedOrdinance the tax is deductible onvalue goods and the same has beendefined as under:-
SECTION 148[(50(5)] read with Part II of 1st Schedule
IMPORTS
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"Value of goods" means the value of the goods as determined under
section 25 of the Customs Act, 1969(IV of 1969), as if the goods weresubject to ad valorem dutyincreased by the customs-duty and
sales tax, if any, payable in respect of the import of the goods."
SECTION 148[(50(5)] read with Part II of 1st Schedule
IMPORTS
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A controversy arose when the honorable ITAT inits order reported as 2003 PTD (Trib)735,having relied upon the decision of HonorableLahore High Court reported as 1994 PTD 848,decided that Sales Tax and Custom duty shallnot be added in the value of imported goods for the purpose of assessing income of assesses
u/s.80C of the Income Tax Ordinance, 1979. As a matter of facts the decision of LahoreHigh Court is distinguishable as it was relatedto deduction of tax on Supplies under section50(4) and not on imports.
SECTION 148[(50(5)] read with Part II of 1st Schedule
IMPORTS
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In the meantime the Honorable Karachi HighCourt on this subject vide its order reportedas 2005 PTD 1328 not agreed with the
judgment of Lahore High Court anddismissed the constitutional petition of assessees upholding the treatment of Collector of Customs to charge the tax
u/s.50(5) on total value including CustomDuty and Sales Tax. It is interesting to pointout that in this case the order of thehonourable Supreme Court of Pakistan has
not been referred and discussed at all.
SECTION 148[(50(5)] read with Part II of 1st Schedule
IMPORTS
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2. Through Finance Act 2004 theexemption limit of taxable income hasenhanced from Rs.80,000/- to Rs.
100,00/-.3. Through Finance Act, 2005 the rates of
tax for Salaried persons have alsobeen revised by inserting a new clause
1A in Div.I of Part-I of 1st Schedule tothe I.Tax Ord.2001.Whereas Clause Iof Part III of 2nd Schedule providingreduction in the tax liability has alsobeen omitted.
SECTION 149[50(1)] read with Div. I of Part I of 1st Schedule
SALARY
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5. For facilitation of Salaried persons the CBRhas issued Circular No.18 of 2004 dated09.08.2004 under which the employer in order to work out the tax liability of the employeeunder section 149 of the Ordinance, is allowedto make adjustments of the income tax paidby such salaried persons under section 234and 236 of the Income Tax Ordinance, 2001
during a tax year. Such salaried tax payers,are entitled to credit of such tax payment onlyif they are the owners of the motor vehicle or subscribers of telephone in their own name,as the case may be.
SECTION 149[50(1)] read with Div. I of Part I of 1st Schedule
SALARY
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6. In the matter regarding withholding andtaxability of Salary of Pakistani Seafarer hasbeen resolved by inserting clause (7F) in Part-I of the Second Schedule to the RepealedOrdinance, through Finance Ordinance, 2001under which the exemption has been grantedto the salary received by the PakistaniSeafarer working on a foreign vessel provided
that such income is remitted to Pakistan notlater than two months of the relevant income.Same exemption is still available as per clause 4 of Part-I of the Second Schedule tothe Income Tax Ordinance, 2001.
SECTION 149[50(1)] read with Div. I of Part I of 1st Schedule
SALARY
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SECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule
DIVIDENDS
Every residentcompany paying adividend shall deduct
tax from the grossamount of thedividend paid at thefollowing rates:-
i) Public or InsuranceCompanyii) In all other casesiii) Reduced rate
Rates of deduction
5%
10%(1) 7.5%
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SECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule
DIVIDENDS
1. Under the following Clauses of Part IIof the 2nd Schedule Reduced ratesare applicable to an amount:-
a) Received by a non-residentcompany from a company engagedexclusively in mining operations, other than petroleum. [Clause 16]
b) Paid by a purchaser of a power project privatized by WAPDA. [Clause17]c) Paid by a company set up for power
generation [Clause 20]
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SECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule
DIVIDENDS
2. The Provisions of this section shallnot apply to the following as provided
in Part-IV of Second Schedule:-a) The Islamic Development Bank[Clause 38B]b) Payments made to the NIT (Unit)
Trust or a Mutual Fund. [Clause 47B]
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SECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule
DIVIDENDS
3. In respect of Zakat deduction, the lawprescribes that deduction should be
made on gross amount; however, thetax authorities vide their letter dated19th March, 1997 agreed thatwithholding of tax should be made
after deduction of Zakat.
