Final Tax Word

7/30/2019 Final Tax Word

1/53

Income Tax Project [Sec-C] Page 1

Project Topic

Income Tax Systems in Pakistan, India & UK

Over View of this Report

The main purpose of this report is to study the tax systems exists in India and UK and then

compare the similarities & differences with Income Tax Law in Pakistan. India is a developing

country where as UK is a developed country.

So, we briefly overview the Tax Systems of India and UK and then at the end compare it with

Pakistan Income Tax Systems.

Tax revenue collection is one significant issue of economic development among others. It has

been said that what the government gives it must first take away. The economic resources

available to society are limited, and so an increase in government expenditure normally means a

reduction in private spending.

Taxation is one method of transferring resources from the private to the public sector, but there

are others i.e. creation of more money, to charge for the goods and services it provides or toborrow. Taxation has its limits as well, but they considerably exceed the amounts that can be

raised by resorting to the printing press, charging consumers directly, or borrowing. So while

governments often use all four methods of raising resources, taxation is usually by far the most

important source of government revenue.

Pakistans economic performance since its emergence in 1947 has remained volatile across the

sectors and provinces, and even its structure has changed over the time. The tax efficiency in

Pakistani tax system remained focal point for the last 25 years. However, despite all efforts the

tax to GDP ratio remained constant during this period.


2/53


TAXATION SYSTEM IN INDIA

Executive Summary

The government of India imposes an income tax on taxable income of individuals, Hindu

Undivided Families (HUFs), companies, firms, co-operative societies and trusts (identified as

body of individuals and association of persons) and any other artificial person. Levy of tax is

separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961. The

Indian Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) and

is part of the Department of Revenue under the Ministry of Finance, Govt. of India. There are

close to 35 million income tax payers in India.

The taxation system in the Republic of India is quite well structured. The Department ofRevenue of the Finance Ministry of the Government of India is responsible for the

computation; levy as well as collection of most the taxes in the country. However, some

of the taxes are even levied solely by the Local State Bodies or the respective

governments of the different states in the nation.

Central Government levies taxes on income (except tax on agricultural income, which theState Governments can levy), customs duties, central excise and service tax.

Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax arelevied by the State Governments.

Local bodies are empowered to levy tax on properties, octroi and for utilities like watersupply, drainage etc.
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Hindu_joint_familyhttp://en.wikipedia.org/wiki/Hindu_joint_familyhttp://en.wikipedia.org/wiki/Indian_Income_Tax_Act,_1961http://en.wikipedia.org/wiki/Central_Board_for_Direct_Taxeshttp://en.wikipedia.org/wiki/Ministry_of_Finance_(India)http://en.wikipedia.org/wiki/Govt._of_Indiahttp://en.wikipedia.org/wiki/Govt._of_Indiahttp://en.wikipedia.org/wiki/Ministry_of_Finance_(India)http://en.wikipedia.org/wiki/Central_Board_for_Direct_Taxeshttp://en.wikipedia.org/wiki/Indian_Income_Tax_Act,_1961http://en.wikipedia.org/wiki/Hindu_joint_familyhttp://en.wikipedia.org/wiki/Hindu_joint_familyhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/India


3/53


Income Tax in India

According to Income Tax Act 1961, every person, who is an assessee and whose total income

exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates

prescribed in the Finance Act. Such income tax shall be paid on the total income of the previous

year in the relevant assessment year.

Assessee means a person by whom (any tax) or any other sum of money is payable under

the Income Tax Act, and includes -

Every person in respect of whom any proceeding under the Income Tax Act has beentaken for the assessment of his income (or assessment of fringe benefits) or of the income

of any other person in respect of which he is assessable, or of the loss sustained by him or

by such other person, or of the amount of refund due to him or to such other person;

Every person who is deemed to be an assessee under any provisions of the Income TaxAct;

Every person who is deemed to be an assessee in default under any provision of theIncome Tax Act.

Where a person includes:

Individual Hindu Undivided Family (HUF) Association of persons (AOP) Body of individuals (BOI) Company Firm A local authority and, Every artificial judicial person not falling within any of the preceding categories.


4/53


Indian Tax Year

Income tax is an annual tax imposed separately for each assessment year (also called thetax year).

Assessment year commences from 1st April and ends on the next 31st March.The total income of an individual is determined on the basis of his residential status in India.

For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

Resident

An individual is treated as resident in a year if present in India:

For 182 days during the year or For 60 days during the year and 365 days during the preceding four years. Individuals

fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal

for Indian citizens residing abroad or leaving India for employment abroad.)

Resident but not Ordinarily Resident

A resident who was not present in India for 730 days during the preceding seven years or who

was nonresident in nine out of ten preceding years is treated as not ordinarily resident.

Non-Residents

Non-residents are taxed only on income that is received in India or arises or is deemed to arise in

India. A person not ordinarily resident is taxed like a non-resident but is also liable to tax on

income accruing abroad if it is from a business controlled in or a profession set up in India.

Non-resident Indians (NRIs) are not required to file a tax return if their income consists of only

interest and dividends, provided taxes due on such income are deducted at source.


5/53


Personal Income Tax Rates

Personal income tax is levied by Central Government and is administered by Central Board of

Direct taxes under Ministry of Finance in accordance with the provisions of the Income Tax Act.

Income tax slabs for individual taxpayers for the year 2012-13 to be as follows:

Income Tax Rates/Slabs Rate (%)

Upto 1,80,000

Upto 1,90,000 (for women)

Upto 2,50,000 (senior citizens)

NIL

1,80,0015,00,000 10

5,00,0018,00,000 20

8,00,001 and above 30

Tax amendments for the FY 2011-12 are mentioned below :

Increase in base income tax slab of men and senior citizens.

Tax exemption limit remains the same i.e Rs. 20,000 on investment in tax saving Infrastructure

bonds.

A set of New Direct Tax Codes have been proposed, which will be active from Financial Year

2011.

Senior citizen age reduced from 64 years to 60 years.

People above 80 years of age to be included in the newly introduced 'Very Senior citizen'

category.

Proposal to allow individual tax payers, a deduction of upto Rs 10,000 for interest fromsavings bank accounts.

Proposal to allow deduction of upto Rs 5,000 for preventive health check up. Senior citizens not having income from business proposed to be exempted from payment

of advance tax.


6/53


Status Indian Income Foreign Income

Resident and ordinarily resident Taxable Taxable

Resident but not ordinary resident Taxable Not taxable

Non-Resident Taxable Not taxable


7/53


Heads of Income

The total income of a person is divided into five heads:

1. Salary income2. Income from house property,3. Income from business or profession,4. Capital Gain5. Income from other sources.

Individual Heads of Income

Income from Salary

All income received as salary under Employer-Employee relationship is taxed under this head.

Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax

Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax

deductions and net paid income. In addition, the Form 16 will contain any other deductions

provided from salary such as:

Medical reimbursement: Up to 15,000 per year is tax free if supported by bills. Transport allowance: Up to 800 per month (9,600 per year) is tax free if provided as

transport allowance. No bills are required for this amount. Conveyance allowance:is tax exempt. Professional taxes: Most states tax employment on a per-professional basis, usually a

slabbed amount based on gross income. Such taxes paid are deductible from income tax.

House rent allowance: the least of the following is available as deduction Actual HRA received 50%/40%(metro/non-metro) of basic salary Rent paid minus 10% of 'salary'. basic Salary for this purpose is basic+DA forming

part+commission on sale on fixed rate.

