Why you want to join Inland Revenue?

FBR is a very professional department. It is a matter of prestige and pride to be called a Tax Inspector. I
have met the inspectors Inland Revenue I am very much confident that I would be able to fulfill the
required responsibilities effectively.
Tell us about job description for this job
Ensuring recovery of tax demand for current year and previous years. Conducting inquiries as assigned by
the officers and submitting factual reports. Conducting external survey of respective jurisdiction under
inspector inland revenue to see that what businesses are operating and are opening and whether they are
registered as taxpayer or not. Also, doing internal survey by using internal sources within the office or
department. Maintaing the demand register which enlists the arrear and current demand to be recovered
or that has been recovered.
What is recovery procedure?
If a person having taxable income, failed to pay the tax than Notice would be served to that person, after
that other modes would be utilized including attachment of bank account, attachment and sale of
moveable & immovable property, appointment of receiver, arrest and detention of that person.
What do you know about FBR
FBR is a prime revenue generating body of Pakistan. It is involved in tax policy as well as tax
administration and some quasi-judicial functions of hearing appeals. FBR is headed by the Chairman who
apart from being the head of the Board is also Secretary of Revenue Division. FBR has 12 members
including member for Direct Taxes, a member for Sales tax & Excise and a member for Customs long with
others.
How many taxes are levied in Pakistan
2 types of taxes are levied direct and indirect. In direct tax income tax are present whereas in indirect tax
sales tax, customs duty and excise duty are levied.
Which tax is easy to levy and collect
It is usually indirect tax. But indirect taxation hard hits the low income people. In case of direct taxes the
withholding tax is easiest to collect.
Which tax you prefer
I prefer levying more direct taxes instead of indirect tax because the person earning money should be
held responsible instead of shifting tax burden to others. Poor people are hardest hit by indirect taxation.
How many people are paying their taxes
In Fiscal Year 2015 there were 3.6 million NTN holders and out of them 0.8 million filed their returns. But
the actual number of taxpayers if far greater than this who pay their taxes through indirect taxes and
presumptive taxes which are not adjusted later.
If a person does not pay his tax what would you do
Notice would be served to that person that within stipulated time he is bound to furnish his return, if he
failed to file his return then provisional assessment would be made, penalty would also be imposed upon
that person. After provisional assessment that person would be provided an opportunity ,if that person
showed or presented the whole record of sale purchase then amended assessment would be made in
accordance with the new record and tax would be paid accordingly.
What is Presumptive Tax?
Presumptive Taxation is a concept of taxation according to which income tax is based on "average" income
instead of actual income.
What is Withholding Tax?
Tax deducted & deposited to FBR by withholding agent at the source of direct income of supplier (payment
of supplier). withholding tax is adjustable and refundable. In Pakistan withholding tax is levied on salary,
dividends, interest, import, exports, electricity and telephone bills income from property (income tax on
rent), prizes and winning, payment to non-resident for royalty or any technical fees,
Withholding procedure?
Income Tax Ordinance, 2001 makes it obligatory for Withholding Agents to deduct and collect tax at
source at a time when an specified economic activity takes place. In case of less amount deducted or
deposited to FBR by withholding agent the withholding agent would be personally responsible.
Withholding tax is applicable on what items?
On import of goods, salaries, dividend, interest, property rent, cash withdrawal from banks, registration of
vehicles, bills of electricity, gas and telephones
Withholding Agent penalty in case of non-submission of tax withheld?
All the respective decution will not be allowed while calculatibe the income of person in case if withholding
agent does not deduct, collect or deposit withholding tax. Withholding agent will personally be liable in
case of failure of deduction, collection or depositng to FBR. Withholding agent can also be improsioned for
a term not more than 1 year
Ribah in Islam
Riba best translated today as the charging of any interest, meaning money earned on the lending out of
money itself. The prohibition on paying or receiving fixed interest is based on the Islamic tenet that
money is only a medium of exchange, a way of defining the value of a thing; it has no value in itself, and
therefore should not be allowed to give rise to more money, via fixed interest payments, simply by being
put in a bank or lent to someone else. The human effort, initiative, and risk involved in a productive
venture are more important than the money used to finance it. Money in Islam is not regarded as an asset
from which it is ethically permissible to earn a direct return. Money tends to be viewed purely as a
medium of exchange.
When returns are to be filed by taxpayer
For income tax the annual filing is done and for certain large companies it may be bi-annualy or quartely.
For sales tax it is every 15th of month for previous month.
What is the procedure of tax collections?