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SECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule
DIVIDENDS
4. Deduction at source in respect of dividend is to be made at the time of
making payment and not at the timeof declaration of dividend. - CIT,Companies-I, Karachi v. NationalInvestment Trust Ltd., Karachi [2003]
87 TAX 317 (H.C. Kar). = 2003 PTD589.
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SECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
PROFIT ON DEBT
(Yield/Profit Interest/Discount/Premium,etc.) on
i) On an account, deposit or a certificateunder the National Savings Schemeor Post Office savings Account.
ii) An account or deposit maintainedwith the banking company or financialinstitution
iii) Any security [other than that referredto in clause (a)] issued by Federal or Provincial Govt. or a local authority
iv) Any bond, certificate, debenture,security or instrument of any kind(other than a loan agreement betweena borrower and a banking Company or development financial institution)
Rates of deduction
10% (1)
10%
20%
10%
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SECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
PROFIT ON DEBT
1. In the case of any resident individual, no taxshall be deducted from income or profits paidon,-i) Defence Savings Certificates, SpecialSavings Certificates, Savings Accounts or PostOffice Savings Accounts, or Term FinanceCertificates (TFCs), where such deposit doesnot exceed one hundred and fifty thousandrupees; and [Clause 59(iv)(a) of Part IV of 2nd
Sch].ii) Investment in monthly income Savings Accounts Scheme of Directorate of NationalSavings, where monthly installment in anaccount does not exceed one thousand rupees.
[Clause 59(iv)(b)]
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SECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
PROFIT ON DEBT
2. In case of Special US Dollar Bondspurchased by a resident out of depositsmade in foreign currency accounts onor after December 16, 1999 shall betaxed @ 10%. [Clause 82 of Part I of 2nd Sch.)
3. The provisions of this section shall notapply in view of various Clauses of Part IV of Second Schedule.
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SECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
PROFIT ON DEBT
4. Vide SROs bearing No.484 (1)/84dated 14.06.1984 and 594 (1)/91
30.06.1991 issued by the CBR, thefollowing persons have been excludedfrom operation of this section:-a) Federal Government
b) A Provincial Governmentc) A Local Authority
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SECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
PROFIT ON DEBT
d) Recipient who qualify for exemptionunder clauses (78), (78A) and (79) of the 2nd Schedule to the Repealed
Ordinance (now Clauses 78, 79, 80and 84 of Part I of 2 nd Schedule).e) Persons who produce a certificatefrom the Tax Department that they are
not liable to pay any tax under theordinance during the income year.f) A Banking Company receivinginterest on inter-bank deposit.
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SECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
PROFIT ON DEBT
In my humble opinion, keeping in viewthe protection granted under Section239(10) the above SROs are stillvalid.
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SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-Iand Div-II of Part-III of the 1st Schedule.
PAYMENT TO NON - RESIDENT
Description Rate of Deduction
Taxability
i) Every person paying an amount of Royalty or Fee for Technical Services(other than any royalty where theproperty or right giving use to theroyalty is effectively connected with or any fee for technical services wherethe services giving rise to the fee arerendered through; a permanentestablishment in Pakistan of the NonResident person.
15% (1) Final
ii) Any payment other than covered (i)above.
30% Adjustable
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SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-Iand Div-II of Part-III of the 1st Schedule.
PAYMENT TO NON - RESIDENT
1. If any reduced rate of tax is availableunder any treaty for avoidance of doubletaxation; then the same shall be madeapplicable instead of 15%.
