Income Tax Bar Association Karachi
WORKSHOP ON INCOME TAX
Hotel Sheraton, Karachi
29 – 30 August, 2005
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
In the name of Allah,
the most gracious and most merciful.
Hotel Sheraton
29-30 August 2005
2
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
PAYMENT AND
REFUND OF TAX
By
Abdul Qadir Memon
Former President, Income Tax Bar Association Karachi
Hotel Sheraton
29-30 August 2005
3
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
In this world nothing is certain,
but death and taxes.
--- Benjamin Franklin
Hotel Sheraton
29-30 August 2005
4
CONTENTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Payment and Refund of Tax







Advance Tax
Presumptive tax regime
Withholding tax
Withholding tax statements
Additional tax & Penalties
Collection & recovery of tax
Refunds
Hotel Sheraton
29-30 August 2005
5
ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE
Historical background & Concept of Advance Tax
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
The concept of Advance Tax was
introduced in the sub-continent as a war
measure to combat inflation and to with
draw a part of the unprecedented amount
in circulation. However in the case
Prushottamdas vs CIT 48 ITR (SC) 206,
211; the honorable superior court has
observed
that
like
many
other
innovations in taxation legislation, this
innovation also has outlived its exigency
which gave it birth. It was further
observed that Government rest on the
principle of pay as you earn i.e. paying
tax by instalments in respect of the
income of the very year in which the tax
is paid.
6
ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE
Income Tax Bar
Association
Karachi
Historical background & Concept of Advance Tax
 The
Workshop
on Income Tax
Income Tax Ordinance, 2001
provides for following three modes of
collecting taxes in advance , which we
will discuss in detail : Advance Tax directly liable to be paid;
 Deduction at source ; or
 Collection at source
Hotel Sheraton
29-30 August 2005
7
I)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Who is liable to pay advance tax?
Every taxpayer, whose income was charged
to tax for the latest tax/assessment year
shall be liable to pay advance tax for the
year other than the following:
a) Income chargeable to tax under the head
Capital Gains;
b) Income chargeable to tax under the
heads:i) Dividend (under section 5)
ii) Tax on Certain payments to Non
Residents (under section 6);
iii) Shipping and Air Transport (under
section 7);
8
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
c) Income chargeable to tax at source under the
head Property Income;
d) Income subject to deduction of tax at source
under the head Salary;
e) Income under the following heads of income
on which tax has been collected as final tax
liability and no tax credit is allowed as result
of sub-section (3) of section 168.
i) Imports [section 148 (7)].
ii) Payments for goods and services
[section 153 (6) or (7)].
iii) Export [section 154 (4)].
iv) Prizes and Winnings [section 156 (3)].
v) Transport business [section 234 (5)].
9
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
f) The provision of this section does not
apply to an individual or association of
persons (AOP) where the individual’s or
AOP’s latest assessed taxable income
excluding items mentioned above is less
than Rs.200,000/-.
In my humble view although the limit of Rs.
200,000/- has been fixed after exclusion
of certain incomes; but no machinery has
been provided to calculate the share of
tax on such excluded incomes in order to
arrive the figures of last assessed tax for
the purpose of advance tax.
Hotel Sheraton
29-30 August 2005
10
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
When advance tax is payable?
Income Tax Bar
Association
Karachi
For a Quarter of Date of Payment
September
On or before 15th day of
September
December
On or before 15th day of
December
March
On or before 15th day of
March
June
On or before 15th day of
June
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
11
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
When advance tax is payable?
In the case of Oswal Woolen Mills Ltd vs CIT
(Central) Patiala 122 ITR 789 it was held
that the date of payment of tax is the date
when the cheque is presented and not the
date, when it is encashed by the
department. It was also held in the case of
Life Bond Fabric vs CIT 216 ITR 529, that
any advance tax paid after the due date but
before the end of the relevant financial year
should be treated as advance tax. However,
payment of tax after the end of financial
year can not be regarded as advance tax
and an erroneous credit can be with drawn
in rectification proceedings.
12
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
What is the method of payment of
advance tax?
Company
The tax assessed to the taxpayer for the
latest tax/assessment year to be paid
in four quarterly instalments. The
taxpayer shall be allowed to deduct
the tax paid in the quarter for which
tax credit is allowed under section
168, other than tax deduced on
Income from Salary and Property.
Hotel Sheraton
29-30 August 2005
13
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Individuals and Association of Persons
Where the tax payer having latest
assessed income of two hundred
thousand rupees or more (after
exclusion of incomes mentioned
above); the tax assessed to the
taxpayers
for
the
latest
tax/assessment year to be paid in four
quarterly instalments. However, any
tax deducted in the quarter on Salary
or Income from Property shall not be
allowed as deduction while providing
the credit of tax collected or deducted
in such quarter.
14
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Whether any taxpayer’s income which is
likely to be reduced can file estimates of
his income and pay advance tax
accordingly ?
Yes, the tax payer at any time before the
last instalment is due, may furnish to
the Commissioner an estimate of the
amount of the tax payable by him, and
there after pay balance estimated
amount in equal instalments on such
dates as have not expired.
15
ADVANCE TAX U/S. 147
(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
In which Order the credit shall be
applied, in case there are more than one
tax Credits?
a) any foreign tax credit allowed under
section 103; then
b) any tax credit allowed under Part X of
Chapter III (Charitable donations,
Investment in shares, Retirement
Scheme, Profit on Debt and etc.); and
then
c) any tax credit allowed under sections
147 (Advance Tax); and 168 (Credit
for tax collected or deducted).
16
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
Tax administrators all over the world and
particularly in the developing countries like
Pakistan face major problems of nonreporting and under-reporting of income.
The Withholding Tax and Presumptive Tax
Regimes are not new concepts. The
Presumptive Tax as initially introduced in
the Indian Income Tax Act, 1922 under
section 18(3BB) through which tax was
imposed on Trading in Liquor, Timber and
other Forest Produce in India.
