0006 Abdul Qadir Memon

8/8/2019 0006 Abdul Qadir Memon

1/114

Income Tax Bar Association Karachi

WORKSHOP ON INCOME TAX

Hotel Sheraton, Karachi29 30 August, 2005


2/114

Income Tax Bar AssociationKarachi

Workshopon Income Tax

Hotel Sheraton29-30 August 2005

2

In the name of Allah,the most gracious and most merciful.


3/114




3

PAYMENT ANDREFUND OF TAX

By

Abdul Qadir Memon

Former President, Income Tax Bar Association Karachi


4/114




4

In this world nothing is certain,but death and taxes.--- Benjamin Franklin


5/114




5

CONTENTS

Payment and Refund of Tax

Advance TaxPresumptive tax regimeWithholding taxWithholding tax statements

Additional tax & Penalties

Collection & recovery of taxRefunds


6/114




6

ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE

Historical background & Concept of Advance Tax

The concept of Advance Tax wasintroduced in the sub-continent as a war measure to combat inflation and to withdraw a part of the unprecedented amountin circulation. However in the casePrushottamdas vs CIT 48 ITR (SC) 206,211; the honorable superior court hasobserved that like many other innovations in taxation legislation, thisinnovation also has outlived its exigencywhich gave it birth. It was further observed that Government rest on theprinciple of pay as you earn i.e. payingtax by instalments in respect of the

income of the very year in which the taxis aid.


7/114




7

ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE

Historical background & Concept of Advance Tax

The Income Tax Ordinance, 2001provides for following three modes of collecting taxes in advance , which wewill discuss in detail :-

Advance Tax directly liable to be paid;

Deduction at source ; or Collection at source


8/114




8

I) 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 theyear other than the following:

a) Income chargeable to tax under the headCapital Gains;

b) Income chargeable to tax under theheads:-

i) Dividend (under section 5)ii) Tax on Certain payments to Non

Residents (under section 6);iii) Shipping and Air Transport (under

section 7);


9/114




9

ADVANCE TAX U/S. 147(ADVANCE TAX DIRECTLY LIABLE TO BE PAID)

c) Income chargeable to tax at source under thehead Property Income ;

d) Income subject to deduction of tax at sourceunder the head Salary ;

e) Income under the following heads of income

on which tax has been collected as final taxliability and no tax credit is allowed as resultof 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)].


10/114




10


f) The provision of this section does notapply to an individual or association of persons (AOP) where the individuals or

AOPs latest assessed taxable incomeexcluding items mentioned above is less

than Rs.200,000/-.In my humble view although the limit of Rs.

200,000/- has been fixed after exclusionof certain incomes; but no machinery hasbeen provided to calculate the share of tax on such excluded incomes in order toarrive the figures of last assessed tax for the purpose of advance tax.


11/114




11


When advance tax is payable?

For a Quarter of Date of Payment

September

On or before 15th day of

September

December On or before 15th day of December

MarchOn or before 15th day of March

JuneOn or before 15th day of June


12/114




12


When advance tax is payable?In the case of Oswal Woolen Mills Ltd vs CIT

(Central) Patiala 122 ITR 789 it was heldthat the date of payment of tax is the datewhen the cheque is presented and not the

date, when it is encashed by thedepartment. It was also held in the case of Life Bond Fabric vs CIT 216 ITR 529, thatany advance tax paid after the due date butbefore the end of the relevant financial year

should be treated as advance tax. However,payment of tax after the end of financialyear can not be regarded as advance taxand an erroneous credit can be with drawnin rectification proceedings.


13/114




13


What is the method of payment of advance tax?

CompanyThe tax assessed to the taxpayer for the

latest tax/assessment year to be paidin four quarterly instalments. Thetaxpayer shall be allowed to deductthe tax paid in the quarter for whichtax credit is allowed under section168, other than tax deduced onIncome from Salary and Property.


14/114




14


Individuals and Association of PersonsWhere the tax payer having latest

assessed income of two hundredthousand rupees or more (after exclusion of incomes mentionedabove); the tax assessed to thetaxpayers for the latesttax/assessment year to be paid in four quarterly instalments. However, any

tax deducted in the quarter on Salaryor Income from Property shall not beallowed as deduction while providingthe credit of tax collected or deducted

in such quarter.


15/114




15


Whether any taxpayers income which islikely to be reduced can file estimates of his income and pay advance taxaccordingly ?

Yes, the tax payer at any time beforethe last instalment is due, may furnishto the Commissioner an estimate of

the amount of the tax payable by him,and there after pay balance estimatedamount in equal instalments on suchdates as have not expired.


16/114




16


In which Order the credit shall beapplied, in case there are more than onetax Credits?a) any foreign tax credit allowed under

section 103; thenb) any tax credit allowed under Part X of

Chapter III (Charitable donations,Investment in shares, RetirementScheme, Profit on Debt and etc.); andthen

c) any tax credit allowed under sections147 (Advance Tax); and 168 (Creditfor tax collected or deducted).