Income from salary is the least of all the above deductions. Perquisites and Exemptions u/s 10 The term "Perquisite" includes value of any benefit or amenity/value of any concession

provided by the employer to the employees. Perquisite Valuation does not include certain

medical benefits. Section 10 exemptions are available for the following perquisites:

Leave Travel Concession u/s 10(5) Perquisites paid to Indian Citizens Employed Abroad 10(7) no Tax Paid on Behalf of Any Employee by the Employer 10(10CC)
http://en.wikipedia.org/wiki/Tax_Deducted_at_Sourcehttp://en.wikipedia.org/wiki/Tax_Deducted_at_Sourcehttp://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=ITAC&schT=&csId=699405d7-8ff0-4938-9079-87a944f5f27a&rdb=sec&yr=e5be6bdb-1fc4-42d6-ac7b-34a44fd65485&sec=10&sch=&title=Taxmann%20-%20Direct%20Tax%20Lawshttp://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=ITAC&schT=&csId=699405d7-8ff0-4938-9079-87a944f5f27a&rdb=sec&yr=e5be6bdb-1fc4-42d6-ac7b-34a44fd65485&sec=10&sch=&title=Taxmann%20-%20Direct%20Tax%20Lawshttp://en.wikipedia.org/wiki/Tax_Deducted_at_Sourcehttp://en.wikipedia.org/wiki/Tax_Deducted_at_Source


8/53


Income from House property

Income from House property is computed by taking into account what is called Gross Annual

Value of the property. The annual value (in the case of a let out property) is the maximum of the

following:

Rent received . Municipal Valuation Fair Rent (as determined by the IT department) If a house is not let out and not self-occupied, annual value is assumed to have accrued to

the owner. Annual value in case of a self occupied house is to be taken as NIL. (However

if there is more than one self occupied house then the annual value of the other house/s is

taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From

this Net Annual Value, deduct :

30% of Net value as repair cost (This is a mandatory deduction) No other deduction available Interest paid or payable on a housing loan against this house In the case of a self occupied house interest paid or payable is subject to a maximum limit

of Rs,1,50,000 (if loan is taken on or after 1 April 1999 and construction is completed

within 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). For all non self-

occupied homes, all interest is deductible, with no upper limits.

The balance is added to taxable income.
http://en.wikipedia.org/wiki/Gross_Annual_Valuehttp://en.wikipedia.org/wiki/Gross_Annual_Valuehttp://en.wikipedia.org/wiki/Gross_Annual_Valuehttp://en.wikipedia.org/wiki/Gross_Annual_Value


9/53


Income from Business or Profession

The income referred to in section 28, i.e., the incomes chargeable as "Income from Business or

Profession" shall be computed in accordance with the provisions contained in sections 30 to 43D.

However, there are few more sections under this Chapter, viz., Sections 44 to 44DA (except

sections 44AA, 44AB & 44C), which contain the computation completely within itself. Section

44C is a disallowance provision in the case non-residents. Section 44AA deals with maintenance

of books and section 44AB deals with audit of accounts.

In summary, the sections relating to computation of business income can be grouped as under: -

Deductible Expenses - Sections 30 to 38 [except 37(2)]. Inadmissible Expenses - Sections 37(2), 40, 40A, 43B & 44-C. Deemed Incomes - Sections 33AB, 33ABA, 33AC, 35A, 35ABB & 41. Special Provisions - Sections 42 & 43D Self-Coded Computations - Sections 44, 44A, 44AD, 44AE, 44AF, 44B, 44BB, 44BBA,

44BBB, 44-D & 44-DA.

The computation of income under the head "Profits and Gains of Business or Profession"depends on the particulars and information available.[4]

If regular books of accounts are not maintained, then the computation would be as under:-

Income (including Deemed Incomes) chargeable as income under this head xxx Less:Expenses deductible (net of disallowances) under this head xxx Profits and Gains of

Business or Profession xxx

However, if regular books of accounts have been maintained and Profit and Loss Account hasbeen prepared, then the computation would be as under: -

Net Profit as per Profit and Loss Account xxx

Add : Inadmissible Expenses debited to Profit and Loss Account xxx

Deemed Incomes not credited to Profit and Loss Account xxx

xxx

Less: Deductible Expenses not debited to Profit and Loss Account xxx

Incomes chargeable under other heads credited to Profit & Loss A/c xxx

xxx

Profits and Gains of Business or Profession xxx
http://en.wikipedia.org/wiki/Income_tax_in_India#cite_note-3http://en.wikipedia.org/wiki/Income_tax_in_India#cite_note-3http://en.wikipedia.org/wiki/Income_tax_in_India#cite_note-3http://en.wikipedia.org/wiki/Income_tax_in_India#cite_note-3


10/53


Corporate Tax in India

Definition of a company

A company has been defined as a juristic person having an independent and separate legal entity

from its shareholders. Income of the company is computed and assessed separately in the hands

of the company. However the income of the company, which is distributed to its shareholders as

dividend, is assessed in their individual hands. Such distribution of income is not treated as

expenditure in the hands of company; the income so distributed is an appropriation of the profits

of the company.

Residence of a company

A company is said to be a resident in India during the relevant previous year if:

It is an Indian company If it is not an Indian company but, the control and the management of its affairs is

situated wholly in India

A company is said to be non-resident in India if it is not an Indian company and somepart of the control and management of its affairs is situated outside India.

Corporate sector tax

The taxability of a company's income depends on its domicile. Indian companies are taxable in

India on their worldwide income. Foreign companies are taxable on income that arises out oftheir Indian operations, or, in certain cases, income that is deemed to arise in India. Royalty,

interest, gains from sale of capital assets located in India (including gains from sale of shares in

an Indian company), dividends from Indian companies and fees for technical services are all

treated as income arising in India.

A limited company in India is liable for tax in the financial year 2011-2012 at the rate of 30% for

a local company and 40% for a foreign company with the addition of surcharge (for income

above INR 10 millions, 5% for domestic companies, 2% for foreign companies) as well as an

education tax (CESS) of 3%. The top effective tax rate in India is 32.45% for a local company

and 42.02% for a foreign company.

Companies in India whose tax liability is less than 18.5% of the "book profits" pay a 18.5%

minimum alternative tax, MAT on the "book profits" with a surcharge and CESS, bringing the

effective tax rate of 20.01% for domestic companies and 19.44% for foreign companies


11/53


Tax Rebates for Corporate Tax

The classical system of corporate taxation is followed in India

Domestic companies are permitted to deduct dividends received from other domesticcompanies in certain cases.

Inter Company transactions are honored if negotiated at arm's length. Special provisions apply to venture funds and venture capital companies. Long-term capital gains have lower tax incidence. There is no concept of thin capitalization. Liberal deductions are allowed for exports and the setting up on new industrial

undertakings under certain circumstances.

There are liberal deductions for setting up enterprises engaged in developing,maintaining and operating new infrastructure facilities and power-generating units.

Business losses can be carried forward for eight years, and unabsorbed depreciation canbe carried indefinitely. No carry back is allowed.

Dividends, interest and long-term capital gain income earned by an infrastructure fundor company from investments in shares or long-term finance in enterprises carrying on

the business of developing, monitoring and operating specified infrastructure facilities

or in units of mutual funds involved with the infrastructure of power sector is proposed

to be tax exempt.

.

A driving force behind many multinational companies locating in India has been the taxincentives offered by the government. One reason for the creation of a tax-friendly policy

was India's complicated tax structure that included a base corporate tax rate of 30-35%

and a variety of other indirect taxes that could end up creating a total tax rate in excess of

50%. By offering a 10-year tax holiday, India was able to attract many players in the IT

industry. Building on that success, it is offering the same incentives to the manufacturing

community.

"Through the establishment of Special Economic Zones (SEZ) the government is able tosteer companies toward geographical locations that are in need of development. The SEZ

regulations offer tax exemptions from 50% -100% over a fifteen year period," explains

Dharmesh Pandya, the leader of KPMG LLP's India Center of Excellence.


12/53


India Reporting Dates and Payment

The tax year in India begins on April 1 and ends on March 31. An individual whose income is from a business must submit an annual return by October

31. There is a fine of 10% of the tax payable for each month's delay.

An individual whose income is from a wage or whose income is subject to a deduction oftax at source, is exempt from submitting an annual return.

An advance payment must be made on 3 dates - September 15, December 15 and March15.

There is an official body in India that deals with the subject of pre-ruling in connectionwith tax problems that are presented for discussion.

India Deduction of Tax at Source

Taxation of Employees

An employer is obligated to deduct tax at source on a monthly basis from a salariedemployee and to make additional contributions to a provident fund and insurance.

The Indian employer's contribution to provident fund is 12% in general.Employees pay to provident funds 10%-12% of their salary.

India Other deductions

The following payments to non-residents are subject, in India, to a deduction of tax at source

(rates are before surcharge and cess):

Dividend - 0%. Interest - 20%. Royalties - 10%. Technical Fees-10%.


13/53


Tax Penalties

The major number of penalties initiated every year as a ritual by I-T Authorities is under section

271(1)(c) which is for either concealment of income or for furnishing inaccurate particulars ofincome.