17
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
The scope of these provisions was
made applicable in Pakistan through
various provisions of Income Tax
Ordinance, 1979. In Pakistan Prior to
July 1991, taxation on presumption was
restricted only to the non-residents
deriving receipts from shipping, air
transport business and having fee from
technical services.
Hotel Sheraton
29-30 August 2005
18
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
The Presumptive Taxation approach
although has been advocated by the
Musgrave and well known French Forfeit
System and such law also exist in
countries like UK, New Zealand, Nepal,
India, Philippines, Hong Kong, China,
Indonesia,
Mexico,
Russia,
Czechoslovakia, Channel Islands, Istle
of Man and many other countries of the
world.
19
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
However they are applicable to only
those persons whose incomes are likely
to be difficult to determine accurately,
easier to evade, or more likely to cross
national boundaries, but in Pakistan this
law has been made applicable to almost
all the categories of tax payers not only
that but they are being heavily punished
for their inadvertent mistakes.
Hotel Sheraton
29-30 August 2005
20
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
Through Finance Act, 1991, provisions
of Section 80 C, 80 CC and 80 D were
introduced. The then Finance Minister
while defending the introduction of such
provisions stated that although the
contractors, suppliers and importers are
liable to with-holding tax, however they
were subjected to inconvenience
through
cumbersome
assessment
procedures and delay in issuance of
refunds.
21
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
It is to relieve them from the pain, the tax
deducted at source is treated as full and
final discharge of liability. The tax payer
is not required to file any return and he
doesn’t have to attend any proceedings
in the tax offices.
Hotel Sheraton
29-30 August 2005
22
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
It was further stated that the withholding
tax has not only proved a very effective
instrument for the recovery of direct
taxes but a vast majority of tax payers
have also expressed their confidence
and satisfaction in this system. In view of
these encouraging results, it was
decided to extend the system.
Hotel Sheraton
29-30 August 2005
23
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
The with holding and Presumptive Tax
Regimes since July 1991 have come
into full force. The law which weaved
the indirect taxes into direct taxes
texture resulted in thousands of Writ
Petitions; virus of which were
challenged by the tax payers in all
round Pakistan on the ground of
equity and also on the principles of
real income and it’s taxability on the
basis of liability to pay in a
progressive manner.
24
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
But in the case of M/s. Elahi Cotton Mills and
Others reported as 1997 PTD 1555, the
honorable Supreme Court of Pakistan held
that the Presumptive Tax imposed u/s. 80C,
80CC and 80D is in consonance with Entry 52
of the Federal Legislative List. The Indian High
Courts also in the cases of P.Kunhammed
Kutty Haji and Others reported as (1989) 176
ITR 481 and A.Samyasi Roa and Others
reported as (1989) 178 ITR 31 have upheld
the constitutional validity of the amendment in
view of the clear objective of grabbling the
evaders and inability of the Administrative
machinery to reach them otherwise.
25
WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)
HISTORICAL BACKGROUND AND OBJECTIVE OF PTR
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
According to latest statistics available
more than 54% of total indirect taxes
was collected for the year ended 0n
30th June 2005 through withholding
tax regime. The analysis of net
collection of Indirect Taxes at
183.889 billion is as follows:-
Hotel Sheraton
29-30 August 2005
26
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
WITHHOLDING TAX REGIME
Hotel Sheraton
29-30 August 2005
27
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
1. In view of section 148 (2), this section shall
not apply to –
a) The re-importation of re-useable containers
for re-export qualifying for Custom duty and
Sales Tax exemption on temporary import
under the Custom’s notification No. SRO
344(1)/95 dated 25.04.1995; or
b) The importation of the following petroleum
products:“Motor Sprit (MS), Furnace Oil (FO), JP-1
and MTBE”
28
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
2. The Commissioner may issue a
reduced rate or exemption certificate
to a manufacturer who imports rawmaterials (other than edible oil)
exclusively for its own use, provided –
a) the aggregate of tax paid or collected
in a tax year equals the amount of tax
paid by the manufacturer in the
immediately preceding year; or
29
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
b) a manufacturer is liable to pay
advance tax u/s.147; however, he may
cancel the exemption certificate
issued if manufacturer fails to pay any
instalments payable u/s.147; or
c) the Commissioner is satisfied that the
income of a person during the tax year
is exempt from tax or such person is
not likely to pay any tax (other than tax
u/s.113) on account of depreciation or
brought forward of losses.
30
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
SECTION 148
[(50(5)] read with Part II of 1st Schedule
3. The tax collected under this section
including tax collected on the import of
edible oil shall be final tax on the
income of importer arising from the
imports except in the case of an
industrial undertaking importing goods
as raw-material, plant, machinery and
equipment for its own use.
Hotel Sheraton
29-30 August 2005
31
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
4. The Central Board of Revenue vide
SRO No.593(1)(91) dated 30.06.1991
specified various classes of persons to
whom the above sub-section shall not
apply and keeping in view the saving
clause u/s.239(10) it will continue to
be applicable unless the same has
specifically been withdrawn. The CBR
also confirmed this position vide
Circular
No.9
of
2002
dated
29.06.2002.
32
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
6.The
CBR
vide
circular
letter
No.1(38)WHT/91 dated 11.11.1993 in
the case of manufacturers whose
annual exports are not less than 80%,
authorized
the
concerned
Commissioner of Income Tax to issue
exemption certificate u/s.50(5) of the
I.T.Ord., 1979 in case they fulfill the
conditions prescribed under Circular
No.20 of 1992 for assessment
u/s.80CC.
33
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
7. Provision of this section shall not
apply to the various items described in
certain clauses of Part IV of 2nd
Schedule.
8. As per Sub-Section 148(9) and also
under section 50(5) of the Repealed
Ordinance the tax is deductible on
value goods and the same has been
defined as under:34
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
SECTION 148
[(50(5)] read with Part II of 1st Schedule
"Value of goods" means the value of
the goods as determined under
section 25 of the Customs Act, 1969
(IV of 1969), as if the goods were
subject
to
ad valorem duty
increased by the customs-duty and
sales tax, if any, payable in respect of
the import of the goods."
