1.Introduction ToTaxation Management

8/10/2019 1.Introduction ToTaxation Management

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In the Name of Allah, the Most Beneficent, the Most Merciful



TAX-3141

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* General Understanding of Tax:

Literal meanings ----- Burden, Strain, Duty, Due.

* Definition of Tax:

General compulsory contributions of wealth levied upon persons by the state, to

meet the expenses incurred in providing common benefits upon the residents.



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Direct taxes

Direct taxes are the taxes where incidence of taxation is on the person on whom levied. Forexample income tax.

Indirect Taxes

Indirect taxes are the taxes where incidence of tax can be shifted by the person on whomlevied to other persons. For example sale tax

Proportional Taxes

These taxes are levied with the same percentage. For example, sales tax is levied at the rateof 15%.

Progressive TaxesThis is based on the “capacity to pay” principle of taxation. In this type, the rate of taxincrease as the income increase.

Regressive taxes

A Regressive tax is the opposite of a Progressive Tax. It is based on the benefits receivedprinciple. A type of tax that takes a larger percentage from the income of low-income peoplethan the income of high-income people is called regressive tax.



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Is a strategy where by a person manages its business and other transactions/activities in such a way so as to make maximum use of:

Tax holidays,

Exemption,

Concession,

Rebates,

Tax credits,

Deductible allowances,

Available under law and as a result is able to derive the benefit of minimizing his

tax liability.



* Taxation management covers a decision regarding available choice between :

Employment

self- employment

Sole proprietorship,

Partnership,

Private company

Public company.

* It is professional strategy to plan tax affairs of a person. It is of significant

importance in business management decision.

* Person includes a living person (natural) or artificial person (corporate person).

* Scope of Taxation Management ranges from incorporation of a business to

mergers, amalgamation, winding up, dissolution etc. of business

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Understanding and application of updated laws particularly tax laws, rules and

procedures

Application/use of benefits such as Tax credits, rebates, exemptions, reductionsetc. available under the law.

Maintenance of Records/Books of Accounts as per requirement of law.

Disclosure of true facts (no concealment) that is there should be no concealment

with regard to furnishing of information or preparation of accounts / data.

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Process of Legislation

When National Assembly is in Session When National Assembly is not in Session

Money Bill

All Other Bills

National

Assembly National

Assembly

Senate

President

AssentReject

Act/Law

Sent for reconsideration to

Parliament

(Joint sitting of NationalAssembly and Senate)

President

Ordinance



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* A Income tax is a tax levied on the income of individuals or businesses (corporationsor other legal entities).

* When the tax is levied on the income of companies, it is often called a corporate tax,

corporate income tax, or profit tax.

* Individual income taxes often tax the total income of the individual (with some

deductions permitted).

* Corporate income taxes often tax net income (the difference between gross receipts,

expenses, and additional write-offs).

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Background/ History:

*Income Tax Act of 1922:At the time of independence, this Act prevalent in undivided India was adopted by the Government

of Pakistan as its Income Tax Law.

*Income Tax Ordinance, 1979First law on Income Tax was promulgated in Pakistan from 1st July, 1979.

*Income Tax Ordinance, 2001To updates the tax laws and brings our law in accordance with international standards, this

ordinance was promulgated on 13th September, 2001, which became effective from 1st July, 2002.



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* In 1985, the government Set up a National Tax reform Commission to suggest theways and means to improve the exiting structure of taxation in Pakistan.

* The commission Consisted of Members of Senate and National Assembly, high

government officials and renowned industrialists.

* Terms of reference:

I. To review and evaluate the exiting tax structure.

II. To recommend a plan of action for expanding the domestic base of taxation.

III. To propose a new integrated tax system.

IV. To suggest ways and means to improve the tax administration.



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*Commission constituted by the government submitted its report in May, 2001.

* The commission suggested that Income Tax ordinance 1979, should be replaced by

Income tax ordinance,2001.

* This ordinance was promulgated on 13th September, 2001, which became effective

from 1st July, 2002.

* The assessment of tax year 2003 onwards are based on the new ordinance.

* The new Law abolished the role “ Assessing Officer” who used to determine the

income of taxpayer and compute his tax liability. These are now entrusted to

taxpayer himself .



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Article-77 of the constitution of Pakistan empowers the Federal Government to Levytax for the purpose of the federation. The Federal Government Levy a tax through an

Act of the Parliament or a ordinance promulgated by President. The following are thesources of the Income Tax Law.