"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of

any proceedings under this Act, is satisfied that any person-

(b) has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of

section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such

income,

he may direct that such person shall pay by way of penalty,-

(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum of ten

thousand rupees for each such failure;

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which

shall not be less than, but which shall not exceed three times, the amount of tax sought to be

evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate

particulars of such income.


14/53


Agricultural Income in India

Agriculture income is exempt under the Indian Income Tax Act. This means that income

earned from agricultural operations is not taxed. The reason for exemption of agriculture incomefrom Central Taxation is that the Constitution gives exclusive power to make laws with respect

to taxes on agricultural income to the State Legislature. However while computing tax on non-

agricultural income agricultural income is also taken into consideration.

What does the term Agricultural Income mean?

As per Income Tax Act income earned from any of the under given three sources meantAgricultural Income;

1. Any rent received from land which is used for agricultural purpose.2. Any income derived from such land by agricultural operations including processing of

agricultural produce, raised or received as rent in kind so as to render it fit for the market,

or sale of such produce.

3. Income attributable to a farm house subject to the condition that building is situated on orin the immediate vicinity of the land and is used as a dwelling house, store house etc.

Now income earned from carrying nursery operations is also considered as agricultural income

and hence exempt from income tax.

In order to consider an income as agricultural income certain points have to be kept in

mind:

There must me a land. The land is being used for agricultural operations. Agricultural operation means that efforts have been induced for the crop to sprout out of

the land . If any rent is being received from the land then in order to assess that rental income as

agricultural income there must be agricultural activities on the land.

In order to assess income of farm house as agricultural income the farm house buildingmust be situated on the land itself only and is used as a store house/dwelling house.


15/53


Certain income which is treated as Agriculture Income;

(a) Income from sale of replanted trees.

(b) Rent received for agricultural land.

(c) Income from growing flowers and creepers.

(d) Share of profit of a partner from a firm engaged in agricultural operations.

(e) Interest on capital received by a partner from a firm engaged in agricultural operations.

(f) Income derived from sale of seeds.

Certain income which is not treated as Agricultural Income;

(a) Income from poultry farming.

(b) Income from bee hiving.

(c) Income from sale of spontaneously grown trees.

(d) Income from dairy farming.

(e) Purchase of standing crop.

(f) Dividend paid by a company out of its agriculture income.

(g) Income of salt produced by flooding the land with sea water.

(h) Royalty income from mines.

(i) Income from butter and cheese making.

(j) Receipts from TV serial shooting in farm house is not agriculture income.


16/53


Certain points to be remembered;

(a) Agricultural income is considered for rate purpose while computing tax of

Individual/HUF/AOP/BOI/Artificial Judicial Person.

(b) Losses from agricultural operations could be carried forward and set off with agricultural

income of next eight assessment years.

(c) Agriculture income is computed same as business income.

Tax after including agricultural income in total income: -

Although agricultural income is fully exempt from tax, the Finance Act, 1973, introduced ascheme whereby agricultural income is included with non-agricultural income in the case of non-corporate assessees who are liable to pay tax at specified slab rates. The process of computationis as follows:

(a) Income tax is first calculated on the net agricultural income plus the assessees total incomefrom non-agricultural sources.

(b) Income tax is then calculated on the basic exemption slab increased by the assessees netagricultural income.

(c) The difference between (a) and (b) is the amount of tax payable by the assessee.

This process of computation is, however, followed only if the assessees non-agricultural incomeis in excess of the basic exemption slab.

Clearly, despite agricultural income being tax-exempt, assessees have to be extra careful whiledealing with such income. They must make sure that they aggregate agricultural income withtheir total income to avoid interest payments and possible penalties for concealment of income.Assessees must also maintain credible records to provide the tax authorities with proof ofownership of agricultural land and evidence of having earned agricultural income.


17/53


AGRICULTURAL INCOME TAX in PAKISTAN

A BRIEF SURVEY

In 1860 the British Imperialists levied income tax in India. Agricultural Income was also taxable.

In 1882 Agricultural Income was exempted from taxation.

In 1922 Income Tax Act was promulgated and Agricultural Income was exempted from taxation.

In 1925 Indian Taxation Enquiry Committee was constituted, which recommended taxation of all

incomes including the agricultural incomes.

In 1935, the taxation system was divided been the central and provincial governments.

Agricultural tax was removed from the purview of the central government.

In 1944, a law for the imposition of Agricultural Income Tax was promulgated in the Province of

Bengal.

In 1948 in Pakistan, the Provinces of Punjab-Bhawalpur and N.W.F.P. promulgated similar laws.

In 1956, with the promulgation of the constitution, the agricultural tax was removed from the

purview of the central government.

IN 1959, Taxation Enquiry Committee recommended taxation of agricultural income but the

Food and Agricultural Committee recommended exemption of Agriculture from taxation.

In 1963, Fact Finding Committee on Agriculture opposed imposition of tax on agriculture.

In 1964, Taxation and Tariff Commission recommended the imposition of tax on agriculture and

handing over the subject to the Federal Government, but the Government of West Pakistan

vetoed the proposal.

In 1970, the Enquiry Committee on Agriculture recommended the imposition of income tax on

agricultural income on a very limited scale, but it was not accepted.

In the 1973 Constitution, agricultural income was again exempted from taxation.

In 1977, the Federal Government repealed the I.T. Act of 1922.

In 1977 the Assembly passed the Financial Ordinance, which exempted 25 Acres irrigated and

50 Acres non irrigated land from taxation. Due to the imposition of Martial Law, it could not be

Implemented.

In 1979, Agricultural Income was exempted from taxation by the I.T. Ordinance.


18/53


In 1986, the National Taxation Reform Commission examined the imposition of Agricultural

Income tax but there was no outcome.

In 1992 there was a serious deficit in tax revenue. Serious consideration started to be given to the

imposition of agricultural income tax.

In 1993 The Care-taker Prime Minister Moin Qureshi rescinded the Section 5-a of the Wealth

Tax Act (1963) so that agricultural income may be taxed on a limited scale.

From the above it is clear that during the last Century and Half the question of Agricultural

income tax has been a subject of debate, but without any result. The taxation policy throughout

the world is on income- period. It was only in India and Pakistan that the distinction between

agricultural and income from other sources was made. Even in India the distinction was later

done away with. The reason is not difficult to fathom, the exemption from taxation was the

privilege granted to the scions of those elements who helped the British Imperialists in

occupying and ruling the sub- continent. Therefore while the middle class and the salaried peopleare crushed under the dual burden of taxation and rising cost of living, the feudal and land

owning classes are free to earn millions from their fruit orchards and fields.

The exemption of agriculture from income tax has also given rise to fraudulent practices where

income from shady sources is filed under the heading of agricultural income, thereby depriving

the exchequer of millions in taxes. The industrialists, the traders and the civil and military

bureaucrats, all are utilizing this loophole to defraud the treasury. The gravity of the situation is

apparent to any literate citizen of Pakistan, but the Government of the day is totally blind to the

situation. Their policy is, pocket their profits and then go with the begging bowl to the West to

finance the economy. Because the repayment of these loans( $ 52 Billion by 2009) will be madeby the people and their future generations and not the ruling classes. The late Dr. Mahbub ul Haq

is on record as saying that the Deficit in the 1985 budget of 65 billion rupees could have been

met had the government chosen to impose income tax on agriculture then.

The political leadership of all major political parties today are shouting themselves hoarse about

their commitment to democracy. Can we venture to question them as to what their democracy

means, if everyone is not equal before the law? It was only in moribund states and societies, such

as Russia and France that the Feudal class and the Churches were exempt from taxation. Even in

England, across the board taxation was imposed very early. Today the acid test of who really

represents the people, lies in identifying as to who is ready to fight for the economicemancipation of the people, let all the political parties bear this in mind when they are judged by

History.


19/53


Taxation in Pakistan

Executive Summary

As we have studied Income Tax Laws in Pakistan in detail throughout the semester, so we dont

go in detail hereWe just discuss the problems and a brief summary here

International experience shows that tax reform can deliver large increases in the tax-to-

GDP ratio. While there are other developing countries at Pakistanis income level with similarly

low tax-to-GDP ratios, countries in the region set a different example.