Hotel Sheraton
29-30 August 2005
35
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
A controversy arose when the honorable ITAT in
its order reported as 2003 PTD (Trib)735,
having relied upon the decision of Honorable
Lahore High Court reported as 1994 PTD 848,
decided that Sales Tax and Custom duty shall
not be added in the value of imported goods for
the purpose of assessing income of assesses
u/s.80C of the Income Tax Ordinance, 1979.
As a matter of facts the decision of Lahore
High Court is distinguishable as it was related
to deduction of tax on Supplies under section
50(4) and not on imports.
36
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
SECTION 148
[(50(5)] read with Part II of 1st Schedule
The Honorable Supreme Court of Pakistan
in a case reported as 2005 PTD 194
decided that tax u/s.50(5) is leviable on
the import value of goods excluding
Sales Tax and Custom Duty. To the best
of my knowledge an application filed by
the tax department for reviewing the
order is pending before the Honorable
Supreme Court.
Hotel Sheraton
29-30 August 2005
37
IMPORTS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 148
[(50(5)] read with Part II of 1st Schedule
In the meantime the Honorable Karachi High
Court on this subject vide its order reported
as 2005 PTD 1328 not agreed with the
judgment of Lahore High Court and
dismissed the constitutional petition of
assessees upholding the treatment of
Collector of Customs to charge the tax
u/s.50(5) on total value including Custom
Duty and Sales Tax. It is interesting to point
out that in this case the order of the
honourable Supreme Court of Pakistan has
not been referred and discussed at all.
38
SALARY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 149
[50(1)] read with Div. I of Part I of 1st Schedule
2.
Through Finance Act 2004 the
exemption limit of taxable income has
enhanced from Rs.80,000/- to Rs.
100,00/-.
3. Through Finance Act, 2005 the rates of
tax for Salaried persons have also
been revised by inserting a new clause
1A in Div.I of Part-I of 1st Schedule to
the I.Tax Ord.2001.Whereas Clause I
of Part III of 2nd Schedule providing
reduction in the tax liability has also
been omitted.
39
SALARY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 149
[50(1)] read with Div. I of Part I of 1st Schedule
5. For facilitation of Salaried persons the CBR
has issued Circular No.18 of 2004 dated
09.08.2004 under which the employer in order
to work out the tax liability of the employee
under section 149 of the Ordinance, is allowed
to make adjustments of the income tax paid
by such salaried persons under section 234
and 236 of the Income Tax Ordinance, 2001
during a tax year. Such salaried tax payers,
are entitled to credit of such tax payment only
if they are the owners of the motor vehicle or
subscribers of telephone in their own name,
as the case may be.
40
SALARY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 149
[50(1)] read with Div. I of Part I of 1st Schedule
6. In the matter regarding withholding and
taxability of Salary of Pakistani Seafarer has
been resolved by inserting clause (7F) in PartI of the Second Schedule to the Repealed
Ordinance, through Finance Ordinance, 2001
under which the exemption has been granted
to the salary received by the Pakistani
Seafarer working on a foreign vessel provided
that such income is remitted to Pakistan not
later than two months of the relevant income.
Same exemption is still available as per
clause 4 of Part-I of the Second Schedule to
the Income Tax Ordinance, 2001.
41
DIVIDENDS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 150
[50(6A)] read with Div. III of Part I of 1st Schedule
Rates of deduction
Every resident
company paying a
dividend shall deduct
tax from the gross
amount of the
dividend paid at the
following rates:i) Public or Insurance
5%
Company
ii) In all other cases
iii) Reduced rate
10%
(1) 7.5%
42
DIVIDENDS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 150
[50(6A)] read with Div. III of Part I of 1st Schedule
1. Under the following Clauses of Part II
of the 2nd Schedule Reduced rates
are applicable to an amount:a)
Received by a non-resident
company from a company engaged
exclusively in mining operations, other
than petroleum. [Clause 16]
b) Paid by a purchaser of a power
project privatized by WAPDA. [Clause
17]
c) Paid by a company set up for power
generation [Clause 20]
43
DIVIDENDS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
SECTION 150
[50(6A)] read with Div. III of Part I of 1st Schedule
2. The Provisions of this section shall
not apply to the following as provided
in Part-IV of Second Schedule:a) The Islamic Development Bank
[Clause 38B]
b) Payments made to the NIT (Unit)
Trust or a Mutual Fund. [Clause 47B]
Hotel Sheraton
29-30 August 2005
44
DIVIDENDS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
SECTION 150
[50(6A)] read with Div. III of Part I of 1st Schedule
3. In respect of Zakat deduction, the law
prescribes that deduction should be
made on gross amount; however, the
tax authorities vide their letter dated
19th March, 1997 agreed that
withholding of tax should be made
after deduction of Zakat.
Hotel Sheraton
29-30 August 2005
45
DIVIDENDS
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
SECTION 150
[50(6A)] read with Div. III of Part I of 1st Schedule
4. Deduction at source in respect of
dividend is to be made at the time of
making payment and not at the time
of declaration of dividend. - CIT,
Companies-I, Karachi v. National
Investment Trust Ltd., Karachi [2003]
87 TAX 317 (H.C. Kar). = 2003 PTD
589.
Hotel Sheraton
29-30 August 2005
46
PROFIT ON DEBT
SECTION 151
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
(Yield/Profit Interest/Discount/Premium,
etc.) on–
i) On an account, deposit or a certificate
under the National Savings Scheme
or Post Office savings Account.
ii) An account or deposit maintained
with the banking company or financial
institution
iii) Any security [other than that referred
to in clause (a)] issued by Federal or
Provincial Govt. or a local authority
iv) Any bond, certificate, debenture,
security or instrument of any kind
(other than a loan agreement between
a borrower and a banking Company or
development financial institution)
Rates of
deduction
10% (1)
10%
20%
10%
47
PROFIT ON DEBT
SECTION 151
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
1. In the case of any resident individual, no tax
shall be deducted from income or profits paid
on,i) Defence Savings Certificates, Special
Savings Certificates, Savings Accounts or Post
Office Savings Accounts, or Term Finance
Certificates (TFCs), where such deposit does
not exceed one hundred and fifty thousand
rupees; and [Clause 59(iv)(a) of Part IV of 2nd
Sch].
ii) Investment in monthly income Savings
Accounts Scheme of Directorate of National
Savings, where monthly installment in an
account does not exceed one thousand rupees.