2. In view of clause (c) of sub-section (3) of section 6, withholding of tax shall not bemade on any royalty or fee for technicalservices that is exempt from tax under this Ordinance.
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SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-Iand Div-II of Part-III of the 1st Schedule.
PAYMENT TO NON - RESIDENT
3. The provision of this section shall not apply tothe following:-
Payments that are subject to deduction of taxunder section 149, 150, 153, 155 and 156;
Payments that are taxable to permanentestablishment in Pakistan of the non-residentperson and are duly approved by theCommissioner;
Payments made by a person who is liable to paytax on the amount as a representative of a non-resident person under section 172(3).
Payments to a non-resident person who is not
chargeable to tax under this Ordinance
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SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-Iand Div-II of Part-III of the 1st Schedule.
PAYMENT TO NON - RESIDENT
4. Sub-section (3) provides that where a
person claims to be a representative of the non-resident person then he shouldfile a declaration to that effect with theCommissioner prior to making any
payment to the non-resident person.
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SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-Iand Div-II of Part-III of the 1st Schedule.
PAYMENT TO NON - RESIDENT
5. In view of sub-section (5), where a person intendsto make a payment to a non-resident person without deduction of tax, the person shall be required to
furnish the name and address of the non-residentperson and the nature of payment to theCommissioner, before making the payment.However, such requirement to furnish information isnot applicable in the following cases:-
a) Import of goods where title of goods istransferred outside Pakistan; or b) Educational and medical expenses remitted inaccordance with the Regulations of State Bank of Pakistan.
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SECTION 153[50(4) read with Div-II and III of Part-III of 1st Sch.
PAYMENT FOR GOODS AND SERVICES
Particularsi) Payment in full or part including a payment byway of advance to a resident or PE in Pakistanof non-resident on account of:-a) Sale of :-
i) Rice, Cotton Seeds or Edible Oilsii) Locally produced Edible Oil purchased for manufacturing of Cooking Oil/Vegetable Ghee[Clause (13C) of Part-II of Second Sch]
iii) Other goods including Cotton
b) Rendering / Providing of services:-i) Transport Servicesii) Others
c) Contracts other than a contract for the sale of goods or the rendering/ providing of services
Rates of deduction
1.5%1%
3.5%(1)
2%5%
6%
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SECTION 153[50(4) read with Div-II and III of Part-III of 1stSchedule
PAYMENT FOR GOODS AND SERVICES
Particulars
ii) Payment in full or part including apayment by way of advance to a non-resident on execution of Contract or Sub-contracts:-a) Under a construction assembly or installation project in Pakistan, including acontract for the supply of supervisory activities
in relation to such projects; or b) For construction or services rendered other than a contract to which section 152 applies.c) For advertisement services rendered by theTelevision Satellite Channels
Rates of deduction
6%
6%
6%
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SECTION 153
[50(4) read with Div-II and III of Part-III of 1stSchedule
PAYMENT FOR GOODS AND SERVICES
(1) Deduction of tax is not required in thefollowing cases-
i) Where an importer is sellinggoods in the same condition and has paidtax under section 148 at import stage;
ii) Refund of security deposit;iii) Payment made by the Federal
Govt., a Provincial Govt. or a Local Authority to a contractor for constructionmaterials supplied to the contractor by thesaid Govt. or the Authority;
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SECTION 153
[50(4) read with Div-II and III of Part-III of 1stSchedule
PAYMENT FOR GOODS AND SERVICES
iv) Purchase of an asset under alease and buyback arrangements;
v) Payment for Securitization of receivables by a Special Purpose Vehicle(SPV) to originator; or
vi) Payment made by a SmallCompany as defined in section 2 (59A) of I.Tax Ord. 2001.