The taxpayer files the return under Universal Self Assesment and under section 120 it will be deemed
assessment order of Commissioner. The Commissioner or Board will review that return to ensure its
accuracy. For sales tax the registered person of sales sale file their returns for all sales tax tax collected
on 15th of each month for previous month. And recently the Excise Duty has be removed from services
because it is now in provincial ambit. The customs duty is levied before clearance of goods from customs
station.
What is tax?
An enforced contribution by legislative or soverigen authority to raise revenue for public or governmental
purposes.
Why taxes are levied
1. Raise revenue meet expenditure
2. Reduce income equalities in society through policy of redistribution of income and wealth by progressive
taxation
3. As an instrument of fiscal policy by granting exemption and concessions to encourage or discourage
special economic activity to achieve rapid social and economic development
What are the issues with taxation system of Pakistan?
Tax policy and tax administration are joinetly done by FBR which should be seperated
Huge and unfair dependence on indirect taxes ( sales tax is largest contributor to revenue collection in
Federal, Punjab and Sindh budget)
Pakistans underground and informal economy is around 40-50% of GDP and its tax evasion could be as
high as 7-10% of GDP
Unrealistic and unjust exemptions and concessions
Potential from taxing most services is largely untapped which not only brings more revenue but also will
make tax system more just
Lack of viberant field audit and heavy reliance on self assesment and most taxpayers know that they will
not be subject to audits
There is a huge backlog of cases pending related to taxation
What are the recommendations for improving the taxation system of Pakistan?
Federally administrated GST on both goods and services would widen tax base substantially
 Exemptions and cencessions should be eliminated
GST should be replaced by VAT so as to increase complaince rate
Reforming FBR and separation of tax policy and tax administration so that FBR can focus on revenue
generation
Universal Self Assessment Scheme should be scrapped and Inland Revenue should assess the taxes due
as was the case before Income Tax Rules 2002
Withholding taxes should be adjustable as pre-payment on final tax liability of taxpayers and not the
final. Withholding income tax on imports and exports are currently final tax should not be
First and foremost the state has to restore its moral authority to tax and taxing the elite constituents
via direct tax on income is an imperative first step
Exemplary punishments should be awarded on tax evasion so that there should inculcate a feeling in
public that in case of evasion of tax liabilities they may be granted strict punishment
Closing loopholes such as Section 111 (4) of Income Tax Ordinance that provide for permanent
whitening schemes. This an incentive given for dishonesty and discourage honest taxpayers.
What is the procedure of tax collection?
1. Paymet of tax by filing return
2. Withholding of tax by withholding agent
3. Tax collection through demand
What are the procedure to recover tax?
1. sale of any movable or immovable property of the taxpayer
2. appointment of a receiver for the management of the movable or immovable property of the taxpayer
3. arrest of the taxpayer and his detention in prison for a period not exceeding six months
4. Recovery of tax by District Officer (Revenue)
5. If a taxpayer is declared bankrupt, the tax liability under this Ordinance shall pass on to the estate in
bankruptcy
What is NFC?
NFC Award after every 5 years consitiituted by Prime Minister. The share of the Provinces in each Award of
National Finance Commission shall not be less than the share given to the Provinces in the previous
Award.
Composition of NFC.
Federal Finance Minister is the Chairman of NFC along with provincial Finance Ministers.
Main Charter of NFC.
1. The distribution of taxes, duties between federation and provinces.
2.The disbursement of grants to provincial governments.
3. The borrowing powers exercised by federal and provincial governments.
4. Any other financial matter referred to commission by Prime Minister
- Share of Punjab 51.74%, Sindh 24.55%, KPK 14.62% and Baluchistan 9.09%
- The share of Punjab has reduced from 60.25% in 1st NFC Award in 1974 while the share of all other
provinces has increased

What is tax evasion?

It means to evade tax by fraud.
What is ideal tax-to-GDP ratio?
In developed economies this ratio is between 20-30%. While in developing economies it should be at least
10% or better would be if around 15%.
Inland Revenue could call for taxes for how much years and taxpayer is bound to keep record for how
many years?
Tax demand for previous 10 years and taxpayer is bound to maintain record for 6 years. In case an
assessment has been done and a demand has been created there is no limitation of time for its recovery
How would you like to increase Tax?
By leving more direct taxes than indirect taxes. Reducing the corporate tax and enforcement of taxation
on indiividuals.
Why Pakistani people do not pay taxes?