1. Income tax Ordinance, 2001 (The Legislative Law).2. Rules Framed By the Board (The Procedural law)

3. Notifications ,Circulars and orders.

4. Income Tax Case Law.

5. Finance Act or Ordinance.



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* Basis Constituent of Income tax law in Our country.

* Includes Whole Procedure of taxation regarding;

* Payment of Tax.

* Collection of Tax.

* Penalties.

* Assessment.

* Refund.

* Appeals etc.

* It Consists of thirteen chapter, each chapter deals with a particular subject and has

been divided into parts and then subdivided into divisions.

* The change in Income tax ordinance 2001, are brought about the Finance ordinanceor Finance Act every year.



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* When dispute arises, the aggrieved party parents its case to a court of law,

which decides the case and provide correct interpretation of the law.

* Such decisions of the courts are know as Income tax case law.

* Reference to such decisions is subsequently made in order to get necessary

guidance.



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* To meet budgetary, social and economic need of the country an annual law known

as Finance Act or Ordinance is promulgated every year.

* Prescribes the minimum income which is liable to tax.

* Changes in Income Tax ordinance, 2001, itself are brought about through this

legislation.

* Rates of tax applicable for the next year are also specified.



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*A sales tax is a consumption tax charged at the point of purchase for certaingoods and services.

* The tax amount is usually calculated by applying a percentage rate to the

taxable price of a sale.

* Most sales taxes are collected from the buyer by the seller, who remits the tax

to a government agency.

* Sales taxes are commonly charged on sales of goods, but many sales taxes are

also charged on sales of services.

* Ideally, a sales tax would have a high compliance rate, be difficult to avoid,and be simple to calculate and collect.



*Background/ History :

The General Sales Tax Act 1948 :

The sales Tax was imposed as federal tax 1948 through the general Sales tax 1948.Previously it was provincial tax and the provinces of Punjab and Sindh were charging it.

The Sales Tax Act 1951:

Under the sales tax act, 1951 sales tax was administered by the Central ExcisesDepartment. Till 1981 tax was levied on excisable goods. However, in April 1981 it wasalso extended to non-excisable goods.

The Sales Tax Act 1990:

The sales tax Act, 1990 empowers the federal Government to levy the sales tax on theSales, importation , exportation , production, manufacturing or consumption of goods.

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* The standard rate of Sales Tax in Pakistan is 16%.

* Taxable transactions :Sales Tax is levied on the supply of goods and services,

and the import of goods.

* Sales Tax Registration :Is mandatory for manufacturers if turnover exceeds PKR

5 million; for retailers, if the value of supplies exceeds PKR 5 million; and for

importers and other persons if required by another federal or provincial law

* Filing and sales tax payment :Sales Tax returns and payments must be made on

a monthly basis

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The federal excise duty is an indirect tax charged by the federal government.

It is Regulated by the federal board of revenue through the federal excise Act,

2005 and the federal excise Rules 2005.

The Federal Excise Act, 2005, was promulgated with effect from 1st July, 2005,

repealing the Central Excises Act, 1944.



Goods produced or manufactured in Pakistan.

Goods imported into Pakistan.

Such goods as the Federal Government may, by notification in the official

Gazette, specify,

As are produced or manufactured in the non-tariff areas and are brought to the

tariff areas for sale or consumption.

Services, provided or rendered in Pakistan.

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The Excise duty is levied and collected at the rate of 15 %.

However , the goods and services specified in the first schedule to the federal

Excise Act shall be charged to duty at such rates as are specified against each

goods and services.

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As part of budgetary measures for the year 2007-08, Special FED at 1% has beenlevied on goods which are manufactured or are imported in Pakistan.

This duty is in addition to FED as prescribed in First Schedule of the Federal Excise

Act, 2005

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Custom duty is a kind of indirect tax which is realized on goods ofinternational trade.

It is categorized into import duty and export duty levies upon imports andexports of goods' respectively.

Custom Act 1969:

Assented on 3rd March, 1969.

Promulgated on 8th March, 1969.

Enforced in 1st January. 1970.



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Goods Imported into Pakistan.

Goods which are brought from any foreign country and are transported , without

payment of duties, from one custom station to another.

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It is imposed on all or any of the goods specified in first schedule, at a rate not

exceeding one hundred per cent (100%) at the value of goods.

This duty is imposed on the goods at their import and exports.

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The government may levy fee and service charges by giving a notification inthe official gazette.

The rate for fee charges will also be specified in the notification.

The government may impose such condition ,limitation , restriction as it maydeem fit to impose.

The charges may b levied for examination , scanning ,inspection ,sealing , de-sealing , valuation check.

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1.Introduction ToTaxation Management

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