Pakistans taxto-GDP ratio stands today at just below 10 percent and it have been fallingsteadily. The fall in tax-to-GDP ratio in recent years has come at a time when governments

efforts have been increasing focused on macroeconomic stabilization, under the impetus of

various on-going IMF programs. Greater emphasis has been placed on budget deficit reduction in

order to contain the rate of inflation and restore a measure of fiscal sustainability by arresting the

increase in the debt-to-GDP ratio. But the fall in the tax-to-GDP ratio has made this task

increasingly difficult, necessitating sharp cutbacks in public expenditure, especially on

development, thereby affecting the growth momentum of the economy.

Pakistans tax collection has failed to improve since the late 1990s mainly due to inherent

structural problems, including a narrow tax-base, massive tax evasion and administrativeweaknesses, Federal Board of Revenue (FBR) said in its quarterly report.

The report said that taxpayers distrust public institutions and the tax-to-Gross Domestic Product

(GDP) ratio had declined in recent years. But in fiscal 2009/10 (July-June), tax-to-GDP ratio is

expected to rise to 9.3 percent from 8.8 percent in 2008/09.

Exemptions are made part of the tax system for a variety of reasons including the income tax

threshold and GST exemption on basic foodstuffs are granted to protect the most vulnerable

groups of society, the FBR report said. Exemptions are also introduced to protect certain

industries, including those which are new, it added. There are also political exemptions (for)

diplomats, top echelon of civil and military bureaucracy, and employees of the international

organizations. Temporary exemptions are also granted to address issues that arise from time-to-

time.

The report said that Pakistan needs to look thoroughly at the available reform options, pursuing

twin-track reforms of tax policy and administration, which would help the government to meet

its medium-term revenue collection targets.


20/53


Most of the Pakistanis are not willing to pay taxes because

First, there is a strong, and quite well-founded belief, that a large part of the tax collected will not

be spent on the welfare of the public at large, but rather on the politicians personal needs/wants,

or the needs/wants of these politicians favorites.

Second, due to the above problem, people simply do not expect that paying taxes will lead to any

increase in the quantity and quality of public goods and services provided by the state. Hence,

they have nothing to gain from paying taxes.

The solution to this problem, while obviously not easy, does not require any new fundamental

breakthrough in technology or human thinking in general. Decent governance, careful planning,

and honest work are all thats needed. While one has to admit that even these relatively basicchanges will take time in Pakistan, its nevertheless nothing that cannot be done. Its simply a

matter of will, and time.


21/53


Agriculture Income in Pakistan

The economy of Pakistan has been in a very deplorable situation especially for the previous three

decades and it has kept on deteriorating ceaselessly throughout this period. It has entrapped in a

vicious cycle due to high inflation, unemployment, credit cost and income disparity on the one

hand and poor resource generation, low investment, dismal law and order situation and

extremely influential political cum feudal forces. A major reason for the economic stagnation is

foreign debts that have been on the rise at alarming rate especially in the previous few couple of

years. It has made our country a dependent parasite at one end and corrodes our public exchequer

annually in the form of huge foreign debt servicing payments at the other. The total foreign debt

and liabilities of Pakistan has reached $58.512 billion, while it was just $47 billion a couple

years ago.

Pakistan had to pay a total of $5.614 billion as debt serving in the fiscal year 2009-2010, which

account for almost more than 33% of the entire foreign exchange reserves of country (The

Economic Survey of Pakistan, 2010).

The taxation of agricultural sector has always been a controversial issue in Pakistan throughout

the history of the country. There have been divergent views of expert policy makers and

legislators on the said issue. It is known to all of us that Pakistan and India both inherited the

same revenue collection system on their independence, but now we see there is a huge difference

between India and Pakistan with regard to their taxation regimes.

Taxation is the price of civilization of a society. The degree of civilization of a society depends

upon the participatory polity which becomes vague if there is no participatory economy. In a

civilized society equals must pay equally to public exchequer to make a country economicallysovereign so that its political sovereignty can be secured.

All the developed countries like UK, USA and Canada have brought agricultural income under

tax net and even India is far ahead than Pakistan in this regard.

Agriculture is the back bone of economy of Pakistan contributing almost 22% to GDP but its

share in tax is only 1% (The Economic survey of Pakistan, 2010). This is a very dismal situation

of affairs. There have been sporadic efforts to bring such a big sector of economy in tax net but

all the efforts have remained almost ineffective and we have failed to harness a huge source of

public exchequer. The biggest argument against agricultural income tax has been the cost benefit

analysis factor which shows that perhaps there is a very nominal potential in this sector.

Agriculture sector is characterized by backwardness in Pakistan like other developing countries

where poverty and illiteracy are rampant. In economic development, "modern sector" consisting

of industry and service sectors receives top priority. "Modern" sector is comparatively more

developed with higher literacy, income and documentation. On the other hand, agriculture is

primitive and primarily of subsistence nature.


22/53


Taxation in the United Kingdom (UK)

Executive Summary

Income tax was announced in Britain by William Pitt the Younger in his budget of December

1798 and introduced in 1799, to pay for weapons and equipment in preparation for the

Napoleonic. Pitt's new graduated (progressive) income tax began at a levy of 2 old pence in

the pound (1/120) on incomes over 60 (5,077 as of 2012), and increased up to a maximum of

2 shillings (10%) on incomes of over 200. Pitt hoped that the new income tax would raise 10

million, but actual receipts for 1799 totaled just over 6 million.

Taxation in the United Kingdom may involve payments to a minimum of two different

levels of government:

1. The central government (HM Revenue and Customs) &2. Local government.

Central government revenues come primarily from income tax, National Insurance contributions,

value, corporation tax and fuel duty. Local government revenues come primarily from grantsfrom central government funds, business rates in England and Wales, Council Tax and

increasingly from fees and charges such as those from on-street parking. In the fiscal year 2007-

08, total government revenue was 39.2 per cent ofGDP, with net taxes and National Insurance

contributions standing at 36.9 per cent of GDPapproximately 600 billion (using 2008

nominal GDP measured in dollars, and converting using 2009 conversion rate).

A uniform Land tax was introduced in England during the late 17th century. This formed the

main source of government revenue throughout the rest of the 17th century, the 18th century and

the early 19th century.
http://en.wikipedia.org/wiki/Kingdom_of_Great_Britainhttp://en.wikipedia.org/wiki/William_Pitt_the_Youngerhttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/Old_pencehttp://en.wikipedia.org/wiki/Pound_Sterlinghttp://en.wikipedia.org/wiki/Shillinghttp://en.wikipedia.org/wiki/Her_Majesty%27s_Governmenthttp://en.wikipedia.org/wiki/HM_Revenue_and_Customshttp://en.wikipedia.org/wiki/Local_government_in_the_United_Kingdomhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/National_Insurancehttp://en.wikipedia.org/wiki/United_Kingdom_corporation_taxhttp://en.wikipedia.org/wiki/Hydrocarbon_oil_dutyhttp://en.wikipedia.org/wiki/Business_rates_in_England_and_Waleshttp://en.wikipedia.org/wiki/Council_Taxhttp://en.wikipedia.org/wiki/Decriminalised_parking_enforcementhttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Land_Value_Taxhttp://en.wikipedia.org/wiki/Land_Value_Taxhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Decriminalised_parking_enforcementhttp://en.wikipedia.org/wiki/Council_Taxhttp://en.wikipedia.org/wiki/Business_rates_in_England_and_Waleshttp://en.wikipedia.org/wiki/Hydrocarbon_oil_dutyhttp://en.wikipedia.org/wiki/United_Kingdom_corporation_taxhttp://en.wikipedia.org/wiki/National_Insurancehttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Local_government_in_the_United_Kingdomhttp://en.wikipedia.org/wiki/HM_Revenue_and_Customshttp://en.wikipedia.org/wiki/Her_Majesty%27s_Governmenthttp://en.wikipedia.org/wiki/Shillinghttp://en.wikipedia.org/wiki/Pound_Sterlinghttp://en.wikipedia.org/wiki/Old_pencehttp://en.wikipedia.org/wiki/Progressive_taxhttp://en.wikipedia.org/wiki/William_Pitt_the_Youngerhttp://en.wikipedia.org/wiki/Kingdom_of_Great_Britain


23/53


Income Tax Schedules in UK

Income tax was levied under five schedules. Income not falling within those schedules was

not taxed.