17/114




17

WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)

HISTORICAL BACKGROUND AND OBJECTIVE OF PTR

Tax administrators all over the world andparticularly in the developing countries likePakistan face major problems of non-reporting and under-reporting of income.The Withholding Tax and Presumptive TaxRegimes are not new concepts. ThePresumptive Tax as initially introduced in

the Indian Income Tax Act, 1922 under section 18(3BB) through which tax wasimposed on Trading in Liquor, Timber andother Forest Produce in India.


18/114




18



The scope of these provisions wasmade applicable in Pakistan throughvarious provisions of Income TaxOrdinance, 1979. In Pakistan Prior toJuly 1991, taxation on presumption wasrestricted only to the non-residents

deriving receipts from shipping, air transport business and having fee fromtechnical services.


19/114

Income Tax Bar Association

Karachi



19



The Presumptive Taxation approachalthough has been advocated by theMusgrave and well known French ForfeitSystem and such law also exist incountries like UK, New Zealand, Nepal,India, Philippines, Hong Kong, China,

Indonesia, Mexico, Russia,Czechoslovakia, Channel Islands, Istleof Man and many other countries of theworld.


20/114


Karachi



20



However they are applicable to onlythose persons whose incomes are likelyto be difficult to determine accurately,easier to evade, or more likely to crossnational boundaries, but in Pakistan thislaw has been made applicable to almost

all the categories of tax payers not onlythat but they are being heavily punishedfor their inadvertent mistakes.


21/114


Karachi



21



Through Finance Act, 1991, provisionsof Section 80 C, 80 CC and 80 D wereintroduced. The then Finance Minister

while defending the introduction of suchprovisions stated that although thecontractors, suppliers and importers areliable to with-holding tax, however they

were subjected to inconveniencethrough cumbersome assessmentprocedures and delay in issuance of refunds.


22/114


Karachi



22



It is to relieve them from the pain, the taxdeducted at source is treated as full andfinal discharge of liability. The tax payer is not required to file any return and hedoesnt have to attend any proceedingsin the tax offices.


23/114


Karachi



23



It was further stated that the withholdingtax has not only proved a very effectiveinstrument for the recovery of directtaxes but a vast majority of tax payershave also expressed their confidenceand satisfaction in this system. In view of

these encouraging results, it wasdecided to extend the system.


24/114


Karachi



24



The with holding and Presumptive TaxRegimes since July 1991 have comeinto full force. The law which weavedthe indirect taxes into direct taxestexture resulted in thousands of WritPetitions; virus of which werechallenged by the tax payers in allround Pakistan on the ground of equity and also on the principles of real income and its taxability on thebasis of liability to pay in aprogressive manner.


25/114


Karachi



25



But in the case of M/s. Elahi Cotton Mills andOthers reported as 1997 PTD 1555, thehonorable Supreme Court of Pakistan heldthat the Presumptive Tax imposed u/s. 80C,

80CC and 80D is in consonance with Entry 52of the Federal Legislative List. The Indian HighCourts also in the cases of P.KunhammedKutty Haji and Others reported as (1989) 176ITR 481 and A.Samyasi Roa and Others

reported as (1989) 178 ITR 31 have upheldthe constitutional validity of the amendment inview of the clear objective of grabbling theevaders and inability of the Administrativemachinery to reach them otherwise.


26/114


Karachi



26



According to latest statistics availablemore than 54% of total indirect taxeswas collected for the year ended 0n30 th June 2005 through withholdingtax regime. The analysis of netcollection of Indirect Taxes at183.889 billion is as follows:-


27/114


Karachi



27

WITHHOLDING TAX REGIME


28/114


Karachi



28

1. In view of section 148 (2), this section shallnot apply to

a) The re-importation of re-useable containersfor re-export qualifying for Custom duty andSales Tax exemption on temporary importunder the Customs notification No. SRO344(1)/95 dated 25.04.1995; or

b) The importation of the following petroleumproducts:-Motor Sprit (MS), Furnace Oil (FO), JP-1and MTBE

SECTION 148

[(50(5)] read with Part II of 1st Schedule

IMPORTS


29/114


Karachi



29

2. The Commissioner may issue areduced rate or exemption certificateto a manufacturer who imports raw-materials (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 taxpaid by the manufacturer in theimmediately preceding year; or

SECTION 148


IMPORTS


30/114


Karachi



30

b) a manufacturer is liable to payadvance tax u/s.147; however, he maycancel the exemption certificateissued if manufacturer fails to pay anyinstalments 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 isnot likely to pay any tax (other than taxu/s.113) on account of depreciation or

brought forward of losses.

SECTION 148


IMPORTS


31/114


Karachi



31

3. The tax collected under this sectionincluding tax collected on the import of

edible oil shall be final tax on theincome of importer arising from theimports except in the case of anindustrial undertaking importing goods

as raw-material, plant, machinery andequipment for its own use.