[Clause 59(iv)(b)]
48
PROFIT ON DEBT
SECTION 151
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
2. In case of Special US Dollar Bonds
purchased by a resident out of deposits
made in foreign currency accounts on
or after December 16, 1999 shall be
taxed @ 10%. [Clause 82 of Part I of
2nd Sch.)
3. The provisions of this section shall not
apply in view of various Clauses of
Part IV of Second Schedule.
49
PROFIT ON DEBT
SECTION 151
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
4. Vide SROs bearing No.484 (1)/84
dated 14.06.1984 and 594 (1)/91
30.06.1991 issued by the CBR, the
following persons have been excluded
from operation of this section:a) Federal Government
b) A Provincial Government
c) A Local Authority
Hotel Sheraton
29-30 August 2005
50
PROFIT ON DEBT
SECTION 151
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
d) Recipient who qualify for exemption
under clauses (78), (78A) and (79) of
the 2nd Schedule to the Repealed
Ordinance (now Clauses 78, 79, 80
and 84 of Part I of 2nd Schedule).
e) Persons who produce a certificate
from the Tax Department that they are
not liable to pay any tax under the
ordinance during the income year.
f) A Banking Company receiving
interest on inter-bank deposit.
51
PROFIT ON DEBT
SECTION 151
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.
In my humble opinion, keeping in view
the protection granted under Section
239(10) the above SROs are still
valid.
Hotel Sheraton
29-30 August 2005
52
PAYMENT TO NON - RESIDENT
SECTION 152
Income Tax Bar
Association
Karachi
[50(3), 50(3A)] read with Section 6, Div-IV of Part-I
and Div-II of Part-III of the 1st Schedule.
Description
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Taxability
Rate of
Deduction
i) Every person paying an amount of
Royalty or Fee for Technical Services
(other than any royalty where the
property or right giving use to the
royalty is effectively connected with or
any fee for technical services where
the services giving rise to the fee are
rendered through; a permanent
establishment in Pakistan of the Non
Resident person.
15% (1)
Final
ii) Any payment other than covered (i)
above.
30%
Adjustable
53
PAYMENT TO NON - RESIDENT
SECTION 152
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(3), 50(3A)] read with Section 6, Div-IV of Part-I
and Div-II of Part-III of the 1st Schedule.
1. If any reduced rate of tax is available
under any treaty for avoidance of double
taxation; then the same shall be made
applicable instead of 15%.
2. In view of clause (c) of sub-section (3) of
section 6, withholding of tax shall not be
made on any royalty or fee for technical
services that is exempt from tax under
this Ordinance.
54
PAYMENT TO NON - RESIDENT
SECTION 152
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(3), 50(3A)] read with Section 6, Div-IV of Part-I
and Div-II of Part-III of the 1st Schedule.
3. The provision of this section shall not apply to
the following:Payments that are subject to deduction of tax
under section 149, 150, 153, 155 and 156;
Payments that are taxable to permanent
establishment in Pakistan of the non-resident
person and are duly approved by the
Commissioner;
Payments made by a person who is liable to pay
tax on the amount as a representative of a nonresident person under section 172(3).
Payments to a non-resident person who is not
chargeable to tax under this Ordinance
55
PAYMENT TO NON - RESIDENT
SECTION 152
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(3), 50(3A)] read with Section 6, Div-IV of Part-I
and Div-II of Part-III of the 1st Schedule.
4. Sub-section (3) provides that where a
person claims to be a representative of
the non-resident person then he should
file a declaration to that effect with the
Commissioner prior to making any
payment to the non-resident person.
Hotel Sheraton
29-30 August 2005
56
PAYMENT TO NON - RESIDENT
SECTION 152
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(3), 50(3A)] read with Section 6, Div-IV of Part-I
and Div-II of Part-III of the 1st Schedule.
5. In view of sub-section (5), where a person intends
to make a payment to a non-resident person with
out deduction of tax, the person shall be required to
furnish the name and address of the non-resident
person and the nature of payment to the
Commissioner, before making the payment.
However, such requirement to furnish information is
not applicable in the following cases:a) Import of goods where title of goods is
transferred outside Pakistan; or
b) Educational and medical expenses remitted in
accordance with the Regulations of State Bank of
Pakistan.
57
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(4) read with Div-II and III of Part-III of 1st Sch.
Particulars
i) Payment in full or part including a payment by
way of advance to a resident or PE in Pakistan
of non-resident on account of:a) Sale of :i) Rice, Cotton Seeds or Edible Oils
ii) Locally produced Edible Oil purchased for
manufacturing of Cooking Oil/Vegetable Ghee
[Clause (13C) of Part-II of Second Sch]
iii) Other goods including Cotton
Rates of
deduction
1.5%
1%
3.5%(1)
b) Rendering / Providing of services:-
Hotel Sheraton
29-30 August 2005
i) Transport Services
ii) Others
2%
5%
c) Contracts other than a contract for the sale of
goods or the rendering/ providing of services
6%
58
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
[50(4) read with Div-II and III of Part-III of 1st
Schedule
Particulars
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
ii) Payment in full or part including a
payment by way of advance to a nonresident on execution of Contract or Subcontracts:a) Under a construction assembly or
installation project in Pakistan, including a
contract for the supply of supervisory activities
in relation to such projects; or
b) For construction or services rendered other
than a contract to which section 152 applies.
c) For advertisement services rendered by the
Television Satellite Channels
Rates of
deduction
6%
6%
6%
59
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(4) read with Div-II and III of Part-III of 1st
Schedule
(1) Deduction of tax is not required in the
following casesi)
Where an importer is selling
goods in the same condition and has paid
tax under section 148 at import stage;
ii) Refund of security deposit;
iii) Payment made by the Federal
Govt., a Provincial Govt. or a Local
Authority to a contractor for construction
materials supplied to the contractor by the
said Govt. or the Authority;
60
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(4) read with Div-II and III of Part-III of 1st
Schedule
iv) Purchase of an asset under a
lease and buyback arrangements;
v)
Payment for Securitization of
receivables by a Special Purpose Vehicle
(SPV) to originator; or
vi)
Payment made by a Small
Company as defined in section 2 (59A) of
I.Tax Ord. 2001.