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SECTION 153
[50(4) read with Div-II and III of Part-III of 1stSchedule
PAYMENT FOR GOODS AND SERVICES
(2) The gross amount payable for a sale
of goods shall include the sales tax, if any,payable in respect of sale [Section 153(2)](3) The tax deducted under this sectionshall be a final tax on the income of resident and non-resident persons arisingfrom transactions/contract referred to inclause (a) or (c) of sub-section (1) andspecified in sub-section 3.
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SECTION 153
[50(4) read with Div-II and III of Part-III of 1stSchedule
PAYMENT FOR GOODS AND SERVICES
(6) Sub-section (1) and (3) of thia sectionrequires every Prescribed Person to deduct
tax . Sub-section (9) defines "PrescribedPerson" which include an association of persons (AOPs) constituted by, or under law.The controversy was arisen that whether Partnership firms are AOP constituted by, or under law? The controversy has now beenresolved and the matter has been clarified bythe CBR vide it's circular letter C.No.1 (17)W.T.H./91-PT dated November 2, 2002.Following is the text of the circular:-
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SECTION 153
[50(4) read with Div-II and III of Part-III of 1stSchedule
PAYMENT FOR GOODS AND SERVICES
" I am directed to refer to your letter dated 04.10.2002 on the above subject and to say that, in continuation of Board's earlier clarification vide letter of even number dated 29.08.2002. It is further clarified that a partnership of individuals constituted throughan instrument of partnership deed and
registered with the Registrar of Firms under the Partnership Act, 1932 does not fall withinthe meaning of the 'Prescribed Persons' asgiven in sub-section (9) of section 153 of theIncome Tax Ordinance, 2001"
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SECTION 153
[50(4) read with Div-II and III of Part-III of 1stSchedule
PAYMENT FOR GOODS AND SERVICES
(8) In respect of deduction of tax on
purchase of entire factory along withfactory land, building and machinery, thehonourable Lahore High Court in case of M/s. Kawther Grain (Pvt) Ltd v DCIT
Guyranwala reported as (1999) 80 Tax262 (H.C.Lah) held that these items arenot liable to withhold tax u/s 50(4), as thesame are not goods.
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SECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule
EXPORTS
Every authorized dealer in foreignexchange/banking company/EPZA/DTRE,direct exporter or an export house registeredunder the DTRE shall deduct tax from theproceeds at the following rates:
1. On export proceeds, sale of goods to directexporter (includes EPZA realization), indentingcommission (3) on the basis of goods specifiedin various parts of 7th Schedule.
a) Part Ib) Part IIc) Part IIId) Part IV
2. Receipts of engineering contracting servicesrendered or construction contracts outsidePakistan (clause 3 of Part-II of SecondSchedule).
Rates of deduction
0.75%1.0%
1.25%1.5% (1)
1%
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SECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule
EXPORTS
(1) The new entry in clause (1) of Divisionof the Part-III has been inserted through
the Finance Act 2005, which prescribesitems like raw cotton, cotton yarn etc. Byvirtue of this amendment the tax onexport proceeds of items prescribed in
Part-IV of the Seventh Schedule is to bededucted @1.50%. Thus, the rate of taxwill be increased by 0.25%.
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SECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule
EXPORTS
(2) Clauses 14 and 15 of Part II of SecondSchedule specify a rate of 0.75% for thefollowing export proceeds:-a) Rice marketed under a brand name up tofifty kilograms packs;b) Canned and bottled fish including sea-foodand other food items;
c) Precious and semi-precious stones whether uncut, cut, or polished; andd) Fish and fisheries products packed in retailpacks of five hundred grams to kilogram.
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SECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule
EXPORTS
(3) Clause (5) of Part-II of the Second Schedule tothe Income Tax Ordinance, 2001, provides that thetax chargeable in respect of commission received by
an export indenting agent or an export buying houseshall be at the rate equal to the rate of tax applicableto the exporter on export of goods to which suchcommission relates.(4) As Per Clause 47C of the Part IV of the 2nd
Schedule the Provision of this section is notapplicable to an exporter in respect of cooking oil or vegetable ghee exported to Afghanistan, from whomadvance tax has been collected under section 148on import.