SECTION 148


IMPORTS


32/114


Karachi



32

4. The Central Board of Revenue videSRO No.593(1)(91) dated 30.06.1991specified various classes of persons to

whom the above sub-section shall notapply and keeping in view the savingclause u/s.239(10) it will continue tobe applicable unless the same has

specifically been withdrawn. The CBRalso confirmed this position videCircular No.9 of 2002 dated29.06.2002.

SECTION 148


IMPORTS


33/114


Karachi



33

6. The CBR vide circular letter No.1(38)WHT/91 dated 11.11.1993 inthe case of manufacturers whoseannual exports are not less than 80%,authorized the concernedCommissioner of Income Tax to issue

exemption certificate u/s.50(5) of theI.T.Ord., 1979 in case they fulfill theconditions prescribed under Circular No.20 of 1992 for assessment

u/s.80CC.

SECTION 148[(50(5)] read with Part II of 1st Schedule

IMPORTS


34/114


Karachi



34

7. Provision of this section shall notapply to the various items described in

certain clauses of Part IV of 2ndSchedule.

8. As per Sub-Section 148(9) and alsounder section 50(5) of the RepealedOrdinance the tax is deductible onvalue goods and the same has beendefined as under:-


IMPORTS


35/114


Karachi



35

"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 weresubject to ad valorem dutyincreased by the customs-duty and

sales tax, if any, payable in respect of the import of the goods."


IMPORTS


36/114


Karachi



36

A controversy arose when the honorable ITAT inits order reported as 2003 PTD (Trib)735,having relied upon the decision of HonorableLahore High Court reported as 1994 PTD 848,decided that Sales Tax and Custom duty shallnot 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 LahoreHigh Court is distinguishable as it was relatedto deduction of tax on Supplies under section50(4) and not on imports.


IMPORTS


37/114


38/114


Karachi



38

In the meantime the Honorable Karachi HighCourt on this subject vide its order reportedas 2005 PTD 1328 not agreed with the

judgment of Lahore High Court anddismissed the constitutional petition of assessees upholding the treatment of Collector of Customs to charge the tax

u/s.50(5) on total value including CustomDuty and Sales Tax. It is interesting to pointout that in this case the order of thehonourable Supreme Court of Pakistan has

not been referred and discussed at all.


IMPORTS


39/114


Karachi



39

2. Through Finance Act 2004 theexemption limit of taxable income hasenhanced from Rs.80,000/- to Rs.

100,00/-.3. Through Finance Act, 2005 the rates of

tax for Salaried persons have alsobeen revised by inserting a new clause

1A in Div.I of Part-I of 1st Schedule tothe I.Tax Ord.2001.Whereas Clause Iof Part III of 2nd Schedule providingreduction in the tax liability has alsobeen omitted.

SECTION 149[50(1)] read with Div. I of Part I of 1st Schedule

SALARY


40/114


Karachi



40

5. For facilitation of Salaried persons the CBRhas issued Circular No.18 of 2004 dated09.08.2004 under which the employer in order to work out the tax liability of the employeeunder section 149 of the Ordinance, is allowedto make adjustments of the income tax paidby such salaried persons under section 234and 236 of the Income Tax Ordinance, 2001

during a tax year. Such salaried tax payers,are entitled to credit of such tax payment onlyif they are the owners of the motor vehicle or subscribers of telephone in their own name,as the case may be.


SALARY


41/114


Karachi



41

6. In the matter regarding withholding andtaxability of Salary of Pakistani Seafarer hasbeen resolved by inserting clause (7F) in Part-I of the Second Schedule to the RepealedOrdinance, through Finance Ordinance, 2001under which the exemption has been grantedto the salary received by the PakistaniSeafarer working on a foreign vessel provided

that such income is remitted to Pakistan notlater than two months of the relevant income.Same exemption is still available as per clause 4 of Part-I of the Second Schedule tothe Income Tax Ordinance, 2001.


SALARY


42/114


Karachi



42

SECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule

DIVIDENDS

Every residentcompany paying adividend shall deduct

tax from the grossamount of thedividend paid at thefollowing rates:-

i) Public or InsuranceCompanyii) In all other casesiii) Reduced rate

Rates of deduction

5%

10%(1) 7.5%


43/114


Karachi



43


DIVIDENDS

1. Under the following Clauses of Part IIof the 2nd Schedule Reduced ratesare applicable to an amount:-

a) Received by a non-residentcompany from a company engagedexclusively in mining operations, other than petroleum. [Clause 16]

b) Paid by a purchaser of a power project privatized by WAPDA. [Clause17]c) Paid by a company set up for power

generation [Clause 20]


44/114


Karachi



44


DIVIDENDS

2. The Provisions of this section shallnot 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]


45/114


Karachi



45


DIVIDENDS

3. In respect of Zakat deduction, the lawprescribes that deduction should be

made on gross amount; however, thetax authorities vide their letter dated19th March, 1997 agreed thatwithholding of tax should be made

after deduction of Zakat.