Because they don't know their national responsibility and due to lack of knowledge that, these taxes are
returned back to them in the form of infrastructure, defense, water, electricity, gas, and many benefits
which are necessary and can be provided by Govt. And for these things government need taxes. Also, the
tax laws are very complex in nature.
Which income is exempted from tax?
Agricultural income, income from fisheries, royalty from mines, income from stone quarries, income of
diplomates and UN officials, non-residents, honours, awards, medals,
Number of FBR members
There are 12 members of FBR
Return filing time?
It is monthly for sales tax and excise duty, annual for income tax. Income tax return can be filed before
the years if person is leaving Pakistan permenantly or in bankruptacy or has died by a representative
Tax amnesty scheme?
Voluntary Tax Compliance Scheme is for traders who declare the working capital of 50 millions and pay
1% on it from tax years 2015 to 2018
What was tax target for FBR?
3.1 trillion for 2015-16
3.6 trillion for 2016-17
What is the difference between zero-rating and exemption?
A person making zero rated supplies is bound to get registered with FBR, also can claim refund of his input
tax. While a person making exempted supplies, is not liable to b registered under the Sales Tax Act, also
he can't claim refund
What would you do as an Inland Revenue Officer if a person doesn't submit Tax Return?
Notice will be served to him to submit return within stipulated time, in case of non compliance Provisional
assessment will be made against him, and he will be liable to pay penalty @ 0.1% of tax liability per day,
subject to maximum 50% penalty of tax liability.
Which Tax is easy for collection and payment?
Sales tax is easy to pay and collect. For sales tax registered supplier to registered persons the invoice
number could be cross matched so it would be difficult for coporations to evade it because most of its
supplied go to sales registered distributors. And these corporate entities make a large percent of revenue
for inland revenue.
How tax collection/ arrears recovery process can be improved to increase revenues?
1. By imposing strict penalty to tax evaders
2. By taxing the most rich and powerful people so that public confidence may be restored
3. By increasing incentive to Taxpayer
Who is a resident person?
Resident is one who has been in Pakistan for 183 days or more.
What is CREST and for what purpose it is used by FBR?
Computerized Risk Based Evaluation of Sales Tax. It is computerized program for analyzing and cross
matching of sales tax returns.
What is the difference between input tax and output tax?
Input tax is the value added tax added to the price when you purchase goods or services liable to GST
Output tax is the value added tax you calculate and charge on your own sales of goods and services for
GST leviable goods
What happens if we pay income tax in Pakistan but do not file a return?
You will become a non-filer.
Differentiate between Modarba and Mushrika?
Modaraba is a kinf of partnership in which 1 partner provides finance and other provides skill and labour.
In case of loss the investor bears the loss
Musharakah is a profit/loss sharing partnership with profit according to pre-determined ratio
What is meant by demand register?
Demand and collection register
What is Alternative Corporate Tax?
Alternative Corporate Tax means that apart from minimum tax there is yet another comparison for
corporate taxpayers. The tax on Corporate Rates or Alternative Tax @ 17% of the accounting profit before
tax shall have to be paid.
Return of income will be filed under section 114. Under Universal self assessment scheme it is deemed
to be the the assessment order of commissioner under section 120
Super Tax for IDPs 4% for banking companies, persons haing income more than 500 million
Persons not required to furnish a return of income
(a) A widow;
(b) an orphan below the age of twenty-five years;
(c) a disabled person; or
d) in the case of ownership of immovable property, a nonresident person.
What are the steps of assessment procedure?
1. Self assessment
2. Pay tax
3. File return
4. Return security
5. If correct than good
6. Other wise notice issue
If you not comply with notice provisional assessment is made and ask you to deposit all out standing
amount along with default surcharge or penalty.
Wealth Statement
Commissioner may ask anyone to file wealth statement. It should be in
prescribed form and verified in the prescribed manner giving particulars of:
1. persons total assets and liabilities
2. total assets and liabilities of the persons spouse, minor
children, and other dependents
3. any assets transferred by the person to any other person
during the period or periods specified
4. total expenditures incurred by the person, and the persons
spouse, minor children, and other dependents during the
period or periods
5. the reconciliation statement of wealth.
Minimum tax on the income of certain persons
Apply to resident company, individual with turnover of 50 million or more, AOP with 50 million turnover or
more, builders
If any of following apply and no tax is payable than minimum tax will be levied
(a) exemption from tax;
(b) the application of credits or rebates; or
(c) the claiming of allowances or deductions
P.S. Loss has been eliminated in budget FY 2017
Difference between Advance Tax and Transitional Advance Tax
Advance Tax will be final tax for imports. It is classified as Transitional Advance Tax and discharged as
final tax with not adjustment applicable. Advance tax has a different formula for company and for
individuals.