The schedules were:

1. Schedule A (tax on income from UK land)2. Schedule B (tax on commercial occupation of land)3. Schedule C (tax on income from public securities)4. Schedule D (tax on trading income, income from professions and vocations, interest,overseas income and casual income)5. Schedule E (tax on employment income)6. Later a sixth Schedule, Schedule F (tax on UK dividend income) was added.

Residence

An individual in UK is resident when staying in the UK for more than 183 days in a tax year, orwhen having annual visits to the UK for 91 days in 4 consecutive years.

A company is UK resident if incorporated in the UK, or when the management is in the UK.


24/53


Tax year in UK

The tax year in the UK, which applies to income tax and other personal taxes, runs from 6 April

in one year to 5 April the next (for income tax purposes). Hence the 2010-11 tax year ran from 6

April 2010 to 5 April 2011.

The tax year is sometimes also called the Fiscal Year. The Financial Year, used mainly for

corporation tax purposes, runs from 1 April to 31 March. Financial Year 2011 runs from 1 April

2010 to 31 March 2011, as Financial Years are named according to the calendar year in which

they end.


25/53


Income Tax in UK

Income tax forms the single largest source of revenues collected by the government (followed

by national insurance contributions, an additional levy on incomes at around 20%). Each person

has an income tax personal allowance, and income up to this amount in each tax year is free of

tax for everyone. For 2010-11 the tax allowance for under 65s is 6,475. This reduces by 1 for

every 2 of taxable income above 100,000; whilst this allowance is withdrawn the effective

income tax rate is 60% and with the NI rate in this band the effective tax rate is 62%. On 22

June 2010, the Chancellor (George Osborne) increased the personal allowance by 1000 in his

emergency budget, bringing it to 7,475 for the tax year 2011-12. For the 2012/13 tax year, tax-

free allowance is 8105.

Above this amount there are a number of tax bands each taxed at a different rate (as of

2012/13):

RateDividend

incomeSavings income

Other income (inc

employment)

Band (above any

personal allowance)

Lower rate N/A 10% N/A

0 - 8,105applies only if total income falls in

this band

Basic rate 10% 20% 20% 8,106 - 34,3701

Higher rate

(Lower Band) 32.5% 40% 40% 34,371 - 100,000

Regressive rate 56.25% 60% 60% 100,001 - 114,890

Higher rate

(Upper Band)32.5% 40% 40% 114,891 - 150,000

Additional rate 42.5%50%(45% from

Apr-2013)

50%(45% from Apr-

2013)over 150,000

This table reflects the removal of the 10% starting rate from April 2008, which also saw the 22%

income tax rate drop to 20%. Alistair Darling announced in the 2009 budget (22 April 2009) that,

from April 2010 there would be a new 50% income tax rate for those earning more than

150,000.
http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#National_Insurance_contributionshttp://en.wikipedia.org/wiki/Personal_allowancehttp://en.wikipedia.org/wiki/George_Osbornehttp://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#cite_note-14http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#cite_note-14http://en.wikipedia.org/wiki/Alistair_Darlinghttp://en.wikipedia.org/wiki/Alistair_Darlinghttp://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#cite_note-14http://en.wikipedia.org/wiki/George_Osbornehttp://en.wikipedia.org/wiki/Personal_allowancehttp://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#National_Insurance_contributions


26/53


After consideration of employer and employee National Insurance contributions, the effective

marginal top rate for 2011-12 is 58%: that is, after the first 150,000, to pay an employee an

additional 1,000 of taxable income costs the employer 1,138 and the employee receives 480

after deductions.

The taxpayer's income is assessed for tax according to a prescribed order, with income fromemployment using up the personal allowance and being taxed first, followed by savings income

(from interest or otherwise unearned) and then dividends.

Foreign income of UK residents is taxed as UK income, but to prevent double taxation the UK

has agreements with many countries to allow offset against UK tax what is deemed paid abroad.

These deemed amounts paid abroad are not necessarily as much as actually paid.[19]Sometimes it

is necessary to inform foreign authorities that tax should be withheld at the deemed rate.

Rental income on a property investment business (such as a buy to let property) is taxed as other

savings income, after allowing deductions including mortgage interest. The mortgage does notneed to be secured against the property receiving the rent, subject to a maximum of the purchase

prices of the property investment business properties (or the market value at the time they

transferred into the business). Joint owners can decide how they divide income and expenses, as

long as one does not make a profit and the other a loss. Losses can be brought forward to

subsequent years.
http://en.wikipedia.org/wiki/Double_taxationhttp://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#cite_note-18http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#cite_note-18http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#cite_note-18http://en.wikipedia.org/wiki/Buy_to_lethttp://en.wikipedia.org/wiki/Buy_to_lethttp://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#cite_note-18http://en.wikipedia.org/wiki/Double_taxation


27/53


Corporation Tax in UK

U.K. corporate tax revenue as a percentage of GDP compared to the OECD and the EU 15.

Corporation tax is a tax levied in the United Kingdom on the profits madeby companies and on the profits of permanent of non-UK resident companies and

associations that trade in the EU.

UK's corporate tax rate for 2010-2011 is 28%. For UK resident companieswith annual profits below GBP 300,000 the tax rate is 21%.

Business rates

Business rates are the commonly used name of non-domestic rates, a United

Kingdom rate or tax charged to occupiers of non-domestic property. Business rates form part of

the funding for local government, and are collected by them, but rather than receipts being

retained directly they are pooled centrally and then redistributed. In 2005/06, 19.9 billion wascollected in business rates, representing 4.35% of the total UK tax income.

Capital Gains

Capital gains of individuals are generally taxed at 18%. There is an annual exemption ofGBP 10,000.

Capital gains for companies are generally taxed at the standard corporate tax rate. Thereis a participation exemption for sale of shares, subject to certain terms.
http://en.wikipedia.org/wiki/OECDhttp://en.wikipedia.org/wiki/EU_15http://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Rates_(tax)http://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Local_governmenthttp://en.wikipedia.org/wiki/Local_governmenthttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Rates_(tax)http://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/EU_15http://en.wikipedia.org/wiki/OECD


28/53


Deduction of Tax at Source in U.K.

In the U.K. tax is deducted at source from the following payments to non

residents:

Dividend- 0%. (20% for dividends paid by REITs). Interest- 20%. Royalties- 20%.

Social Security in U.K.

National Insurance Contributions (NIC) in the UK.

The contributions by the employer and the employee are subject to ceiling defined by law.

Employer: 12.8% on salary above GBP 5,715.

Employee: 11% on salary of GBP 5,715- GBP 43,875, with additional 1% for salary above GBP

43,875.

Self employed pay 8% for income of GBP 5,715- GBP 43,875 with additional 1% on income

exceeding GBP 43,875.


29/53


Tax allowances

If you live in the UK on a day to day basis you are entitled to a basic personal taxallowance, unless your income is over 100,000 a year. You may also be entitled to other

allowances on top of the basic allowance. This means that some of your income, which

would otherwise be taxable, will be tax-free.

If you are an employee and so are taxed under Pay As You Earn (PAYE), your personalallowances will be spread throughout the year, so that each week or month you will have

a certain amount of tax-free income and then pay tax on the remainder.

If you are self-employed or have taxable income but are not working, your personalallowances will be taken into account when your tax bill is calculated after you have sent

in your annual tax return or repayment claim.

Tax reliefs

In addition to personal tax allowances, income spent on certain things, for example, professional

subscriptions or the cost of the tools of your trade, can be deducted when calculating tax. This is

known as tax relief on outgoings. These reliefs reduce the amount of your taxable income so you

pay less tax.

Tax reliefs for employees are spread throughout the year in the same way as personal tax

allowances. Tax reliefs for self-employed people and people who have taxable income but are

not working are taken into account when their tax bill is calculated after they have sent in their

annual tax return or repayment claim.

Record keeping

If you are a taxpayer, you must, by law, keep records of your income and any expenses you

claim against tax. You will need these records if the tax office asks you to complete a tax return.

You must keep personal or non-business records for 22 months after the end of the tax year to

which they relate, and you must keep business records for 5 years and 10 months after the end of

the tax year to which they relate.


