Final Assignment of Taxation

Final Assignment of Taxation Submitted To Sir Arif HussainSubmitted ByImran Siddique 10149Waqas Dastager 10134Sameul Stephan 10263Imran Rasool 10112Rayyan Ansar 10264

Table of Contents1.Tax System in Pakistan4Income Tax4Sales Tax4Liability to Sales Tax5The Federal Excise5Federal Excise duty is payable on:6Special Excise Duty6Agreement for avoidance of double taxation62.Tax Policy & Administration7Winds of Change73.Old Organizational Structure of FBR or CBR8GOALS OF CBR8FAILURE OF CBR84.Previous structure sales tax department9Collectorate of sales tax in Pakistan9Officers in collectorate9Departments in collect orate95.Previous structure of income tax department10Income tax regions in Pakistan10Officers of income tax10Offices of income tax106.Appellate structure11Custom Excise and Sales Tax Appellate Tribunal11Previous Appellate Structure of Income Tax127.New Organizational Structure of FBR13Organizational Chart of the FBR14Federal Board of Revenue15Current set up17Functions of FBR Revenue Division188.Differentiation between New System and Old System199.References20

1. Tax System in Pakistan

Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, direct and indirect taxes. A broad description regarding the nature of administration of these taxes is explained below:Income Tax Taxation according to a persons ability to pay is universally accepted principle, and income is considered a satisfactory though not a sufficient index of such ability to pay. Income Tax is, therefore, generally recognized as a highly equitable form of taxation. A tax levied on income can normally be shifted to others and thus its incidence is on those for whom it is intended. Since income tax is progressive in nature, it tends to reduce economic disparity. Tax rates and method of calculating taxable income varies with fiscal status of the tax payer. Following are the broad categories of taxpayers: Companies Association of Persons (AOP) Non Salaried Individuals Salaried individualsSales Tax Sales Tax was a provincial subject at the time of partition. It was being administered in the provinces of Punjab & Sindh as provincial levy. Sales tax was declared a federal subject in 1948 through the enactment of General Sales Tax Act, 1948 and in 1952, this levy was transferred permanently to the Central Government. Sales tax was levied at the standard rate of 6 pies per rupee at every stage whenever a sale was effected. The trading community protested against this system, and this resulted in the enactment of Sales Tax Act 1951. A system of licensed manufacturers & wholesalers was instituted whereby they were allowed to purchase goods free of sales tax from each other and pay tax on sales to unlicensed traders. Imports were chargeable to Sales Tax but the licensed manufacturers & wholesalers were allowed to import goods without the payment of Sales Tax. Later on Sales Tax became chargeable on locally produced & imported goods at the time of their sales & import, respectively. The sales tax, was collected under the Finance Ordinance, 1956, on goods which were chargeable to Central Excise Duty, as if it were a duty of Central Excise. In April 1981, by virtue of an amendment in the Sales Tax act, 1951, the collection of Sales Tax on non-excisable goods was also entrusted to the Central Excise Department. In the late eighties the government decided to replace Sales Tax with the Value Added Tax in the country as a part of its structural adjustment program which was undertaken to correct anomalies & distortions both in our tax & non-tax regimes. Accordingly new enactment titled Sales Tax Act 1990 replaced Sales Tax Act 1951 with effect from 1-11-1990. Liability to Sales TaxFollowing sectors are required to get registration for sales tax and charge sales tax on their supplies/ services: Manufacturing Import Services Distribution, Wholesale & Retail stage. Previously it was being charged at the manufacturing & import stage, and its scope has been extended now to remaining sectors. Sales Tax is chargeable on all locally produced and imported goods except computer software, poultry feeds, medicines and unprocessed agricultural produce of Pakistan and other goods specified in Sixth Schedule to The Sales Tax Act, 1990. The Federal Excise The Federal Excise Act, 2005, was promulgated with effect from 1st July, 2005, repealing the Central Excises Act, 1944. Following are some of the significant changes brought about by the new Act: The word Federal was used in place of Central. Therefore, now the term Federal Excise Duty is more appropriate as compared to old Central Excise Duty for the duties of excise levied under the 2005 Act. The system of physical supervision has been entirely done away with and now all clearances will be self-assessed and no prior permission for clearance will be required. The payment of duty will be on monthly basis and the duty on all clearances during the month will be payable by the 15th of next month. This is in contrast to previous requirement of payment of duty prior to clearance. No gate passes are required for clearances as in the old system. Double taxation has been eliminated by allowing adjustment of the excise duty paid on the input goods used directly in the manufacture of excisable goods. On some services and goods FED is payable in VAT more i.e. in the same manner as provided in the Sales Tax Act, 1990. For details see the link Goods/Services Liable to Excise Duty on this page.