Hotel Sheraton
29-30 August 2005
61
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(4) read with Div-II and III of Part-III of 1st
Schedule
(2) The gross amount payable for a sale
of goods shall include the sales tax, if any,
payable in respect of sale [Section 153(2)]
(3) The tax deducted under this section
shall be a final tax on the income of
resident and non-resident persons arising
from transactions/contract referred to in
clause (a) or (c) of sub-section (1) and
specified in sub-section 3.
62
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(4) read with Div-II and III of Part-III of 1st
Schedule
(4) The Finance Act 2005 rationalized
withholding of tax on execution of all
contracts with non-resident person;
whereby a flat rate of 6% has been
prescribed for all contracts irrespective of
its nature.
Hotel Sheraton
29-30 August 2005
63
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(4) read with Div-II and III of Part-III of 1st
Schedule
(6) Sub-section (1) and (3) of thia section
requires every Prescribed Person to deduct
tax . Sub-section (9) defines "Prescribed
Person" which include an association of
persons (AOPs) constituted by, or under law.
The controversy was arisen that whether
Partnership firms are AOP constituted by, or
under law? The controversy has now been
resolved and the matter has been clarified by
the CBR vide it's circular letter C.No.1 (17)
W.T.H./91-PT dated November 2, 2002.
Following is the text of the circular:-
64
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(4) read with Div-II and III of Part-III of 1st
Schedule
" I am directed to refer to your letter dated
04.10.2002 on the above subject and to say
that, in continuation of Board's earlier
clarification vide letter of even number dated
29.08.2002. It is further clarified that a
partnership of individuals constituted through
an instrument of partnership deed and
registered with the Registrar of Firms under
the Partnership Act, 1932 does not fall within
the meaning of the 'Prescribed Persons' as
given in sub-section (9) of section 153 of the
Income Tax Ordinance, 2001"
65
PAYMENT FOR GOODS AND SERVICES
SECTION 153
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(4) read with Div-II and III of Part-III of 1st
Schedule
(8) In respect of deduction of tax on
purchase of entire factory along with
factory land, building and machinery, the
honourable Lahore High Court in case of
M/s. Kawther Grain (Pvt) Ltd v DCIT
Guyranwala reported as (1999) 80 Tax
262 (H.C.Lah) held that these items are
not liable to withhold tax u/s 50(4), as the
same are not goods.
66
EXPORTS
SECTION 154
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of
Part-III of 1st Schedule
Every
authorized
dealer
in
foreign Rates of deduction
exchange/banking
company/EPZA/DTRE,
direct exporter or an export house registered
under the DTRE shall deduct tax from the
proceeds at the following rates:
1. On export proceeds, sale of goods to direct
exporter (includes EPZA realization), indenting
commission (3) on the basis of goods specified
in various parts of 7th Schedule.
a) Part I
0.75%
b) Part II
1.0%
c) Part III
1.25%
d) Part IV
1.5% (1)
2. Receipts of engineering contracting services
rendered or construction contracts outside
Pakistan (clause 3 of Part-II of Second
Schedule).
1%
67
EXPORTS
SECTION 154
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of
Part-III of 1st Schedule
(1) The new entry in clause (1) of Division
of the Part-III has been inserted through
the Finance Act 2005, which prescribes
items like raw cotton, cotton yarn etc. By
virtue of this amendment the tax on
export proceeds of items prescribed in
Part-IV of the Seventh Schedule is to be
deducted @1.50%. Thus, the rate of tax
will be increased by 0.25%.
68
EXPORTS
SECTION 154
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of
Part-III of 1st Schedule
(2) Clauses 14 and 15 of Part II of Second
Schedule specify a rate of 0.75% for the
following export proceeds:a) Rice marketed under a brand name up to
fifty kilograms packs;
b) Canned and bottled fish including sea-food
and other food items;
c) Precious and semi-precious stones whether
uncut, cut, or polished; and
d) Fish and fisheries products packed in retail
packs of five hundred grams to kilogram.
69
EXPORTS
SECTION 154
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of
Part-III of 1st Schedule
(3) Clause (5) of Part-II of the Second Schedule to
the Income Tax Ordinance, 2001, provides that the
tax chargeable in respect of commission received by
an export indenting agent or an export buying house
shall be at the rate equal to the rate of tax applicable
to the exporter on export of goods to which such
commission relates.
(4) As Per Clause 47C of the Part IV of the 2nd
Schedule the Provision of this section is not
applicable to an exporter in respect of cooking oil or
vegetable ghee exported to Afghanistan, from whom
advance tax has been collected under section 148
on import.
70
EXPORTS
SECTION 154
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of
Part-III of 1st Schedule
(6) In my humble view presently under this section
and under section 233 only the commission earned
by the Indenting Commission Agent locally covered
under PTR. Because the commission earned on
Export and Import indenting business covers
u/s.154(2) of the Ordinance and sub-section (4) of
section 154 provides that only the tax deducted
under sub-sections (1), (3), (3A) or (3B) shall fall
under the Presumptive Tax Regime. It is pertinent to
point out that the CBR vide its Circular No.7 of 2004
dated 01.07.2004 has also clarified that deduction
under section 233 on indenting commission would a
final tax in respect of such income.