Transitional Advance Tax
Once liability of advance tax as estimated by taxpayer discharged during the currency of tax year, then
transitional advance tax would come to an end. Commissioner upon recieving an application from taxpayer
could issue a lower rate certifiicate (0% rate or nil rate certificate)
It is applicable on cash withdrawl from bank, in banking transactions, vehicle registration, brokeage and
commission, CNG station, electricity, telephone and internet, air tickets, on sale or transfer of immovable
property
What is Income tax return
It is an statement submitted by individuals and businesses for their income and expendiures. Certain
expenditures are allowed as deduction and others are discarded.
Diferrence between book keeping and accounting?
Bookkeeping is keeping a detailed record of the business transactions for a person or business. Accounting
refers to the process of summarizing, analyzing and reporting these transactions.
Diferrence between operating lease and finance lease?
Operating lease is like rent .used to acquire assets for short period of its useful life and ownership rights
are with leasing company .risk and maintenance remain with leasing company..its just treated as
operating expense in income statement..
Financial lease is used to own assets for its major part of useful life and at the end its has right to be
transfered to lessee . Risk reward maintence is with lessee ..it is used as asset in balance sheet
What is local government
The administration of a particular District, Taluka or Tehsil with representatives elected by those who live
there.
What is local taxes
A tax assessed and levied by a local authority such as district administration.
What is capital tax?
Tax on money and assets that you own rather than on money that you earn.
What is Capital Asset?
A capital asset is a type of asset that is not easily sold in the regular course of a business's operations for
cash and is generally owned for its role in contributing to the business's ability to generate profit.
What is capital gain define with example
Capital gains are the profits that an investor or business sells the capital asset for a price that is higher
than the purchase price.
Sales tax is individual tax or corporate tax
Corporate tax /income tax of companies are direct taxes that are levied which they have to bear
personaly...while sales tax is indirect tax whose burden is shifted on end consumers ..
Is there any chances of manipulation/fraud in fbr
Yes, there have been number of scams in sales tax refund. Additionally, for those excisable goods that of
which the excise duty is paid in sales tax mode could also be prone to these fake refunds. Additionally,
there have been companies that are physically non-existant but only registered in sales tax are kept to
facilitate these things, but computerised CNIC of owner/owners is made mandatory for registration
recently in order to counter that. Tax evasion in Income Tax side is thorugh understating the income and
overstating the deductions. Customs was previously much of problem and undervaluation and incorrect
classfication were common. But current government has taken some measure the extent of these issues
has reduced.
Status of FBR personnel in the society, how they are treated in the society etc
FBR officials are received with respect. It is considered hounourable department. Specially Inland Revenue
wing and Directorate General of Intelligence and Investigation (IR) is considered to highly empowered
which in fact it is.
Difference between fiscal year and financial year
For business purposes, the calendar year is fixed: It starts and ends on the same day for everyone. Fiscal
years, on the other hand, may start on the first day of any month of the year -- except January --
depending on the 12-month period chosen by the organization or company.
What rules are for methods of accounting under Income Tax Ordinance?
Methods of accounting which methods used by individual. He has a option to adopt or not. Is there any
rule in income tax ordinance for recording business transaction? And any rule for accounting on the basis
of cash or accrual
For businesses it has to be accrual for Income from business. All other have choice to choose from cash
or accrual. Individuals can opt for any one from cash or accrual.
How many methods of accounting, explain the cash and accrual accounting
Cash accounting involves when cash is received or paid. Whereas, accrual transaction is recorded when
any amount becomes recieveable or payable.
What is the difference between General Jounal & Ledger?
In General Journal transactions are recorded in chronological order. Whereas these transactions are
posted to Ledger under specfic relevant accounts.
What type of tax paid by doctors,engineers,lawyers?
Professional tax which is a provincial excise tax and income tax for income earned.
Excise duty vs Customs duty?
Excise duty as discussed earlier is an indirect tax and is levied on the manufacturer on the goods
manufactured by him that are to be sold within the country. Whereas, Custom duty is collected by the
authorities on the goods imported by an importer and are meant to be sold in the country. But in Pakistan
Excise duty also includes the imports of exciseable goods.
Tell federal, provincial and local taxes? OR How many taxes are levied in the country?