46/114


Karachi



46


DIVIDENDS

4. Deduction at source in respect of dividend is to be made at the time of

making payment and not at the timeof declaration of dividend. - CIT,Companies-I, Karachi v. NationalInvestment Trust Ltd., Karachi [2003]

87 TAX 317 (H.C. Kar). = 2003 PTD589.


47/114


Karachi



47

SECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.

PROFIT ON DEBT

(Yield/Profit Interest/Discount/Premium,etc.) on

i) On an account, deposit or a certificateunder the National Savings Schemeor Post Office savings Account.

ii) An account or deposit maintainedwith the banking company or financialinstitution

iii) Any security [other than that referredto 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 betweena borrower and a banking Company or development financial institution)

Rates of deduction

10% (1)

10%

20%

10%


48/114


Karachi



48


PROFIT ON DEBT

1. In the case of any resident individual, no taxshall be deducted from income or profits paidon,-i) Defence Savings Certificates, SpecialSavings Certificates, Savings Accounts or PostOffice Savings Accounts, or Term FinanceCertificates (TFCs), where such deposit doesnot exceed one hundred and fifty thousandrupees; and [Clause 59(iv)(a) of Part IV of 2nd

Sch].ii) Investment in monthly income Savings Accounts Scheme of Directorate of NationalSavings, where monthly installment in anaccount does not exceed one thousand rupees.

[Clause 59(iv)(b)]


49/114


Karachi



49


PROFIT ON DEBT

2. In case of Special US Dollar Bondspurchased by a resident out of depositsmade in foreign currency accounts onor after December 16, 1999 shall betaxed @ 10%. [Clause 82 of Part I of 2nd Sch.)

3. The provisions of this section shall notapply in view of various Clauses of Part IV of Second Schedule.


50/114


Karachi



50


PROFIT ON DEBT

4. Vide SROs bearing No.484 (1)/84dated 14.06.1984 and 594 (1)/91

30.06.1991 issued by the CBR, thefollowing persons have been excludedfrom operation of this section:-a) Federal Government

b) A Provincial Governmentc) A Local Authority


51/114


Karachi



51


PROFIT ON DEBT

d) Recipient who qualify for exemptionunder clauses (78), (78A) and (79) of the 2nd Schedule to the Repealed

Ordinance (now Clauses 78, 79, 80and 84 of Part I of 2 nd Schedule).e) Persons who produce a certificatefrom the Tax Department that they are

not liable to pay any tax under theordinance during the income year.f) A Banking Company receivinginterest on inter-bank deposit.


52/114


Karachi



52


PROFIT ON DEBT

In my humble opinion, keeping in viewthe protection granted under Section239(10) the above SROs are stillvalid.


53/114


Karachi



53

SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-Iand Div-II of Part-III of the 1st Schedule.

PAYMENT TO NON - RESIDENT

Description Rate of Deduction

Taxability

i) Every person paying an amount of Royalty or Fee for Technical Services(other than any royalty where theproperty or right giving use to theroyalty is effectively connected with or any fee for technical services wherethe services giving rise to the fee arerendered through; a permanentestablishment in Pakistan of the NonResident person.

15% (1) Final

ii) Any payment other than covered (i)above.

30% Adjustable


54/114


Karachi



54



1. If any reduced rate of tax is availableunder any treaty for avoidance of doubletaxation; then the same shall be madeapplicable instead of 15%.

2. In view of clause (c) of sub-section (3) of section 6, withholding of tax shall not bemade on any royalty or fee for technicalservices that is exempt from tax under this Ordinance.


55/114


Karachi



55



3. The provision of this section shall not apply tothe following:-

Payments that are subject to deduction of taxunder section 149, 150, 153, 155 and 156;

Payments that are taxable to permanentestablishment in Pakistan of the non-residentperson and are duly approved by theCommissioner;

Payments made by a person who is liable to paytax on the amount as a representative of a non-resident person under section 172(3).

Payments to a non-resident person who is not

chargeable to tax under this Ordinance


56/114


Karachi



56



4. Sub-section (3) provides that where a

person claims to be a representative of the non-resident person then he shouldfile a declaration to that effect with theCommissioner prior to making any

payment to the non-resident person.


57/114


Karachi



57



5. In view of sub-section (5), where a person intendsto make a payment to a non-resident person without deduction of tax, the person shall be required to

furnish the name and address of the non-residentperson and the nature of payment to theCommissioner, before making the payment.However, such requirement to furnish information isnot applicable in the following cases:-

a) Import of goods where title of goods istransferred outside Pakistan; or b) Educational and medical expenses remitted inaccordance with the Regulations of State Bank of Pakistan.


58/114


Karachi



58

SECTION 153[50(4) read with Div-II and III of Part-III of 1st Sch.