71
PRIZES AND WINNINGS
SECTION 156
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(7C)] read with Div-VI of Part-III of 1st Schedule
Rates of
deduction
i)Prizes on Prize Bonds
10%
ii) Winnings from a raffle,
lottery, Prize on winning
a quiz, prize offered
by
companies
for
promotion of sale or
cross-word puzzle.
20%
72
PRIZES AND WINNINGS
SECTION 156
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(7C)] read with Div-VI of Part-III of 1st Schedule
(1) By virtue of amendment made in subsection (2) through Finance Act, 2003
the prizes other wise than cash are
also chargeable to tax at fair Market
Price.
(2) The tax deducted or collected as
stated above shall be final discharge of
the tax liability on such incomes.
73
PETROLEUM PRODUCTS
SECTION 156 A
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(7H)] read with Div-VIA of Part-III of 1st Schedule
Rates of
deduction
Every person selling
petroleum products to
a
petrol
pump
operator shall deduct
tax from the amount of
commission
or
discount allowed to
the operator.
10%
Hotel Sheraton
29-30 August 2005
74
PETROLEUM PRODUCTS
SECTION 156 A
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(7H)] read with Div-VIA of Part-III of 1st Schedule
(1) The tax deducted under this section
shall be a final tax on income arising from
the sale of petroleum products.
(2) The CBR to remove the hardship of
duplicate deduction of tax instructed vide
circular No.11 dated 01.07.2004 that the
Commissioner may issue exemption
certificate u/s. 153(4) of the Ordinance in
cases where tax is being collected u/s.
156(A) as full and final discharge of Tax
liability.
75
CASH WITHDRAWAL FROM BANKS
SECTION 231A
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(2B) read with Div-VI of Part-IV of 1st Schedule
Rates of
deduction
Every banking company
shall, at the time of making
a payment for Withdrawal
of
cash
exceeding
Rs.25,000/-
0.1%
Hotel Sheraton
29-30 August 2005
76
CASH WITHDRAWAL FROM BANKS
SECTION 231A
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(2B) read with Div-VI of Part-IV of 1st Schedule
(1) This section shall not apply on
cash withdrawals made by :a) Federal and Provincial Govt.
b) Foreign diplomat or diplomatic
mission in Pakistan or
c) A person who produces a
certificate from the CIT that his income
during the tax year is exempt.
Hotel Sheraton
29-30 August 2005
77
CASH WITHDRAWAL FROM BANKS
SECTION 231A
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
[50(2B) read with Div-VI of Part-IV of 1st Schedule
(2) The Central Board of Revenue has
clarified various issues related to
above new provision of law vide
Clarification
letter
C.No.
1(3)
WHT/2005 dated 30.06.2005 and
Circular
No.4
of
2005
dated
14.07.2005.
Hotel Sheraton
29-30 August 2005
78
BROKERAGE AND COMMISSION
SECTION 233
Income Tax Bar
Association
Karachi
[50(4A) read with Div-II of Part-IV of 1st Schedule
Rates of
deduction
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
i)Brokerage or Commission
earned by Indenting
Commission Agents
Advertising Agents and
Yarn Dealers.
ii) Brokerage or Commission
earned by others.
5%
10%
79
BROKERAGE AND COMMISSION
SECTION 233
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(4A) read with Div-II of Part-IV of 1st Schedule
(1) This section deals with deduction of tax
on Brokerage or Commission made by
withholding tax agents i.e. the Federal
Government, Provisional Government, a
Local Authority, a Company and or an
Association of Persons constituted, by or
under, any law.
(2) In certain cases the agents retain
commission or brokerage from any amount
remitted by them to the principals they shall
be deemed to have been paid commission
or brokerage by the principal.
80
BROKERAGE AND COMMISSION
SECTION 233
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(4A) read with Div-II of Part-IV of 1st Schedule
(3) The tax deducted under this section
shall be the Final Tax on the income of
recipients
(4) In order to merge the categories
where tax rates are similar, an
amendment has been made in this
Section read with Part-IV of First
Schedule whereby only these two
classes of taxpayers have been redefined according to the tax rates for
simplification
81
COLLECTION OF TAXES BY STOCK EXCHANGE
REGISTERED IN PAKISTAN
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 233 (A)
read with Div-II A of Part-IV of 1st Schedule
Tax is collectible:
(i)On purchase and sale of
shares in lieu of commission
income earned on purchase /
sale of shares (clauses a & b)
Rates of
deduction
0.005% of the sale
& purchase value
of shares
(ii) On trading (sale & purchase)
of shares (clause c)
0.005% of traded
value of shares
(iii) In case of financing of Carry
10% on COT
Over Trades (Badla) (clause d) (badla) Mark-up
82
COLLECTION OF TAXES BY STOCK EXCHANGE
REGISTERED IN PAKISTAN
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
SECTION 233 (A)
read with Div-II A of Part-IV of 1st Schedule
(1) The tax deducted on the payments fall under
clauses (a) and (b) of sub-section (1) of the
section shall be final. Whereas, tax deductions
cover under clauses (c) and (d) shall be
adjustable.
(2) This section has been inserted through
Finance Act 2004, whereby every Registered
Stock Exchange/Member of Stock
Exchange/Brokerage House and /or their
agents have obligation to with hold Income Tax
and Capital Value Tax in the manner prescribed
in this section.
83
TRANSPORT BUSINESS
SECTION 234
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
[50(6) read with Div-III of Part-IV of 1st Schedule
Rates of deduction
Any person at the time of As per Div. III of Ist
collecting motor vehicle tax Schedule
shall collect advance tax.
1. The Tax is not Collectable on :-
a
Motor car used for more than Ten years in Pakistan.
b
Passenger transport vehicle with registered Seating
capacity of ten or more after ten years from its making.
c
Goods transport vehicle with registered laden weight less
than 8120 after a period of ten years from its date of
Registration in Pakistan.
2. The tax collected under this section from person from plying
or hiring out of such vehicle being the owner of goods
transport vehicle, shall be final discharge of tax liability on
income of such person.