Federal Taxes (Income tax, General Sales Tax, Customs Duties, Excise Duties),
Provincial taxes (General Sales Tax on Services, Stamp Duty, Vehicle Tax, Immoveable Property Tax,
Professional Tax)
Local Taxes Sindh Local Government Act 2013 enlists 2 types of taxes
1. All land assessable to rent, land revenue or ushr shall be subject to the payment of a cess to be known
as the local cess
2. Council can levy tax on professions, trades or callings and employer will deduct it and deposit it to local
find of council.
What are the heads of income?
1. Income from Salary
2. Income from Property
3. Income from Business
4. Capital Gains
5. Income from Other Sources of Income
What taxes are included in electricity bill?
General Sales Tax & Income Tax.
What is balance of payment?
The balance of payments (BOP) is the method countries use to monitor all international monetary
transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar
year. All trades conducted by both the private and public sectors are accounted for in the BOP in order to
determine how much money is going in and out of a country. If a country has received money, this is
known as a credit, and if a country has paid or given money, the transaction is counted as a debit.
Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance,
but in practice this is rarely the case. Thus, the BOP can tell the observer if a country has a deficit or a
surplus and from which part of the economy the discrepancies are stemming.
Trade deficit
A trade deficit means the value of imports of goods / services / investment incomes is greater than the
value of exports. It is also referred to as a trade deficit
What is income tax
An income tax is a tax that governments impose on financial income generated by all entities within their
jurisdiction.
What is sales tax
A sales tax is a consumption tax imposed by the government on the sale of goods and services.
 What is federal excise duty
It is a duty on exciseable goods that are manufectured within Pakistan, imported, or bough from non-
Tariff area to Tariff area.
Difference between provincial excise duty and federal excise duty?
Federal Excise duty is levied on excisable goods. Recently the Federal government has decided to
eliminate Federal Excise duty on services which comes under the provincial ambit after 18th amendment
in Constitution. Whereas, the Provincial Excise Duty is levied on intoxicating items such as liquor, Spirit,
Methnol and intoxicating drugs.
Explain the indirect tax and its types. Which indirect tax is the best
Indirect taxes are called so because they are collected indirectly from consumers by the government
through intermediaries, who are the first payers of the tax to the government. These taxes are different
from direct taxes such as income tax which is collected directly from taxpayers. Indirect taxes include
taxes such as sales tax, service, tax, VAT etc. whereas income tax, wealth tax, corporation tax etc. fall
under the ambit of direct taxes.
Unlike direct taxes, indirect taxes are levied on goods and services rather than individuals. Individuals pay
the taxes indirectly in the form of higher prices on their purchases.
How you check if a company does not show their production is any rule in sales tax?
An officer authorised by Board or Commissioner will have access to business premises, stocks, goods,
business records and records to be mainainted and other documents
What type of tax you are paying and whether you are filing return for that or not
I am paying income tax, sales tax, excise duty and customs duty.
What is Internal control
Internal controls are methods put in place by a company to ensure the integrity of financial and
accounting information, meet operational and profitability targets.
What is internal control in cash dealing
internal control in cash management involves, i.e., billings, collections, deposits, and disbursement
processes
If internal control is weak in any organisation is it a matter of concern for tax department?
Yes, it is a matter of concern in case if the internal control is weak. Because this can lead to unreliable
data coming from that organisation on which it is could be difficult to ascertain the tax laibility.
Which tax would you prefer the most?
I prefer the income tax because it not only it reduces the income inquality in society by reditribution
through progressive taxation. It is in conformity with all the canons of taxation. But, unfortunately this is
not implemented in letter and spirit in Pakistan. Instead of that indirect taxes are heavly applied.
What is return of income?
Document gives the tax collector information about the taxpayer's tax liability
Taxation system in pakistan is good?
Sir, in my opinion tax laws are good. But the issue is with the enforcement of these laws. For instance if
all the people pay their income tax according to their due share the reliance on indirect tax would lessen
to a greater extent. The news of awarding exemplary punishments are very rare in our society on account
of tax evasion. Instead, after a few years a new whitening scheme comes in place for encourage tax
evaders and discourage honest taxpayers.
How to bring people in tax net?
By tieing the incentives for taxpayers. And awarding strict punishments to tax evaders. Scrapping the
whitening schemes. I personally liked a lot the implementation of withholding tax of 0.4% on each non
cash transaction and it will surely have good effects on tax evader but also for informal economy too.
Because such level of tax on each transaction would compel them to get registered and pay taxes.