PAYMENT FOR GOODS AND SERVICES

Particularsi) Payment in full or part including a payment byway of advance to a resident or PE in Pakistanof non-resident on account of:-a) Sale of :-

i) Rice, Cotton Seeds or Edible Oilsii) 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

b) Rendering / Providing of services:-i) Transport Servicesii) Others

c) Contracts other than a contract for the sale of goods or the rendering/ providing of services

Rates of deduction

1.5%1%

3.5%(1)

2%5%

6%


59/114


Karachi



59

SECTION 153[50(4) read with Div-II and III of Part-III of 1stSchedule


Particulars

ii) Payment in full or part including apayment by way of advance to a non-resident on execution of Contract or Sub-contracts:-a) Under a construction assembly or installation project in Pakistan, including acontract 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 theTelevision Satellite Channels

Rates of deduction

6%

6%

6%


60/114


Karachi



60

SECTION 153

[50(4) read with Div-II and III of Part-III of 1stSchedule


(1) Deduction of tax is not required in thefollowing cases-

i) Where an importer is sellinggoods in the same condition and has paidtax 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 constructionmaterials supplied to the contractor by thesaid Govt. or the Authority;


61/114


Karachi



61

SECTION 153



iv) Purchase of an asset under alease and buyback arrangements;

v) Payment for Securitization of receivables by a Special Purpose Vehicle(SPV) to originator; or

vi) Payment made by a SmallCompany as defined in section 2 (59A) of I.Tax Ord. 2001.


62/114


Karachi



62

SECTION 153



(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 sectionshall be a final tax on the income of resident and non-resident persons arisingfrom transactions/contract referred to inclause (a) or (c) of sub-section (1) andspecified in sub-section 3.


63/114


64/114


Karachi



64

SECTION 153



(6) Sub-section (1) and (3) of thia sectionrequires every Prescribed Person to deduct

tax . Sub-section (9) defines "PrescribedPerson" 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 beenresolved and the matter has been clarified bythe 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:-


65/114


Karachi



65

SECTION 153



" 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 throughan instrument of partnership deed and

registered with the Registrar of Firms under the Partnership Act, 1932 does not fall withinthe meaning of the 'Prescribed Persons' asgiven in sub-section (9) of section 153 of theIncome Tax Ordinance, 2001"


66/114


Karachi



66

SECTION 153



(8) In respect of deduction of tax on

purchase of entire factory along withfactory land, building and machinery, thehonourable Lahore High Court in case of M/s. Kawther Grain (Pvt) Ltd v DCIT

Guyranwala reported as (1999) 80 Tax262 (H.C.Lah) held that these items arenot liable to withhold tax u/s 50(4), as thesame are not goods.


67/114


Karachi



67

SECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule

EXPORTS

Every authorized dealer in foreignexchange/banking company/EPZA/DTRE,direct exporter or an export house registeredunder the DTRE shall deduct tax from theproceeds at the following rates:

1. On export proceeds, sale of goods to directexporter (includes EPZA realization), indentingcommission (3) on the basis of goods specifiedin various parts of 7th Schedule.

a) Part Ib) Part IIc) Part IIId) Part IV

2. Receipts of engineering contracting servicesrendered or construction contracts outsidePakistan (clause 3 of Part-II of SecondSchedule).

Rates of deduction

0.75%1.0%

1.25%1.5% (1)

1%


68/114


Karachi



68


EXPORTS

(1) The new entry in clause (1) of Divisionof the Part-III has been inserted through

the Finance Act 2005, which prescribesitems like raw cotton, cotton yarn etc. Byvirtue of this amendment the tax onexport proceeds of items prescribed in

Part-IV of the Seventh Schedule is to bededucted @1.50%. Thus, the rate of taxwill be increased by 0.25%.


69/114


Karachi



69


EXPORTS

(2) Clauses 14 and 15 of Part II of SecondSchedule specify a rate of 0.75% for thefollowing export proceeds:-a) Rice marketed under a brand name up tofifty kilograms packs;b) Canned and bottled fish including sea-foodand other food items;

c) Precious and semi-precious stones whether uncut, cut, or polished; andd) Fish and fisheries products packed in retailpacks of five hundred grams to kilogram.


70/114


Karachi



70


EXPORTS

(3) Clause (5) of Part-II of the Second Schedule tothe Income Tax Ordinance, 2001, provides that thetax chargeable in respect of commission received by

an export indenting agent or an export buying houseshall be at the rate equal to the rate of tax applicableto the exporter on export of goods to which suchcommission relates.(4) As Per Clause 47C of the Part IV of the 2nd

Schedule the Provision of this section is notapplicable to an exporter in respect of cooking oil or vegetable ghee exported to Afghanistan, from whomadvance tax has been collected under section 148on import.