30/53


How HM Revenue and Customs collects income tax

Deduction of tax at source

Most taxpayers pay their tax through deductions that are made from their income before they

receive it. This is called deduction at source.

Some of the most common examples of deduction at source are PAYE, see below, and bank and

building society interest, see below

Pay As You Earn (PAYE)

By law, anyone making payments to employees or members of occupational pension schemes is

obliged to operate the PAYE system. This means they must deduct income tax and class 1

national insurance contributions from the payments that they make, and must send these sums to

HM Revenue and Customs (HMRC).

You are entitled to receive written confirmation of deductions that have been made by:-

payslips, showing gross pay, deductions made and net pay if you are an employee; and a P60 certificate at the end of each tax year, confirming the amount of gross earnings or

pension, and any income tax and class 1 national insurance contributions deducted; and

a P45 certificate whenever you change jobs, which shows the pay and tax in the job youare leaving, the tax code operating on your earnings at the time you left and, in some

cases, the earnings and income tax deducted in the tax year to date.

Bank and building society interest

Banks and building societies deduct income tax from the interest paid on most deposits made

with them by individuals, and pay this over to HMRC. This is done before the interest is paid

into your account.

The bank or building society must confirm the amount of interest earned in each tax year and the

amount of income tax deducted. The bank or building society must give you the information free

of charge if you ask for it. A number of banks and building societies send these details to all their

investors each year, as a matter of course. Statements and pass books may also show this

information.

If you do not need to pay any tax on this interest, for example, because your total taxable income

from all sources falls below your personal tax allowances for the tax year, you can arrange to


31/53


receive your interest gross, that is, without deduction of any tax. You should ask your branch of

the bank or building society for form R85, which you must complete and return to the branch.

Interest will then be paid without tax deduction, avoiding the need to claim a tax refund.

Collection of tax by Self Assessment

Tax will have to be paid to HMRC direct through the system of Self Assessment where the full

liability was not, or could not be, met by deduction at source.

If you need help with the Self Assessment process, you should contact HM Revenue and

Customs, or consult an experienced adviser, for example, at a Citizens Advice Bureau. To search

for details of your nearest CAB, including those that can give advice by e-mail, click on nearest

CAB.
http://www.adviceguide.org.uk/elnk_www_citizensadvice_org_uk_index_getadvice-3http://www.adviceguide.org.uk/elnk_www_citizensadvice_org_uk_index_getadvice-3http://www.adviceguide.org.uk/elnk_www_citizensadvice_org_uk_index_getadvice-3http://www.adviceguide.org.uk/elnk_www_citizensadvice_org_uk_index_getadvice-3


32/53


Objectives of the UK tax system

The current government's objectives for the British tax system are broadly as follows:

The burden of tax:

To keep the tax burden as low as possible (the burden of tax for a country can be measured by

the % of GDP taken in taxes)

To improve incentives:

The government believes that reducing tax rates on income and business profits helps to sharpen

incentives to work and create wealth in the economy as a strategy to enhance long-run growth

Tax spending rather than income:

To shift the balance of taxation away from taxes on income towards taxes on spending this isbecause it is thought that taxes on income have a greater effect on work incentives

Equitable taxes:

To ensure taxes are applied equally and fairly to everyone. Equality is not always the same as

fairnesssee the notes below on the canons of taxation

Correct for market failure:

As with many other governments in other countries, the UK government believes in the use of

taxes to make markets work better (including taking account of externalities) this is animportant microeconomic objective. The government is committed to using the tax system as an

instrument of correcting for market failures.


33/53


The table below shows the main sources of direct and indirect tax revenues for the UK projected

for the 2004-05 financial year. Income tax and national insurance contributions together

account for over 205 billion of government tax revenues each year. VAT is the biggest single

source of indirect tax revenue although over 40 billion of revenue comes each year from exciseduties.

Income from taxation for the UK government 1999-00 2004-05

billion billion

Income tax 95.7 127.2

National Insurance contributions 56.1 78.1

VAT 56.4 73.0

Corporation tax 34.3 34.1

Fuel duties 22.5 23.3

Council Tax 13.1 20.1

Business rates 15.4 18.7

Other taxes 8.1 11.7

Stamp duties 6.9 9.0

Tobacco duty 5.7 8.1

Vehicle excise duty 4.9 4.7

Beer & cider duties 3.0 3.3

Inheritance tax 2.1 2.9

Spirits duties 1.8 2.4

Insurance Premium tax 1.4 2.4

Capital gains tax 2.1 2.3

Wine duties 1.7 2.2


34/53


Customs Duties & levies 2.0 2.2

Betting & Gaming duties 1.5 1.4

Petroleum revenue tax 0.9 1.3

Air Passenger duty 0.9 0.9

Climate Change Levy 0.0 0.8

Land fill tax 0.4 0.7

Aggregates levy 0.0 0.3

Oil royalties 0.4 0.0

Revenue collection

Suggestions for improvements to increase certainty and/or reduce compliance costs for taxpayers

should bear in mind the need to preserve the capacity of the Tax Office to collect legitimate

revenue.

Income tax paid by individuals and business is the largest source of funding for Government

spending priorities or the retirement of debt. In 2002-03, $129.6 billion was collected in income

tax (excluding petroleum resource rent tax).


35/53


Tax Rates in Pakistan, India and United Kingdom

Tax Rates in Pakistan

RATES OF TAXATION:

The tax on salary income is calculated at the rates prescribed in Income Tax Ordinance, 2001.

Through Finance Act 2011 rates for the TY 2012 are amended. The rates for Tax Year 2012 are

as follows:

S.No Taxable Income Rate of Tax

1 Where the taxable income does not exceed Rs.350,000. 0.5%

2 Where the taxable income exceeds Rs.350,000 but does not exceed

Rs.400,000.

1.5%

3 Where the taxable income exceeds Rs.400,000 but does not exceedRs.450,000.

2.5%

4 Where the taxable income exceeds Rs. 450,000 but does not exceedRs.550,000.

3.5%


4.5%


6.0%


7.5%

8 Where the taxable income exceeds Rs. 900,000 but does not exceedRs.1,050,000.

9.0%

9 Where the taxable income exceeds Rs. 1,050,000 but does not exceedRs.1,200,000.

10.0%


11.0%


12.5%


14.0%

13 Where the taxable income exceeds Rs. 1,950,000 but does not exceed

Rs.2,250,000.

15.0%


16.0%


17.5%


18.5%


36/53


17 Where the taxable income exceeds Rs. 4,550,000. 20.0%

MARGINAL RELIEF:

Through Finance Act 2008 the provision for marginal relief in the tax rates was introduced to

remove anomaly in the tax rates. The marginal relief is available on amount in excess of

maximum limit of the preceding slab relative to slab in which the taxable income fall. The

marginal amount will be taxed at the following rates:

S.No If taxable income of the tax

payer is

Percentage of incremental income taxable at

next applicable tax rate

1 Up to Rs.550,000 20%

2 550,001 to 1,050,000 30%

3 1,050,001 to 2,250,000 40%4 2,250,001 to 4,550,000 50%

5 4,550,001 and above 60%

Income of Business in Pakistan:

All public companies (other than banking companies) incorporated in Pakistan are assessed for

tax at corporate rate of 39%. However, the effective rate is likely to differ on account of

allowances and exemptions related to industry, location, exports, etc.

Income of Property in Pakistan:

Property tax is a provincial tax levied on the value of property. It is generally levied at a flat rate

of 10% but the tax rates vary, depending on the province. Property tax is levied at progressive

rates in the Punjab province. In the province of Sindh, property tax is levied at a flat rate of 20%

on the annual rental value of the land and building. Individuals who purchase real property in

urban areas or acquire the right to use the real property for more than 20 years are liable to pay

capital value tax. The tax is levied at 4% on the propertys recorded value. If no property value is

recorded, the tax is levied at PKR50 (US$0.58) per square yard of the property.

Association of Persons in Pakistan:

Resident and non-resident persons.-

1. A person shall be a resident person for a tax year if the person isa) a resident individual, resident company or resident association of persons for the

year; or

b) the Federal Government.


37/53


2. A person shall be a non resident person for a tax year if the person is not a residentperson for that year

Resident association of persons.-

An association of persons shall be a resident association of persons for a tax year if the controland management of the affairs of the association is situated wholly or partly in Pakistan at any

time in the year.