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SECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule
EXPORTS
(6) In my humble view presently under this sectionand under section 233 only the commission earnedby the Indenting Commission Agent locally covered
under PTR. Because the commission earned onExport and Import indenting business coversu/s.154(2) of the Ordinance and sub-section (4) of section 154 provides that only the tax deductedunder sub-sections (1), (3), (3A) or (3B) shall fall
under the Presumptive Tax Regime. It is pertinent topoint out that the CBR vide its Circular No.7 of 2004dated 01.07.2004 has also clarified that deductionunder section 233 on indenting commission would afinal tax in respect of such income.
PRIZES AND WINNINGS
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SECTION 156[50(7C)] read with Div-VI of Part-III of 1st Schedule
PRIZES AND WINNINGS
i)Prizes on Prize Bonds
ii) Winnings from a raffle,lottery, Prize on winninga quiz, prize offeredby companies for promotion of sale or cross-word puzzle.
Rates of deduction
10%
20%
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PETROLEUM PRODUCTS
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SECTION 156 A[50(7H)] read with Div-VIA of Part-III of 1 st Schedule
PETROLEUM PRODUCTS
Every person selling
petroleum products toa petrol pumpoperator shall deducttax from the amount of
commission or discount allowed tothe operator.
Rates of deduction
10%
PETROLEUM PRODUCTS
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SECTION 156 A[50(7H)] read with Div-VIA of Part-III of 1st Schedule
PETROLEUM PRODUCTS
(1) The tax deducted under this sectionshall be a final tax on income arising fromthe sale of petroleum products.(2) The CBR to remove the hardship of duplicate deduction of tax instructed videcircular No.11 dated 01.07.2004 that theCommissioner may issue exemptioncertificate u/s. 153(4) of the Ordinance incases where tax is being collected u/s.156(A) as full and final discharge of Taxliability.
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SECTION 231A
[50(2B) read with Div-VI of Part-IV of 1st Schedule
CASH WITHDRAWAL FROM BANKS
Every banking companyshall, at the time of makinga payment for Withdrawalof cash exceedingRs.25,000/-
Rates of deduction
0.1%
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SECTION 231A
[50(2B) read with Div-VI of Part-IV of 1st Schedule
CASH WITHDRAWAL FROM BANKS
(1) This section shall not apply oncash withdrawals made by :-
a) Federal and Provincial Govt.b) Foreign diplomat or diplomatic
mission in Pakistan or c) A person who produces a
certificate from the CIT that his incomeduring the tax year is exempt.
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SECTION 231A
[50(2B) read with Div-VI of Part-IV of 1st Schedule
CASH WITHDRAWAL FROM BANKS
(2) The Central Board of Revenue hasclarified various issues related to
above new provision of law videClarification letter C.No. 1(3)WHT/2005 dated 30.06.2005 andCircular No.4 of 2005 dated
14.07.2005.
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SECTION 233
[50(4A) read with Div-II of Part-IV of 1st Schedule
BROKERAGE AND COMMISSION
i)Brokerage or Commission
earned by IndentingCommission Agents
Advertising Agents andYarn Dealers.
ii) Brokerage or Commissionearned by others.
Rates of deduction
5%
10%
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SECTION 233
[50(4A) read with Div-II of Part-IV of 1st Schedule
BROKERAGE AND COMMISSION
(1) This section deals with deduction of taxon Brokerage or Commission made bywithholding tax agents i.e. the Federal
Government, Provisional Government, aLocal Authority, a Company and or an
Association of Persons constituted, by or under, any law.
(2) In certain cases the agents retaincommission or brokerage from any amountremitted by them to the principals they shallbe deemed to have been paid commissionor brokerage by the principal.