71/114


Karachi



71


EXPORTS

(6) In my humble view presently under this sectionand under section 233 only the commission earnedby the Indenting Commission Agent locally covered

under PTR. Because the commission earned onExport and Import indenting business coversu/s.154(2) of the Ordinance and sub-section (4) of section 154 provides that only the tax deductedunder sub-sections (1), (3), (3A) or (3B) shall fall

under the Presumptive Tax Regime. It is pertinent topoint out that the CBR vide its Circular No.7 of 2004dated 01.07.2004 has also clarified that deductionunder section 233 on indenting commission would afinal tax in respect of such income.

PRIZES AND WINNINGS


72/114


Karachi



72

SECTION 156[50(7C)] read with Div-VI of Part-III of 1st Schedule

PRIZES AND WINNINGS

i)Prizes on Prize Bonds

ii) Winnings from a raffle,lottery, Prize on winninga quiz, prize offeredby companies for promotion of sale or cross-word puzzle.

Rates of deduction

10%

20%


73/114

PETROLEUM PRODUCTS


74/114

Income Tax Bar

AssociationKarachi



74

SECTION 156 A[50(7H)] read with Div-VIA of Part-III of 1 st Schedule

PETROLEUM PRODUCTS

Every person selling

petroleum products toa petrol pumpoperator shall deducttax from the amount of

commission or discount allowed tothe operator.

Rates of deduction

10%

PETROLEUM PRODUCTS


75/114

Income Tax Bar

AssociationKarachi



75

SECTION 156 A[50(7H)] read with Div-VIA of Part-III of 1st Schedule

PETROLEUM PRODUCTS

(1) The tax deducted under this sectionshall be a final tax on income arising fromthe sale of petroleum products.(2) The CBR to remove the hardship of duplicate deduction of tax instructed videcircular No.11 dated 01.07.2004 that theCommissioner may issue exemptioncertificate u/s. 153(4) of the Ordinance incases where tax is being collected u/s.156(A) as full and final discharge of Taxliability.


76/114

Income Tax Bar

AssociationKarachi



76

SECTION 231A

[50(2B) read with Div-VI of Part-IV of 1st Schedule

CASH WITHDRAWAL FROM BANKS

Every banking companyshall, at the time of makinga payment for Withdrawalof cash exceedingRs.25,000/-

Rates of deduction

0.1%


77/114

Income Tax Bar

AssociationKarachi



77

SECTION 231A



(1) This section shall not apply oncash 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 incomeduring the tax year is exempt.


78/114

Income Tax Bar

AssociationKarachi



78

SECTION 231A



(2) The Central Board of Revenue hasclarified various issues related to

above new provision of law videClarification letter C.No. 1(3)WHT/2005 dated 30.06.2005 andCircular No.4 of 2005 dated

14.07.2005.


79/114

Income Tax Bar

AssociationKarachi



79

SECTION 233

[50(4A) read with Div-II of Part-IV of 1st Schedule

BROKERAGE AND COMMISSION

i)Brokerage or Commission

earned by IndentingCommission Agents

Advertising Agents andYarn Dealers.

ii) Brokerage or Commissionearned by others.

Rates of deduction

5%

10%


80/114

Income Tax Bar

AssociationKarachi



80

SECTION 233



(1) This section deals with deduction of taxon Brokerage or Commission made bywithholding tax agents i.e. the Federal

Government, Provisional Government, aLocal Authority, a Company and or an

Association of Persons constituted, by or under, any law.

(2) In certain cases the agents retaincommission or brokerage from any amountremitted by them to the principals they shallbe deemed to have been paid commissionor brokerage by the principal.


81/114

Income Tax Bar

AssociationKarachi



81

SECTION 233



(3) The tax deducted under this sectionshall be the Final Tax on the income of recipients(4) In order to merge the categorieswhere tax rates are similar, anamendment has been made in thisSection read with Part-IV of FirstSchedule whereby only these twoclasses of taxpayers have been re-defined according to the tax rates for simplification


82/114

Income Tax Bar

AssociationKarachi



82

SECTION 233 (A)read with Div-II A of Part-IV of 1st Schedule

COLLECTION OF TAXES BY STOCK EXCHANGEREGISTERED IN PAKISTAN

Tax is collectible:(i)On purchase and sale of

shares in lieu of commissionincome earned on purchase /sale of shares (clauses a & b)

(ii) On trading (sale & purchase)of shares (clause c)

(iii) In case of financing of CarryOver Trades (Badla) (clause d)

Rates of deduction

0.005% of the sale& purchase valueof shares

0.005% of tradedvalue of shares

10% on COT(badla) Mark-up


83/114

Income Tax Bar

AssociationKarachi



83

SECTION 233 (A)read with Div-II A of Part-IV of 1st Schedule

COLLECTION OF TAXES BY STOCK EXCHANGEREGISTERED IN PAKISTAN

(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 deductionscover under clauses (c) and (d) shall beadjustable.(2) This section has been inserted throughFinance Act 2004, whereby every RegisteredStock Exchange/Member of StockExchange/Brokerage House and /or their agents have obligation to with hold Income Taxand Capital Value Tax in the manner prescribedin this section.