84
What are the consequences if the tax payer fails to collect or
deduct tax or having collected or deducted tax fails to pay
the same?
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
1) Personally liable to pay the amount of tax
and additional tax thereof. However, no
recovery shall be made if it is established
that the payee has already made the
payment of such tax. However, additional tax
may be recovered from the payer at the rate
of 18% per annum from the date he failed to
collect or deduct the tax to the date tax paid.
Hotel Sheraton
29-30 August 2005
85
What are the consequences if the tax payer fails to collect or
deduct tax or having collected or deducted tax fails to pay
the same?
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
2) Under section 21 of the I.T.Ord. 2001, no
deduction shall be allowed in computing the
income of a person under the head 'Income
from Business' for any salary, rent, brokerage
or commission, profit on debt, payment to nonresident, payment for services or fee paid by
the person from which the person is required
to deduct tax under Division III of Part V of
Chapter X or section 233 of chapter XII, unless
the person has paid or deducted and paid the
tax as required by Division IV of Part V of
Chapter X.
86
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
ADDITIONAL TAX
AND
PENALTIES
Hotel Sheraton
29-30 August 2005
87
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Section 182(1)
[108(a)(i) of I.T. Ordinance1979]
Particulars
Quantum of Penalty
A taxpayer who fails
to pay any tax (other
than penalty imposed
under this section ) by
the due date. (Note: In
consequence of any
order, the amount of
tax in respect of which
penalty imposed is
reduced, the amount
of penalty shall also be
reduced accordingly).
i) First default:
5% of the amount of
tax in default.
ii) Second default:
Penalty on First default
+ 25% of the amount
of tax in default.
iii) Third default:
Penalty up to Third
default + 25% of the
amount of tax in
default.
88
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Section 182
[91 of I.T. Ordinance1979]
Particulars
Quantum of Penalty
iv) Fourth &
Subsequent
default:
Penalty up to 4th
default + 50% of
the amount of tax in
default.
(Note: Total penalty
should not exceed
100% of such
amount of tax).
89
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Section 183
[ 91 of I.T. Ordinance 1979]
Particulars
Quantum of Penalty
Any person who,
without reasonable
excuse, fails to
furnish Return of
Income or a
statement
u/s.115(4) or
Wealth Statement
within the
stipulated time.
1/10th of 1% of tax
payable for each
day of default
(minimum Rs.500/and maximum 25%
of the tax payable
for that year).
90
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Section 184
[111 of I.T. Ordinance1979]
Particulars
Where any
person in the
course of any
proceeding
conceal income
or furnish in
accurate
particulars of
such income.
Quantum of Penalty
Equal to the
amount of tax
which the
person sought
to evade.
91
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Section 185
[109 of I.T. Ordinance1979]
Particulars
Quantum of Penalty
A person who,
without
reasonable
excuse, fails to
maintain records
under this
ordinance.
First Failure:
Rs.2,000/Second Failure:
Rs.5,000/Third &
Subsequent
Failure:
Rs.10,000/92
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Section 186
[110 of I.T. Ordinance1979]
Particulars
Quantum of Penalty
A person who,
First Failure:
without reasonable
Rs.2,000/excuse, fails to
Second Failure:
comply with any
Rs.5,000/notice served on
Third and
the person under
Subsequent
section 116 (Wealth
Failure:
Statement) or 176
Rs.10,000/(Notice to obtain
information or
evidence).
93
PENALTY
Section 187
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Particulars
Quantum of Penalty
Where a person
i) Where the
makes false or
action is willful or
misleading
reckless, 200%
statement whether of the tax
in writing or orally shortfall; or
before an income ii) In any other
tax authority in
instance, 25% of
various forms.
the tax shortfall.
Hotel Sheraton
29-30 August 2005
94
PENALTY
Section 187
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
Particulars
Quantum of Penalty
(Note: Exception has
been made through
sub-section (2);
whereby no penalty
shall be , if shortfall
arose, due to
inadvertent mistake
or difference of
opinion or no
deliberate or willful
misdeclaration)
95
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Section 188
[112 of I.T. Ordinance1979]
Particulars
Quantum of Penalty
Where a person Not exceeding
fails to give
the amount of
notice of the
tax payable for
discontinuance
the tax year in
of the person's
which the
business as
business was
required u/s.117. discontinued up
to Rs.10,000/-
Hotel Sheraton
29-30 August 2005
96
PENALTY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Section 189
[115 of I.T. Ordinance1979]
Particulars
Quantum of Penalty
Where any
person obstructs
in discharge of
Taxation Officers
function.
Hotel Sheraton
29-30 August 2005
97
ADDITIONAL TAX – A COMPARATIVE STUDY
Income Tax Bar
Association
Karachi
Section Section
ITO 1979 ITO 2001
86
Workshop
on Income Tax
87
Hotel Sheraton
29-30 August 2005
Charge of Additional
Tax for failure
205(3) To deduct and pay
tax under sections
148 to156B and
233 to 236.
205
(1A)
To pay advance
tax under section
147.
98
ADDITIONAL TAX – A COMPARATIVE STUDY
Income Tax Bar
Association
Karachi
Section Section
ITO 1979 ITO 2001
87(4)
Workshop
on Income Tax
88
Hotel Sheraton
29-30 August 2005
205
(1B)
Charge of Additional
Tax for failure
To pay advance
tax under section
147(6) lesser than
80% of the
estimated tax
chargeable.
205 To pay tax with
(1)(a) the Return of
Income.
99
ADDITIONAL TAX – A COMPARATIVE STUDY
Income Tax Bar
Association
Karachi
Section Section
ITO 1979 ITO 2001
Charge of Additional
Tax for failure
89
205 To pay tax or
(1)(b) Penalty.
92
205 To pay amount
(1)(c) holding on behalf
of a taxpayer
under section
140.