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SECTION 233
[50(4A) read with Div-II of Part-IV of 1st Schedule
BROKERAGE AND COMMISSION
(3) The tax deducted under this sectionshall be the Final Tax on the income of recipients(4) In order to merge the categorieswhere tax rates are similar, anamendment has been made in thisSection read with Part-IV of FirstSchedule whereby only these twoclasses of taxpayers have been re-defined according to the tax rates for simplification
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SECTION 233 (A)read with Div-II A of Part-IV of 1st Schedule
COLLECTION OF TAXES BY STOCK EXCHANGEREGISTERED IN PAKISTAN
Tax is collectible:(i)On purchase and sale of
shares in lieu of commissionincome earned on purchase /sale of shares (clauses a & b)
(ii) On trading (sale & purchase)of shares (clause c)
(iii) In case of financing of CarryOver Trades (Badla) (clause d)
Rates of deduction
0.005% of the sale& purchase valueof shares
0.005% of tradedvalue of shares
10% on COT(badla) Mark-up
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SECTION 233 (A)read with Div-II A of Part-IV of 1st Schedule
COLLECTION OF TAXES BY STOCK EXCHANGEREGISTERED IN PAKISTAN
(1) The tax deducted on the payments fall under clauses (a) and (b) of sub-section (1) of the
section shall be final. Whereas, tax deductionscover under clauses (c) and (d) shall beadjustable.(2) This section has been inserted throughFinance Act 2004, whereby every RegisteredStock Exchange/Member of StockExchange/Brokerage House and /or their agents have obligation to with hold Income Taxand Capital Value Tax in the manner prescribedin this section.
TRANSPORT BUSINESS
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SECTION 234[50(6) read with Div-III of Part-IV of 1st Schedule
TRANSPORT BUSINESS
1. The Tax is not Collectable on :-a Motor car used for more than Ten years in Pakistan.
b Passenger transport vehicle with registered Seatingcapacity of ten or more after ten years from its making.
c Goods transport vehicle with registered laden weight less
than 8120 after a period of ten years from its date of Registration in Pakistan.
2. The tax collected under this section from person from plyingor hiring out of such vehicle being the owner of goodstransport vehicle, shall be final discharge of tax liability onincome of such person.
Any person at the time of collecting motor vehicle taxshall collect advance tax.
Rates of deductionAs per Div. III of IstSchedule
What are the consequences if the tax payer fails to collect or
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What are the consequences if the tax payer fails to collect or deduct tax or having collected or deducted tax fails to paythe same?
1) Personally liable to pay the amount of taxand additional tax thereof. However, no
recovery shall be made if it is establishedthat the payee has already made thepayment of such tax. However, additional taxmay be recovered from the payer at the rate
of 18% per annum from the date he failed tocollect or deduct the tax to the date tax paid.
What are the consequences if the tax payer fails to collect or
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What are the consequences if the tax payer fails to collect or deduct tax or having collected or deducted tax fails to paythe same?
2) Under section 21 of the I.T.Ord. 2001, nodeduction shall be allowed in computing theincome of a person under the head ' Income
from Business' for any salary, rent, brokerageor commission, profit on debt, payment to non-resident, payment for services or fee paid bythe person from which the person is requiredto deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, unlessthe person has paid or deducted and paid thetax as required by Division IV of Part V of Chapter X.
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ADDITIONAL TAXAND
PENALTIES
PENALTY
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PENALTY
A taxpayer who failsto pay any tax (other than penalty imposed
under this section ) bythe due date. (Note: Inconsequence of anyorder, the amount of tax in respect of which
penalty imposed isreduced, the amountof penalty shall also bereduced accordingly).
i) First default:5% of the amount of
tax in default.ii) Second default:Penalty on First default
+ 25% of the amountof tax in default.
iii) Third default:Penalty up to Third
default + 25% of theamount of tax indefault.
Particulars Quantum of Penalty
Section 182(1)[108(a)(i) of I.T. Ordinance1979]
PENALTY
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PENALTY
iv) Fourth &Subsequentdefault:
Penalty up to 4thdefault + 50% of the amount of tax indefault.
(Note: Total penaltyshould not exceed100% of suchamount of tax).
