Introduction to Taxation in Pakistan (Basics)

1. 01 Basics
TAXATION

2. TAX
Imposition of compulsory levies on individuals or
entities by governments.
• Source of Govt. revenue
• Funds public expenditure made by the Govt.
• Failure to pay, evasion is punishable by law
From the view of economists, a tax is a compulsory
transfer of resources from the private to the public
sector levied on a basis of predetermined criteria
and without reference to specific benefit received.

3. DEVELOPMENT & CONTROL
• Tax exemptions to Educational and Charitable
Organizations
• Tax Free Zones to establish industries in rural areas
• High custom duty to protect local industry
• Tax credit to give money in charity
• Increase Tax Depreciation rate to spur employment
• Charge higher tax on pollutants to save environment

4. TYPES
• Direct Taxes: (on a person – due to ownership)
a) Income Tax
b) Capital Value Tax (CVT)
Indirect Taxes: (on transactions)
a) Value Added Tax
b) Sales Tax
c) Excise

5. • Income Tax Ordinance, 2001 (Section 1): Income
tax shall be imposed for each tax year, … … on
every person who has taxable income for the year.
• Section 80: Following shall be treated as persons
a) An individual;
b) a company or association of persons
incorporated, formed, organised or established in
Pakistan or elsewhere;
c) the Federal Government, a foreign government, a
political sub-Division of a foreign government, or
public international organisation

6. • “Association of persons” includes a firm, a
Hindu undivided family, any artificial juridical
person and any body of persons formed under
a foreign law, but does not include a company.
• “firm” means the relation between persons who
have agreed to share the profits of a business
carried on by all or any of them acting for all;

7. • Company” means —
• Company as defined in CO1984;
• a body corporate formed by or under any law;
• a modaraba;
• Body incorporated under the law of a foreign
country;
• Co-operative society, a finance society, or any
other society;
• a non-profit organization;

8. • a trust, an entity or a body of persons …;
• a foreign association, whether incorporated or
not, which the Board has declared to be a
company;
• a Provincial Government;
• a Local Government in Pakistan; or
• a Small Company as defined in section 2;

9. RECAP (PERSON AS PER IT ORDINANCE 2001)
• An individual
• A Company
• Ordinance 1984 (SECP) or with province
• A Modaraba
• Body incorporated or formed under any foreign law
• Non – profit org
• A Trust
• Small company
• Local government
• Provincial government
• FBR Declares a body a company
• Co-operative Society
• Finance Society (now banks)
• An Association of persons (AOP)
• A Firm
• HUD
• Artificial Juridical Person
• Any body of persons formed under a foreign law but does not include a company
• The federal Government
• Political sub divisions:
• Provinces, state, town, district
• A Foreign Government
• A political sub-division of a foreign government; or
• A public international organization
• Example: WHO, WTO, UN etc

10. (SEC-11) HEADS OF INCOME
a) Salary XXX
b) Income from property XXX
c) Income from business XXX
d) Capital gains XXX
e) Income from other sources XXX

11. Section 10: The total income of a person for a tax
year shall be the sum of the:
a) person’s income under all heads of income
for the year
b) person’s income exempt from tax
Section 9: The taxable income of a person for a
tax year shall be the total income of the person
for the year reduced (but not below zero) by the
total of any deductible allowances

12. a) Salary XXX
b) Income from property XXX
c) Income from business XXX
d) Capital gains XXX
e) Income from other sources XXX
f) Less: Zakat (XXX)
g) Less: WWF (for companies only) (XXX)
h) Less: WPPF (for companies only) (XXX)
i) Taxable Income XXX

13. • Section 74: “Tax year” shall be a period of
twelve months ending on the 30th day of June
(hereinafter referred to as ‘normal tax year’)
and shall be denoted by the calendar year in
which the said date falls.
1.7.2014 – 30.6.2015 Tax Year 2015
1.7.2015 – 30.6.2016 Tax Year 2016

14. • Special Tax Years:
Sugar: 1.10.2014 – 30.9.2015 Tax Year 2015
Banks: 1.1.2016 – 31.12.2016 Tax Year 2016
Insurance Companies:
1.1.2016 – 31.12.2016 Tax Year 2016
Atlas Honda Limited (special permission)
1.4.2015 – 31.3.2016 Tax Year 2016

15. ADDITIONAL READING MATERIAL
• Business Taxation – Ijaz Ali Waince – Tax Year 2017
• Taxation of Income from Salary:
http://sultantax.com/docs/2013-2014/8-
TAXATION%20OF%20INCOME%20FROM%20SALARY.pdf
• Income Tax Card 2017
ilyassaeed.com/uploads/ISCO_Tax_Card_TY_2017.pdf