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
100
ADDITIONAL TAX – A COMPARATIVE STUDY
Income Tax Bar
Association
Karachi
Section Section
ITO 1979 ITO 2001
114
Workshop
on Income Tax
Charge of Additional
Tax for failure
205 By the liquidator
(1)(c) to pay any
amount set-aside
under section
141(4).
Hotel Sheraton
29-30 August 2005
101
ADDITIONAL TAX – A COMPARATIVE STUDY
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
NOTE:
i) The additional tax shall be
charged at the rate of twelve
percent (12%) per annum.
ii) Section 205A provides
allowability of reduction in
additional tax, wherein
consequence of any order made
under this Ordinance, the amount
of tax or penalty is reduced.
102
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
The additional tax and penalty is levieable only if
tax payers FAILS to pay tax or comply with the
provision of law.
The Honorable High Court Lahore in the
case of Commissioner of Income Tax,
North Zone Lahore v. Warris Silk
Weaving & Knitting Mills, Gujranwala
reported as (1973) 28 Tax 181 has held
that:
Hotel Sheraton
29-30 August 2005
103
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
The additional tax and penalty is levieable only if
tax payers FAILS to pay tax or comply with the
provision of law.
" If a person is required by a law to do
some
thing
which
becomes
impossible for him to do not on
account of his own negligence or fault,
but on account of something which
was unavoidable and in any case not
subject to his control, he cannot be
said to have failed to perform that
which the law or an order passed
under the law required him to do."
104
COLLECTION AND RECOVERY OF TAX
SECTIONS 137 to 146 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
1. Due date for payment of tax including
under section 113 and 113 A is a) The due date of furnishing the return of
income
b) Within 30 days of the assessment
order or amended assessment order from
the date of service of notice.
2. On written application by the tax payer
the Commissioner may grant extension of
time for payment of tax or allow payment
in installments of equal or varying
amounts.
105
COLLECTION AND RECOVERY OF TAX
SECTIONS 137 to 146 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
3. In case of default of any instalment, the
whole balance of outstanding tax will
become payable.
4. Additional tax will however be payable
even if extension or instalments to pay tax
are granted. However, it is held in number
of Superior Courts decisions that no
additional tax is liable to be paid during the
period of stay granted by the High Court or
Supreme Court of Pakistan.
Hotel Sheraton
29-30 August 2005
106
COLLECTION AND RECOVERY OF TAX
SECTIONS 137 to 146 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
5.
Recovery of tax can be effected
through/from a) Attachment and sale of any movable or
immovable property [section 138 (2) (a)]
b)
Appointment of a receiver for the
management of moveable and immoveable
property [section 138(2) (b)]
c) Arrest of taxpayer and detention for a period
not exceeding 6 months [section 138 (2) (c)]
d) The offices of District Officer (Revenue) as
arrears of Land Revenue (section 138A)
e) Director of private limited company other
than an employed director [section 139 (1) (a)]
107
COLLECTION AND RECOVERY OF TAX
SECTIONS 137 to 146 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
f)
Shareholder of private limited company
owning not less than 10% of paid up capital
[section 139( 1) (b)]
g) If tax cannot be recovered from the member
of AOP, then the AOP shall be liable for the tax
due by member. ([section 139(4)]
h) Person holding money on behalf of a
taxpayer (section 140).
i) Liquidator of a company, Receiver, Trustee
for a bankrupt or a mortgagee in possession
(section 141)
j) AOP or resident member of AOP in case of
tax of a non-resident member of AOP (section
142)
108
COLLECTION AND RECOVERY OF TAX
SECTIONS 137 to 146 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
k) Master of the ship in case of ship owned or
chartered by a non-resident person (section
143)
l) Non-resident aircraft owner or charterer or an
agent authorized by the non-resident person
(section 144)
m) Person leaving Pakistan permanently
(section 145)
n) Azad Jammu and Kashmir assessed tax may
be recovered from persons who have residence
in Pakistan and who have no movable and
immovable property in Azad Jammu Kashmir
(section 146)
6. Initiation, validity, etc. of recovery
proceedings.
109
REFUNDS & COMPENSATION
SECTIONS 170 & 171 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
1. A taxpayer who has paid tax in excess of
the amounts which tax payer is properly
chargeable under this Ordinance may apply
for refund.
2. An application for refund must be made
within two years of the later of a)
the date of issuance of
assessment order by the Commissioner; or
b) the date on which tax was paid
Hotel Sheraton
29-30 August 2005
110
REFUNDS & COMPENSATION
SECTIONS 170 & 171 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
3.
If the Commissioner is satisfied that the
tax has been overpaid, he shall a) adjust against any other income-tax due;
b) adjust any outstanding liability of the tax
payer in reduction to pay other taxes; and
c) refund the remainder, if any.
4.
Hotel Sheraton
29-30 August 2005
The Commissioner within 45 days of
receipt a refund application has to issue
an order in writing of the decision. If a
person is not satisfied with the decision or
Commissioner fails to pass the order than
he can file an appeal there against.
111
REFUNDS & COMPENSATION
SECTIONS 170 & 171 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Additional payment for delayed refunds
1) Where a refund due to a taxpayer is
not paid within three months of the due
date, the Commissioner shall pay
Compensation at the rate of 6% from
the date commencing at the end of the
three months period after the refund
become due.
Hotel Sheraton
29-30 August 2005
112
REFUNDS & COMPENSATION
SECTIONS 170 & 171 of I.T.Ord., 2001
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
2) For the purpose of this section, a refund shall
be treated as having become due a) in the case of a refund required to be made in
consequence of an order on an appeal to the
Commissioner (Appeals), and appeal to the
Appellate Tribunal, a reference to the High
Court to an appeal to the Supreme Court, on
the date of receipt of such order by the
Commissioner; or
b) in the case of a refund required to be made as
a consequence of a revision order under
section 122A, on the date the order is made by
the Commissioner; or
c) in any other case, on the date the refund order
is made.
113
Income Tax Bar
Association
Karachi
Workshop
on Income Tax
Hotel Sheraton
29-30 August 2005
114