Particulars Quantum of Penalty
Section 182[91 of I.T. Ordinance1979]
PENALTY
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PENALTY
Any person who,without reasonableexcuse, fails tofurnish Return of Income or astatementu/s.115(4) or Wealth Statementwithin thestipulated time.
1/10th of 1% of taxpayable for eachday of default(minimum Rs.500/-and maximum 25%of the tax payablefor that year).
Particulars Quantum of Penalty
Section 183[ 91 of I.T. Ordinance 1979]
PENALTY
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PENALTY
Where anyperson in the
course of anyproceedingconceal incomeor furnish in
accurateparticulars of such income.
Equal to theamount of tax
which theperson soughtto evade.
Particulars Quantum of Penalty
Section 184[111 of I.T. Ordinance1979]
PENALTY
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A person who,without
reasonableexcuse, fails tomaintain recordsunder this
ordinance.
First Failure:Rs.2,000/-
Second Failure:Rs.5,000/-Third &
SubsequentFailure:Rs.10,000/-
Particulars Quantum of Penalty
Section 185[109 of I.T. Ordinance1979]
PENALTY
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A person who,without reasonableexcuse, fails tocomply with anynotice served onthe person under section 116 (Wealth
Statement) or 176(Notice to obtaininformation or evidence).
First Failure:Rs.2,000/-
Second Failure:Rs.5,000/-
Third andSubsequentFailure:Rs.10,000/-
Particulars Quantum of Penalty
Section 186[110 of I.T. Ordinance1979]
PENALTY
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Where a personmakes false or misleadingstatement whether in writing or orallybefore an incometax authority invarious forms.
i) Where theaction is willful or reckless, 200%of the taxshortfall; or
ii) In any other
instance, 25% of the tax shortfall.
Particulars Quantum of Penalty
Section 187
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PENALTY
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Where a personfails to give
notice of thediscontinuanceof the person'sbusiness as
required u/s.117.
Not exceedingthe amount of
tax payable for the tax year inwhich thebusiness was
discontinued upto Rs.10,000/-
Particulars Quantum of Penalty
Section 188[112 of I.T. Ordinance1979]
PENALTY
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Where anyperson obstructs
in discharge of Taxation Officersfunction.
Particulars Quantum of Penalty
Section 189[115 of I.T. Ordinance1979]
ADDITIONAL TAX A COMPARATIVE STUDY
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86
87
205(3)
205(1A)
To deduct and paytax under sections148 to156B and233 to 236.
To pay advancetax under section147.
SectionITO 1979
SectionITO 2001
Charge of AdditionalTax for failure
ADDITIONAL TAX A COMPARATIVE STUDY
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87(4)
88
205(1B)
205(1)(a)
To pay advancetax under section147(6) lesser than
80% of theestimated taxchargeable.
To pay tax withthe Return of Income.
SectionITO 1979
SectionITO 2001
Charge of AdditionalTax for failure
ADDITIONAL TAX A COMPARATIVE STUDY
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89
92
205(1)(b)
205(1)(c)
To pay tax or Penalty.
To pay amountholding on behalf
of a taxpayer under section140.
SectionITO 1979
SectionITO 2001
Charge of AdditionalTax for failure
ADDITIONAL TAX A COMPARATIVE STUDY
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114 205(1)(c)
By the liquidator to pay anyamount set-asideunder section141(4).
SectionITO 1979
SectionITO 2001
Charge of AdditionalTax for failure
ADDITIONAL TAX A COMPARATIVE STUDY
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NOTE:i) The additional tax shall becharged at the rate of twelvepercent (12%) per annum.ii) Section 205A providesallowability of reduction inadditional tax, wherein
consequence of any order madeunder this Ordinance, the amountof tax or penalty is reduced.
The additional tax and penalty is levieable only if
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tax payers FAILS to pay tax or comply with theprovision of law.