Federal Excise duty is payable on:

(a) goods produced or manufactured in Pakistan;(b) goods imported into Pakistan;(c) 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 therein; and(d) services, provided or rendered in Pakistan; Special Excise Duty

As part of budgetary measures for the year 2007-08, Special FED at 1% has been levied 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. For list of goods excluded from purview of this special duty and other details see SRO 655(I)/2007.

Agreement for avoidance of double taxation The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries including almost all the developed countries of the world. These agreements lay down the ceilings on tax rates applicable to different types of income arising in Pakistan. They also lay down some basic principles of taxation which cannot be modified unilaterally. The list of countries with which Pakistan has concluded tax treaties is given below: AustriaBelgiumBangladeshCanadaChina

DenmarkEgyptFranceFinlandGermany

GreeceIndiaIndonesiaIranIreland

ItalyJapanSouth KoreaLebanonLibya

MaltaMauritiusSaudi ArabiaSingaporePoland

RomaniaSwitzerlandThailandSri LankaSweden

TurkmenistanU.K.TurkeyTunisiaKazakhstan

U.A.E.U.S.A

2. Tax Policy & Administration

Major emphasis of tax policy during 1970s and most of 1980s was on increasing tax rates; Tax was levied on easy to tax areas for example at production stage (excise) and at import stage (customs); High protective barriers through tariff and para-tariffs (infant industry argument); Seriously Regressive Sales Tax Structure; Extremely high corporate rates discrimination between different types of corporations. Complexity of Laws & Procedures and arbitrariness in their application, manual record keeping complete assessment and examination, cylindrical tax administration setup.

Winds of Change

Somewhere in 1980s there was a realization that the tax system needs restructuring and reforms. Since then, different Task Forces and Research Groups were constituted and their contribution has resulted into following valuable studies/reports: Report by the National Taxation Reform Commission (1986); Report by the Resource Mobilization and Tax Reforms Commission (1994); Report on Income Tax Reforms (2001); Several Reports by the Task Force on Reform of Tax Administration (2001); Strategy and Priorities for Tax and Customs Administration Reform (2001) The Strategy Document on Tax Reform (2001) Pakistan: A Preliminary Assessment of the Federal Tax System (2006) and Tax Policy in Pakistan: An Assessment of Major Taxes and Options for Reform (2008)

3. Old Organizational Structure of FBR or CBR

The Central Board of Revenue was the highest executive authority of Federal taxes (Custom, Income Tax, Sales Tax and Federal Excise) in Pakistan. It was a statutory body appointed by the Federal Government for the purpose of tax collection in the country, by the authority of Central Board of Revenue Act, 1924 (01-04-1924)GOALS OF CBRThe Prime Goals Are: To Broaden Tax Base Apart From Increased Revenue Collection Educated Tax Payer Improved Tax GDP Ratio Improve Tax System and Decrease Parallel Size Of EconomyFAILURE OF CBR Corruption Misconception about Tax Evasion And Tax Avoidance Legislative Loopholes

4. Previous structure sales tax department Collectorate of sales tax in Pakistan 1. Peshawar2. Rawalpindi3. Faisalabad 4. Gujranwala5. Lahore6. Multan 7. Karachi (East)8. Karachi (West)9. Hyderabad10. Quetta11. Mirpur (A J & K)Officers in collectorate1. Collector2. Additional collector3. Deputy collector4. Assistant collector5. Superintendent6. Deputy superintendent7. Auditor8. Lower staffDepartments in collect orate1. Local registration office (LRO)2. Audit3. Adjudication4. Refund