TRANSPORT BUSINESS


84/114

Income Tax Bar

AssociationKarachi



84

SECTION 234[50(6) read with Div-III of Part-IV of 1st Schedule

TRANSPORT BUSINESS

1. The Tax is not Collectable on :-a Motor car used for more than Ten years in Pakistan.

b Passenger transport vehicle with registered Seatingcapacity 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 plyingor hiring out of such vehicle being the owner of goodstransport vehicle, shall be final discharge of tax liability onincome of such person.

Any person at the time of collecting motor vehicle taxshall collect advance tax.

Rates of deductionAs per Div. III of IstSchedule

What are the consequences if the tax payer fails to collect or


85/114

Income Tax Bar

AssociationKarachi



85

What are the consequences if the tax payer fails to collect or deduct tax or having collected or deducted tax fails to paythe same?

1) Personally liable to pay the amount of taxand additional tax thereof. However, no

recovery shall be made if it is establishedthat the payee has already made thepayment of such tax. However, additional taxmay be recovered from the payer at the rate

of 18% per annum from the date he failed tocollect or deduct the tax to the date tax paid.

What are the consequences if the tax payer fails to collect or


86/114

Income Tax Bar

AssociationKarachi



86

What are the consequences if the tax payer fails to collect or deduct tax or having collected or deducted tax fails to paythe same?

2) Under section 21 of the I.T.Ord. 2001, nodeduction shall be allowed in computing theincome of a person under the head ' Income

from Business' for any salary, rent, brokerageor commission, profit on debt, payment to non-resident, payment for services or fee paid bythe person from which the person is requiredto deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, unlessthe person has paid or deducted and paid thetax as required by Division IV of Part V of Chapter X.


87/114

Income Tax Bar

AssociationKarachi



87

ADDITIONAL TAXAND

PENALTIES

PENALTY


88/114

Income Tax Bar

AssociationKarachi



88

PENALTY

A taxpayer who failsto pay any tax (other than penalty imposed

under this section ) bythe due date. (Note: Inconsequence of anyorder, the amount of tax in respect of which

penalty imposed isreduced, the amountof penalty shall also bereduced accordingly).

i) First default:5% of the amount of

tax in default.ii) Second default:Penalty on First default

+ 25% of the amountof tax in default.

iii) Third default:Penalty up to Third

default + 25% of theamount of tax indefault.

Particulars Quantum of Penalty

Section 182(1)[108(a)(i) of I.T. Ordinance1979]

PENALTY


89/114

Income Tax Bar

AssociationKarachi



89

PENALTY

iv) Fourth &Subsequentdefault:

Penalty up to 4thdefault + 50% of the amount of tax indefault.

(Note: Total penaltyshould not exceed100% of suchamount of tax).


Section 182[91 of I.T. Ordinance1979]

PENALTY


90/114

Income Tax Bar

AssociationKarachi



90

PENALTY

Any person who,without reasonableexcuse, fails tofurnish Return of Income or astatementu/s.115(4) or Wealth Statementwithin thestipulated time.

1/10th of 1% of taxpayable for eachday of default(minimum Rs.500/-and maximum 25%of the tax payablefor that year).


Section 183[ 91 of I.T. Ordinance 1979]

PENALTY


91/114

Income Tax Bar

AssociationKarachi



91

PENALTY

Where anyperson in the

course of anyproceedingconceal incomeor furnish in

accurateparticulars of such income.

Equal to theamount of tax

which theperson soughtto evade.



PENALTY


92/114

Income Tax Bar

AssociationKarachi



92

A person who,without

reasonableexcuse, fails tomaintain recordsunder this

ordinance.

First Failure:Rs.2,000/-

Second Failure:Rs.5,000/-Third &

SubsequentFailure:Rs.10,000/-



PENALTY


93/114

Income Tax Bar

AssociationKarachi



93

A person who,without reasonableexcuse, fails tocomply with anynotice served onthe person under section 116 (Wealth

Statement) or 176(Notice to obtaininformation or evidence).

First Failure:Rs.2,000/-

Second Failure:Rs.5,000/-

Third andSubsequentFailure:Rs.10,000/-



PENALTY


94/114

Income Tax Bar

AssociationKarachi



94

Where a personmakes false or misleadingstatement whether in writing or orallybefore an incometax authority invarious forms.

i) Where theaction is willful or reckless, 200%of the taxshortfall; or

ii) In any other

instance, 25% of the tax shortfall.


Section 187


95/114

PENALTY


96/114

Income Tax Bar

AssociationKarachi



96

Where a personfails to give

notice of thediscontinuanceof the person'sbusiness as

required u/s.117.

Not exceedingthe amount of

tax payable for the tax year inwhich thebusiness was

discontinued upto Rs.10,000/-



PENALTY


97/114

Income Tax Bar

AssociationKarachi



97

Where anyperson obstructs

in discharge of Taxation Officersfunction.