The Honorable High Court Lahore in thecase of Commissioner of Income Tax,North Zone Lahore v. Warris SilkWeaving & Knitting Mills, Gujranwalareported as (1973) 28 Tax 181 has heldthat:
The additional tax and penalty is levieable only if
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tax payers FAILS to pay tax or comply with theprovision of law.
" If a person is required by a law to dosome thing which becomesimpossible for him to do not on
account of his own negligence or fault,but on account of something whichwas unavoidable and in any case not subject to his control, he cannot be
said to have failed to perform that which the law or an order passed under the law required him to do."
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COLLECTION AND RECOVERY OF TAX
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COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 2001
3. In case of default of any instalment, thewhole balance of outstanding tax willbecome payable.4. Additional tax will however be payableeven if extension or instalments to pay taxare granted. However, it is held in number of Superior Courts decisions that noadditional tax is liable to be paid during theperiod of stay granted by the High Court or Supreme Court of Pakistan.
COLLECTION AND RECOVERY OF TAX
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COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 2001
5. Recovery of tax can be effectedthrough/from -a) Attachment and sale of any movable or immovable property [ section 138 (2) (a)] b) Appointment of a receiver for the
management of moveable and immoveableproperty [ section 138(2) (b)] c) Arrest of taxpayer and detention for a periodnot exceeding 6 months [ section 138 (2) (c)] d) The offices of District Officer (Revenue) asarrears of Land Revenue (section 138A)e) Director of private limited company other than an employed director [ section 139 (1) (a)]
COLLECTION AND RECOVERY OF TAX
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COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 2001
f) Shareholder of private limited companyowning not less than 10% of paid up capital[ section 139( 1) (b)] g) If tax cannot be recovered from the member of AOP, then the AOP shall be liable for the tax
due by member. ( [ section 139(4)] h) Person holding money on behalf of ataxpayer (section 140).i) Liquidator of a company, Receiver, Trusteefor a bankrupt or a mortgagee in possession(section 141)
j) AOP or resident member of AOP in case of tax of a non-resident member of AOP (section142)
COLLECTION AND RECOVERY OF TAX
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SECTIONS 137 to 146 of I.T.Ord., 2001
k) Master of the ship in case of ship owned or chartered by a non-resident person (section143)l) Non-resident aircraft owner or charterer or anagent authorized by the non-resident person
(section 144)m) Person leaving Pakistan permanently(section 145)n) Azad Jammu and Kashmir assessed tax maybe recovered from persons who have residencein Pakistan and who have no movable andimmovable property in Azad Jammu Kashmir (section 146)6. Initiation, validity, etc. of recoveryproceedings.
REFUNDS & COMPENSATION
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SECTIONS 170 & 171 of I.T.Ord., 2001
1. A taxpayer who has paid tax in excess of the amounts which tax payer is properlychargeable under this Ordinance may applyfor refund.2. An application for refund must be madewithin two years of the later of -
a) the date of issuance of assessment order by the Commissioner; or
b) the date on which tax was paid
REFUNDS & COMPENSATION
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SECTIONS 170 & 171 of I.T.Ord., 2001
3. If the Commissioner is satisfied that thetax has been overpaid, he shall -a) adjust against any other income-tax due;b) adjust any outstanding liability of the tax
payer in reduction to pay other taxes; andc) refund the remainder, if any.
4. The Commissioner within 45 days of receipt a refund application has to issuean order in writing of the decision. If aperson is not satisfied with the decision or Commissioner fails to pass the order thanhe can file an appeal there against.
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REFUNDS & COMPENSATION
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SECTIONS 170 & 171 of I.T.Ord., 2001
2) For the purpose of this section, a refund shallbe treated as having become due -a) in the case of a refund required to be made in
consequence of an order on an appeal to theCommissioner (Appeals), and appeal to the
Appellate Tribunal, a reference to the HighCourt to an appeal to the Supreme Court, onthe date of receipt of such order by theCommissioner; or
b) in the case of a refund required to be made asa consequence of a revision order under section 122A, on the date the order is made bythe Commissioner; or
c) in any other case, on the date the refund order is made.
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