5. Previous structure of income tax department Income tax regions in Pakistan 1. Northern Islamabad 2. Eastern Lahore3. Central Multan4. Southern Karachi 5. Corporate Karachi Officers of income tax 1. Regional commissioners 2. Commissioners 3. Additional Commissioners4. Deputy Commissioners5. Assistant Commissioners6. Income tax officer7. Special officer8. Inspectors9. Lower staff Offices of income tax 1. Regional commissioner office (R.C)2. Zonal Office (commissioner)3. Range (Additional Commissioner)4. Circle ( DC, AC, ITO, SO)

6. Appellate structure

Appeal to the Collector (Appeals)1. Collector (appeals )2. All cases of customs, federal Excise and Sales tax.Custom Excise and Sales Tax Appellate Tribunal Appellate tribunal It means customs, Excise and Sales Tax appellate Tribunal constituted u/s 194 of custom act.Appointing authorityThe federal government has the appointing authority of the appellate tribunal Members The appellate tribunal consists of two types of members.Judicial members Shall be a person who has been a. A judge of high court b. A district judge and is qualified to be a judge of high courtc. An advocate of high court and is qualified to be a judge of high courtTechnical members An officer of customs and excise group equivalent to that a member, FBR CHAIRMAN The federal government shall appoint one of the members of appellate tribunal to be the chairman

Previous Appellate Structure of Income Tax Appeal to the Commissioner (Appeals)1. Commissioner (appeals)2. All cases of income tax Appointment It means income tax appellate tribunal (ITAT) constituted u/s 130 of the income tax ordinance, 2001. The appellate tribunal shall consist of a chairperson and such other judicial and accountant members as are appointed by the federal government having regard to the needs of the tribunal.CHAIRPERSONFederal government shall appoint chairperson.Judicial MemberA person may be appointed as a judicial member of the appellate tribunal if the person a. Has exercised the power of a district judge and is qualified to be a judge of high court; or b. Is or has been an advocate of a High Court and is qualified to be a judge of a High Court.ACCOUNTANT MEMBER A person may be appointed as an accountant member of the appellate tribunal if the person a. Is an income tax group equivalent in the rank to that of a chief commissioner.The commissioner of income tax or commissioner of income tax (Appeals) having at least three years experience as commissioner

7. New Organizational Structure of FBR

By the enactment of FBR Act 2007 in July 2007 the Central Board of Revenue has now become Federal Board of Revenue. The Chairman, FBR/Secretary, Revenue Division is assisted by nine Members ; Member Strategic Planning and Statistics (SP&S), Member Inland Revenue; Member Customs; Member Enforcement and Accounting (E&A); Member (Taxpayers Audit); Member Facilitation and Taxpayer Education(FATE) ; Member Legal; Member Reformed General Sales Tax (RGST)/Expeditious Refund Payment System(ERPS) and Member (Administration); (As per circular NO. F.1/1CH-FBR/2009 dated, 26-Jan-2011). The post of Member Reformed General sales Tax (RGST)/Expeditious Refund Payment System (ERPS) will continue till first of January,2012, only. The Member Facilitation and Taxpayer Education (FATE) is also official spokesperson of FBR.

Organizational Chart of the FBR

Federal Board of Revenue

1. Customs2. Inland Revenue Services I. Income tax II. Sales tax III. Federal tax Large taxpayer units (LTU)1. Lahore2. Karachi 3. IslamabadKarachi Large Taxpayer Units (LTU) LTU Karachi, being the first pilot project of FBR, was launched on 1st July 2002, symbolizing the new face of FBR tax administration. The Tax Administration Reforms Program in Pakistan (TARP) envisages a complete shift from conventional bureaucratic concept of enforcement to voluntary compliance, from periodic assessment to risk based audit and from traditional aloofness to proactive taxpayers' facilitation.Lahore Large Taxpayer Unit Federal board of revenue welcomes you to the Large Taxpayer unit (LTU) Lahore. The unit is working at 6-7 Floor, Income tax House, and Nabha Road, Lahore. The LTU handle all domestic taxes (income tax, sales tax & federal excises) of most of the Lahore based, which qualify the criteria laid down for selection of cases in LTU and those which belong to the following sectors. Banks Non-Residents Oil and Gas Sugar Cement Textiles Beverages Paper and Paper Board Automobiles