An individual as a member of an association of persons.-

If, for a tax year, an individual has taxable income and derives an amount or amounts exempt

from tax under sub-section (1) of section 92, the amount of tax payable on the taxable income of

the individual shall be computed in accordance with the following formula, namely:

(A/B) x C

Where

A is the amount of tax that would be assessed to the individual for the year if the amount or

amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax;

B is the taxable income of the individual for the year if the amount or amounts exempt from tax

under sub-section (1) of section 92 were chargeable to tax; and

C is the individuals actual taxable income for the year.


38/53


Rates of Tax for Individuals and Association of Persons:


1 Where taxable income does not exceed Rs.100,000 0%2 Where the taxable income exceeds Rs.100,000 but does not

exceed Rs.110,000

0.50%

3 Where the taxable income exceeds Rs.110,000 but does notexceed Rs.125,000

1.00%


2.00%


3.00%


4.00%


5.00%


7.50%


10.00%


12.50%


15.00%

12 Where the taxable income exceeds Rs.800,000 but does notexceed Rs.10,00,000

17.50%

13 Where the taxable income exceeds Rs.10,00,000 but does not

exceed Rs.13,00,000

21.00%

14 Where the taxable income exceeds Rs.13,00,000 25.00%


39/53


Provided that where income of a woman taxpayer is covered by this clause, no tax shall be

charged if the taxable income does not exceed Rs.125,000/-

S.No Taxable income. Rate of tax.

1 Where taxable income does not exceed Rs.

100,000.

0%

2 Where taxable income exceeds Rs. 100,000but does not exceed Rs. 150,000

7.5% of the amount exceeding Rs.100,000

3 Where taxable income exceeds Rs. 150,000but does not exceed Rs. 300,000.

3,750 plus 12.5% of the amountexceeding Rs. 150,000


22,500 plus 20% of the amountexceeding Rs. 300,000.


42,500 plus 25% of the amountexceeding Rs. 400,000.

6 Where taxable income exceeds Rs. 700,000. 117,500 plus 35% of the amountexceeding Rs. 700,000.


40/53


Where the income of an individual chargeable under the head salary exceeds fifty percent of

his taxable income, the rates of tax to be applied shall be as set out in the following table namely:


1 Where taxable income does not exceed Rs.150,000 0%

2 Where the taxable income exceeds Rs.150,000 but does not exceedRs.200,000

0.25%


0.50%


0.75%


1.50%


2.50%


Rs.500,000

3.50%


4.50%

9 Where the taxable income exceeds Rs.600,000 but does not exceedRs.700,000,

6.00%


7.50%


9.00%


Rs.1,050,000,

10.00%

13 Where the taxable income exceeds Rs.1,050,000 but does not exceedRs.1,200,000,

11.00%


12.50%


14.00%


15.00%


16.00%


17.50%


18.50%


19.00%

21 Where the taxable income exceedsRs.8,400,000.

20.00%


41/53


Tax Rates in India

Rates of Taxation:

For resident men below the age of 65 yrs:

Income Tax Rates

Up to 160,000 Nil

160,001 - 300,000 10%

300,001 - 500,000 Rs 14,000 plus 20%

Above 500,000 Rs 54,000 plus 30%

For resident women below the age of 65 years:

Income Tax Rates

Up to 190,000 Nil190,001 - 300,000 10%

300,001 - 500,000 Rs 11,000 plus 20%

Above 500,000 Rs 51,000 plus 30%

For senior citizens (men or women who are 65 years or more at any time during the Previous

Year):

Income Tax Rates

Up to 240,000 Nil

240,001 - 300,000 10%300,001 - 500,000 Rs 6,000 plus 20%

Above 500,000 Rs 46,000 plus 30%

Income of Business in India:

The corporate tax rate is 32.445%. Domestic companies are taxed at a rate of 30%, however

profits from life insurance business in India are taxed at a rate of 12.5%. Foreign companies are

taxed at a rate of 40%. A minimum alternate tax (MAT) is levied at 18.5% of the adjusted profits

of companies where the tax payable is less than 18.5% of their book profits. Dividenddistribution tax (DDT) is levied at 15% on dividends distributed by a domestic company.

Surcharge and education cess is applicable on the above taxes. A 5% surcharge in case of

domestic companies and a 2% surcharge in case of foreign companies is applicable if the total

income is in excess of INR 10 million. Education cess of 3% is applicable on income tax plus

surcharge, if any. Wealth tax is imposed at a rate of 1% on the value of specified assets held by

the taxpayer in excess of the basic exemption of INR 3 million. Securities transaction tax (STT)


42/53


is levied on the value of taxable securities transactions in equity shares and units of equity

oriented funds.

Income of Property in India:

Income from House property is calculated by considering the Annual Value. The annual value(for a let out property) will be maximum of the following:

HRA Rent received Municipal Valuation Fair Rent (as determined by the I-T department)

However if a house is not let out and not self-occupied, then annual value is assumed to have

accrued to the owner. In case of a self occupied house, annual value is to be taken as NIL. But if

there is more than one self occupied house then the annual value of the other house/s is taxable.

From this, Municipal Tax paid is deducted to arrive at the Net Annual Value. From this Net

Annual Value, the following are deducted:

30% of Net value as repair cost - mandatory deduction Interest paid or payable on a housing loan for the house

Association of Persons in India:

Tax Deducted at Source in India:

Lets have a look at some of the income that is subjected to tax deduction at source (TDS).

Income through the salary Interest rate generated from nay mode Rental charges Insurance commission Prize money from betting, lotteries and horse races Commission on sale of lottery ticket Income generated from the foreign countries Fees for professional and technical services


43/53


Latest TDS (tax deducted at source) rate

S.No Payment Source Threshold in

Rupees

Co-operative

society/Local

authority/company

firm (rate in %)

HUF (rate in

%)

1 Winning from lotteries 10000 30 30

2 Winning from horse races 5000 30 30

3 Commission on insurance 20000 10 10

4 Rent or property 180000 10 10

5 Interest from bank 10000 10 10

6 Commission/brokerage 5000 10 10

7 Professional fees 30000 10 10

8 Scrap - 1 1

9 Toll plaza - 2 2

10 Mining /quarrying - 2 2

11 Interest on debenture andsecurities

- 10 -

12 Withdrawal from NSS 2500 20 -

13 Payment to nonresidentsportsmen

- 10 -

14 Income from ling term capitalgain

- 20 -

15 Income by way of short termcapital gain

- 15 -

16 Fees for technical services

payable by Government or anIndian concern in Pursuance ofan agreement made by non-Resident with the government

- 10 -


44/53


Tax Rates in United Kingdom

Rates of Taxation:

Income Tax Band Income Tax rate on

non savings income

Income Tax rate on

savings

Income Tax rate on

dividends0 to 2,710 Starting

rate for savings

Not available 10% Not applicable - seebasic rate band

0 to 34,370 Basic

rate20% 20% 10%

34,371 to 150,000

Higher rate40% 40% 32.5%

Over 150,000

Additional rate50% 50% 42.5%


45/53


Income Tax Offences and Penalties in India

Section Nature of Default Basis of Charge Quantum of

penalty221(1) Failure to pay tax; i.e., non-

payment of tax required by noticeu/s. 156.

-- Amount of tax inarrears

271(1)(b) Non-compliance with notice u/s.142(1) to file returns or to producedocuments required by assessingofficer or u/s. 143(2) to produceevidence on which assessee reliesor u/s. 142(2A) to get accountsaudited.

-- Rs. 10,000

271(1)(c) Concealment of the particulars ofincome, or furnishing inaccurateparticulars thereof.

Tax sought tobe evaded

100 % to 300 % oftax sought to beevaded

271A Failure to maintain books ordocuments u/s. 44AA.

-- Rs. 25,000

271AA Failure to keep and maintaininformation and documents u/s.92D.

Internationaltransaction

2% of Internationaltransaction

271B Failure to get accounts audited andfurnish Tax Audit Report asrequired u/s. 44AB.

Total Sales,Turnover, orGross Receipts

0.5% of total sales,turnover or grossreceipts, or Rs.

1,00,000 whicheveris less

271BA Failure to furnish a report asrequired u/s. 92E.