ADDITIONAL TAX A COMPARATIVE STUDY


98/114

Income Tax Bar

AssociationKarachi



98

86

87

205(3)

205(1A)

To deduct and paytax under sections148 to156B and233 to 236.

To pay advancetax under section147.

SectionITO 1979

SectionITO 2001

Charge of AdditionalTax for failure



99/114

Income Tax Bar

AssociationKarachi



99

87(4)

88

205(1B)

205(1)(a)

To pay advancetax under section147(6) lesser than

80% of theestimated taxchargeable.

To pay tax withthe Return of Income.

SectionITO 1979

SectionITO 2001




100/114

Income Tax Bar

AssociationKarachi



100

89

92

205(1)(b)

205(1)(c)

To pay tax or Penalty.

To pay amountholding on behalf

of a taxpayer under section140.

SectionITO 1979

SectionITO 2001




101/114

Income Tax Bar

AssociationKarachi



101

114 205(1)(c)

By the liquidator to pay anyamount set-asideunder section141(4).

SectionITO 1979

SectionITO 2001




102/114

Income Tax Bar

AssociationKarachi



102

NOTE:i) The additional tax shall becharged at the rate of twelvepercent (12%) per annum.ii) Section 205A providesallowability of reduction inadditional tax, wherein

consequence of any order madeunder this Ordinance, the amountof tax or penalty is reduced.

The additional tax and penalty is levieable only if


103/114

Income Tax Bar

AssociationKarachi



103

tax payers FAILS to pay tax or comply with theprovision of law.

The Honorable High Court Lahore in thecase of Commissioner of Income Tax,North Zone Lahore v. Warris SilkWeaving & Knitting Mills, Gujranwalareported as (1973) 28 Tax 181 has heldthat:

The additional tax and penalty is levieable only if


104/114

Income Tax Bar

AssociationKarachi



104

tax payers FAILS to pay tax or comply with theprovision of law.

" If a person is required by a law to dosome thing which becomesimpossible for him to do not on

account of his own negligence or fault,but on account of something whichwas 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."


105/114

COLLECTION AND RECOVERY OF TAX


106/114

Income Tax Bar

AssociationKarachi



106

COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 2001

3. In case of default of any instalment, thewhole balance of outstanding tax willbecome payable.4. Additional tax will however be payableeven if extension or instalments to pay taxare granted. However, it is held in number of Superior Courts decisions that noadditional tax is liable to be paid during theperiod of stay granted by the High Court or Supreme Court of Pakistan.



107/114

Income Tax Bar

AssociationKarachi



107


5. Recovery of tax can be effectedthrough/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 immoveableproperty [ section 138(2) (b)] c) Arrest of taxpayer and detention for a periodnot exceeding 6 months [ section 138 (2) (c)] d) The offices of District Officer (Revenue) asarrears of Land Revenue (section 138A)e) Director of private limited company other than an employed director [ section 139 (1) (a)]



108/114

Income Tax Bar

AssociationKarachi



108


f) Shareholder of private limited companyowning 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 ataxpayer (section 140).i) Liquidator of a company, Receiver, Trusteefor 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 (section142)



109/114

Income Tax Bar

AssociationKarachi



109

SECTIONS 137 to 146 of I.T.Ord., 2001

k) Master of the ship in case of ship owned or chartered by a non-resident person (section143)l) Non-resident aircraft owner or charterer or anagent authorized by the non-resident person

(section 144)m) Person leaving Pakistan permanently(section 145)n) Azad Jammu and Kashmir assessed tax maybe recovered from persons who have residencein Pakistan and who have no movable andimmovable property in Azad Jammu Kashmir (section 146)6. Initiation, validity, etc. of recoveryproceedings.

REFUNDS & COMPENSATION


110/114

Income Tax Bar

AssociationKarachi



110

SECTIONS 170 & 171 of I.T.Ord., 2001

1. A taxpayer who has paid tax in excess of the amounts which tax payer is properlychargeable under this Ordinance may applyfor refund.2. An application for refund must be madewithin 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



111/114

Income Tax Bar

AssociationKarachi



111


3. If the Commissioner is satisfied that thetax 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; andc) refund the remainder, if any.

4. The Commissioner within 45 days of receipt a refund application has to issuean order in writing of the decision. If aperson is not satisfied with the decision or Commissioner fails to pass the order thanhe can file an appeal there against.


112/114



113/114

Income Tax Bar

AssociationKarachi



113


2) For the purpose of this section, a refund shallbe 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 theCommissioner (Appeals), and appeal to the

Appellate Tribunal, a reference to the HighCourt to an appeal to the Supreme Court, onthe date of receipt of such order by theCommissioner; or

b) in the case of a refund required to be made asa consequence of a revision order under section 122A, on the date the order is made bythe Commissioner; or

c) in any other case, on the date the refund order is made.


114/114

Income Tax Bar

AssociationKarachi


Hotel Sheraton

Documents

0006 Abdul Qadir Memon