Islamabad Large Taxpayer Unit Large Taxpayer Unit (LTU) Islamabad, Federal Board of Revenue has achieved a new landmark, showing 729 percent increase in the income tax collection out of current demand created during July-March (2011-12) as compared to the corresponding period of last fiscal. Sources toldBusiness Recorderhere on Monday that the performance of the LTU Islamabad during July-March (2011-12) has shown remarkable growth in all taxes particularly recovery of income tax arrears. The latest data revealed that the income tax collection out of current demand created was Rs 20.8 billion during July-March (2011-12) against Rs 2.5 billion in the same period last fiscal, reflecting an exceptional increase of Rs 18.3 billion. In percentage terms, there is a record increase of 729 percent in the income tax collection out of current demand created during the period under review. Similar kind of positive trend has been observed in the income tax demands created by the LTU Islamabad. Income tax demand of over Rs 95 billion has been created during this period against Rs 43 billion in the corresponding period last fiscal, showing an extraordinary increase of 120 percent. The ongoing performance of the LTU Islamabad would enable the FBR to achieve the ambitious revenue collection target of Rs 1952 billion by the end of current fiscal. According to the data, LTU Islamabad has collected Rs 107.648 billion as income tax during July-March (2011-2012) against Rs 73 billion in the corresponding period of last fiscal, showing a growth of 47 percent. The collection of sales tax was Rs 91.078 billion during the first nine months of current fiscal against Rs 81 billion in the same period last fiscal, showing an increase of 12 percent. During this period, LTU Islamabad has collected Rs 33.158 billion as Federal Excise Duty (FED) during July-March (2011-2012) against Rs 31.726 billion in the corresponding period of last fiscal, showing a growth of five percent.

Regional tax office (RTO)1. Peshawar2. Abbottabad3. Rawalpindi4. Sialkot5. Islamabad6. Gujranwala7. RTO-1 Lahore8. RTO II Lahore9. Sargodha 10. Faisalabad11. Multan 12. Bahawalpur 13. Karachi -I 14. Karachi -II15. Karachi -III16. Hyderabad 17. Sukkar18. Quetta

Current set up Appeal to the Commissioner Appeals 1. Commissioner appeals 2. All cases of income tax, sales tax and federal excise.APPELLATE TRIBUNAL INLAND REVENUE1. Chairperson, judicial members and accountant members.2. All cases of income tax, sales tax and federal excise.

Functions of FBR Revenue Division

In the existing setup, the Chairman, FBR, being the executive head of the Board as well as Secretary of the Revenue Division has the responsibility for(i) Formulation and administration of fiscal policies,(ii) Levy and collection of federal taxes and(iii) Quasi-judicial function of hearing of appeals.His responsibilities also involve interaction with the offices of the President, the Prime Minister, all economic Ministries as well as trade and industry.

8. Differentiation between New System and Old System

Final Assignment of Taxation

Superior University LahorePage 3

OLD SYSTEMDirect interaction with tax payers.No use of modern technology.No check of dress code.Manual attendance system.Less tax payer facilitation.No education programs for tax payers.No employee training programs andWork-shops.Segregated offices of commissioners and assistant commissioners.Conventional offices of tax collectors and commissioners.No grievance report system for mal-administration from employees.Conventional working methodology and old mind sets of employees.

NEW SYSTEMDirect and indirect interaction with tax payers.Use of sophisticated MIS system.Professional dress code is implemented.Electronic attendance system introduced.Tax payer facilitation is the first obligation.Tax payers are educated and assisted through seminars and work- shops.Employees are trained to use modern technology and to tackle with tax payers problems.Commissioners and assistant commissioners at one place.Purpose built tax collection and tax payer facilitation offices.Grievance cell is created to complaint directly to chairman FBR.Desire to keep pace with changing world is observed

9. References http://www.fbr.gov.pk/ShowArticle.aspx?view=Article&ActionID=59&ArticleID http://tariqrasheedlaw.blogspot.com/2011/10/information-on-second-customs-appeal-in.html http://www.defence.pk/forums/economy-development/22908-pakistan-tax-structure.html http://finance.kalpoint.com/highlights/business-news/fbr-acts-against-leakage-of-secret-information.html http://www.ltukarachi.gov.pk/index.htm http://www.ltulahore.gov.pk/