-- Rs. 1,00,000

271C Failure to deduct the whole or partof the tax as required by or underChapter XVII-B (Ss. 192 to 196D)or failure to pay the whole or partof tax u/s. 115-O.

Tax failed to bededucted

Equal to theamount failed to bededucted

271D Contravention of the provisions ofS. 269SS; i.e., by taking or

accepting any loan or depositotherwise than by ways specifiedtherein.

Amount of loanor deposit so

taken oraccepted

Equal to theamount of loan or

deposit so taken oraccepted

271E Contravention of S. 269T; i.e.repayment of any depositotherwise than by modes specifiedtherein.

Amount ofdeposit sorepaid

Equal to theamount of depositso repaid

271F Failure to furnish Return of -- Rs. 5,000


46/53


Income under sub-section (1) of S.139 before the end of the relevantAssessment Year.

Failure to furnishReturn of Income

under proviso tosub-section (1) ofS. 139 by the duedate.

-- Rs. 5,000

271G Failure to furnish information ordocument u/s. 92D (3).

Internationaltransaction

2 % of suchdefault.

272A(1) Failure to answer questions, signstatements, attend summons u/s.131(1), apply for permanentaccount number u/s. 139A.

-- Rs. 10,000

272A(2) Failure to: Rs. 100 for every

day during whichthe failurecontinues.

Comply with notice u/s. 94(6)furnishing information regardingsecuritiesGive notice of discontinuance ofbusiness - S. 176(3)Furnish in due time returns,statements, or particulars u/s. 133,206 or 285BAllow inspection of any register(s)- S. 134Furnish returns u/s. 139(4A)

Deliver in due time a declarationmentioned in S. 197AFurnish a certificate u/s. 203.Deduct and pay tax u/s. 226(2)Furnish returns/ statements/certificate u/s. 206CFurnish a statement of particularsof perquisites and profits in lieu ofsalary u/s. 192(2C)

272AA(1) Failure to furnish the prescribedinformation required u/s. 133B

(Refer to Form No. 45D).

-- Rs. 1,000

272B Failure to apply for PermanentAccount Number (PAN)

-- Rs. 10,000

272BB(1) Failure to apply for Tax DeductionAccount No. (TAN) (S. 203A)

-- Rs. 10,000

272BBB Failure to apply for Tax CollectionAccount No. (TCN)

-- Rs. 10,000


47/53


Income Tax Offences and Penalties in UK

Tax return

HM Revenue & Customs (HMRC) will contact you, usually in April, if they think you need to

fill in a tax return.

You'll receive a letter which explains when you'll need to send your tax return back. If you've

previously sent your return on paper, you'll receive a paper tax return.

If HMRC hasn't contacted you, but you think you may need to complete a tax return, follow the

link below to check.

If HMRC asks you to complete a tax return but you think you don't need to, let HMRC know. It's

important to do this as soon as possible. If you don't you may have to pay a penalty.


48/53


Penalties if you miss the tax return deadline

If you miss the deadline, the longer you delay, the more you'll have to pay. So it's important to

send your tax return to HMRC as soon as you can. The table below shows the penalties you'll

have to pay if your tax return is late. If a Partnership tax return is late, each partner will have to

pay the penalties shown below.

Penalties for missing the tax return deadline

Length of delay Penalty you will have to pay

1 day late A penalty of 100. This applies even if you have no

tax to pay or have paid the tax you owe.

3 months late 10 for each following day - up to a 90 daymaximum of 900. This is as well as the fixed

penalty above.

6 months late 300 or 5% of the tax due, whichever is the higher.

This is as well as the penalties above.

12 months late 300 or 5% of the tax due, whichever is the higher.

In serious cases you may be asked to pay up to

100% of the tax due instead.These are as well as the penalties above.

Receiving a tax estimate if your return is late

If you don't send your return by the deadline HMRC may estimate the tax you owe. You will

have to pay this and also pay interest on any tax that you pay late. You can only change this

estimate by sending your tax return. You will also have to pay any penalties due for missing the

HMRC will usually send you a 'Self Assessment Statement' that shows how much you owe. If

you don't receive this, you'll need to work out the tax due yourself. You can use your tax

calculation and previous statements or log in to HMRC Online Services and use the 'View

Account' option.


49/53


If you don't pay the tax you owe for the previous tax year on time, the longer you delay, the more

you'll have to pay. So it's important to pay the tax as soon as you can.

Penalties for paying late

Length of delay Penalty you will have to pay

Thirty days late 5% of the tax you owe at that date

Six months late 5% of the tax you owe at that date. This is as well

as the 5% above.

Twelve months late 5% of the tax unpaid at that date. This as well asthe two 5% penalties above

The penalties above do not apply to any payments on account that you pay late. Interest charges if you pay late You will have to pay interest on anything you owe and haven't paid, including any unpaid

penalties, until HMRC receives your payment.

You may think you have a reasonable excuse for paying your tax late. You can find outmore about reasonable excuses in the 'How to appeal' article (see link below). You dontneed to wait until you get a penalty, you should let HMRC know as soon as you can.

Late return and payment penalties before 6 April 2011 In some cases, you may have to pay a penalty under the 'old rules' that applied before 6

April 2011. For example if HMRC asked you to fill in a 2009-10 tax return and you still

haven't sent it back.


50/53


Conclusion & Recommendations

The reports said that Malaysia, India, Thailand, Turkey, and Sweden saw rapid growth and rising

tax ratios, while in Pakistan tax collection rose just in line with the economic growth.

In Asian Pacific countries, the tax collection ratio increased from 13.8 percent in 2000 to 16.5

percent in 2004, while in Pakistan it remained roughly constant as a percent of GDP since the

early 2000.

The simple average of the tax-to-GDP ratio in Bangladesh, India, and Sri Lanka countrieswith similar tax policies and administration is systematically higher than Pakistan, the report

said adding that this gap increased during the present decade.

The report said that Pakistan needs to look thoroughly at the available reform options, pursuing

twin-track reforms of tax policy and administration, which would help the government to meet

its medium-term revenue collection targets.

Different studies conducted on Pakistan taxation system highlight that Pakistan has the potential

to achieve the objective of increasing the tax to GDP ratio by 13-15 percent over the next five

years.

Agriculture Income should be taxed because a lot of revenue has been generated from agriculture

land. All the developed countries like UK, USA and Canada have brought agricultural income

under tax net and even India is far ahead than Pakistan in this regard.

Agriculture is the back bone of economy of Pakistan contributing almost 22% to GDP but its

share in tax is only 1% (The Economic survey of Pakistan, 2010).

Punishments and penalties should be stick so that every Pakistani should Pay Tax.

Corruption in FBR must be finished.

As in UK, Govt of Pakistan should pay special attention on poor or unemployed persons.

Govt should reduce their expenditures and pay special attention to the welfare activities.


51/53


Our Special Research & Recommendations

Regarding

Agriculture Income

Our research syndicate recommends a stepwise levying of agricultural income tax in the

following steps, in all these steps or mode the taxes that are already being paid will in the form of

land revenue or Abiana will be treated as tax credit;

1-RATE PURPOSE

In the first stage we can use agricultural income for rate purpose and proportionate relief will be

given for agricultural income;

In case of agricultural and income from other sources, agricultural income will beclubbed with the income from other heads of income and tax will be calculated.

Proportionate relief and tax credits will be granted and total payable tax will be

determined.

In case where there is only agricultural income, the income from other heads of incomewill be taken as zero and proportionate relief will be given 80% of the entitled relief.

2. WITH HOLDING TAX

The second stage for the taxation of agriculture can be with holding on the total consideration

received for the sale of agricultural produce.

The rate of this tax can be 3.5%.


52/53


3. HEAD OF INCOME

In the final stage agricultural income can be treated as a separate head and all the expenditures

incurred on deriving income can be admitted as expense. For example agricultural inputs likeseeds, fertilizer, medicines and labor involved. The expenses allowed can be the lesser of:

Actual expenses occurred 50% of the total considerations received for agricultural produce.

The time frame to meet all the three stages can be decided by the agricultural taxation

committee.


53/53

References

http://indiantaxguide.wordpress.com/2009/05/08/agricultural-income/

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/IncomeTax/Introduct

iontoIncomeTax/DG_078825

Final Tax Word

Documents

Transcript of Final Tax Word