Who is bound to maintain record
Every registered person under Excise Act
Every registered person under Sales Tax Act
Every taxpayer unless exempted by Commissioner under Income Tax Ordinance
 For how many time should record maintained as par law
For 5 years under Sales Tax Act
For 6 years under Excise Act
For 6 years under Income Tax Ordinance
What incomes are exempt income?
1. Income of non-resident for technical, professional, scientific expert
2. Pension from former employer other than current employer
3. Pension of armed forces
4. Gratutity or commutation on retirement
5. Benevolent grant paid from Benevolent fund
6. Perquisites of Federal Ministers, Judges of Supreme Court, High Court
7. Provident fund
8. Pension fund
9. Any donation to notifed institutions such as Fatmid Foundation, CPLC, Aga Khan Development Network,
Shuakat Khanum Memorial Hospital, Indus Hospital, Karachi, Edhi Trust
10. Capital Gains in Export processing Zone
11. Electricity power generation project
Access to records and premesis under Excise Act & Sales Tax Act
A person required to maintain a record will provide it to as and when required by IR officer. In case it is
in form of electronic data will provide access to authorised officer.
Board or Chief Commissioner (and also Commissioner in case of material evidence) may post an officer
to the premises to monitor production, sale of goods and stocks position or maintenance of record.
Board may also monitor the production, sales, stock through electronic or other means.
Access to records and premesis under Income Tax Ordinance
Commissioner can or an officer authorised can enter and search premesis for accounts, documents or
computer
Any taxpayer will be required to provide records, accounts, documents, etc as and when required.
Records to be maintained for Exciseable goods:
Every person will keep record for 6 years or till final order in any proceedings at his business premises
In English or Urdu
Records for clearance and sales made indicating description, quantity and value of goods and name,
address of person sold to
Records of sold without payment of duty
Records for purchased made indicating description, quantity and value of goods and name, address of
supplier
Record of imports and exports
Records to be maintained for Sales Tax Act
Registered person will keep record in English or Urdu of goods purchased or imported and supplied
(incuding zero-rated and exempt supply) made by him
records of supplies including the description, quantity and value of goods, name and address of the
person to whom supplies were made and the amount of the tax charged
records of goods purchased including the description, quantity and value of goods, name, address and
registration number of the supplier and the amount of the tax on purchases
records of goods imported indicating the description, quantity and value of goods and the amount of tax
paid on imports
records of zero-rated and exempt supplies
invoices, credit notes, debit notes, bank statements, 3[banking instruments in terms of section 73,]
inventory records, 4[utility bills, salary and labour bills, rental agreements, sale purchase agreements and
lease agreements]
Record relating to Gate passes, inward or outward and transport receipts.
Sales Tax Invoices
 Name, address and registration number of supplier
Name, address and registration number of receipt
Date of issue, description, quantity, value exclusive of sales tax, amount of sales tax and value inclusive
of tax
No more than 1 invoice will be issued for a supply
Only registered person or person paying retail tax can issue invoice
Is there in law that individual need to mainataned record how they maintained like doctor etc
In case of private practice they should keep a record for all petients consulted and fees charged to each
petient.

What is the difference between professional tax and income tax?

Professional tax is levied under finance act 1964 It is one sort of fixed tax which is paid by professionals
while income tax is not a fix tax.another difference is that where a person falls in more than one category
of profession he shall be liable to pay tax in respect of one where rate of tax is highest.
Stock-in-trade
The cost of stock-in-trade disposed of by person will be computed under formula:

(A + B) C

Where,
A is the opening value of persons stock-in-trade for the year
B is cost of stock-in-trade acquired by the person
C is the closing value of stock in trade
Capital Gains rates for immovable property
1. Less than 1 year 10%
2. 1-2 years 5%
3. More than 2 years 0%

What is the difference between zero-rating and exemption?

A person making zero rated supplies is bound to get registered with FBR, also can claim refund of his input
tax. While a person making exempted supplies, is not liable to b registered under the Sales Tax Act, also
he can't claim refund
What would you do as an Inland Revenue Officer if a person doesn't submit Tax Return?
Notice will be served to him to submit return within stipulated time, in case of non compliance Provisional
assessment will be made against him, and he will be liable to pay penalty @ 0.1% of tax liability per day,
subject to maximum 50% penalty of tax liability.
Which Tax is easy for collection and payment?
Sales tax is easy to pay and collect. For sales tax registered supplier to registered persons the invoice
number could be cross matched so it would be difficult for coporations to evade it because most of its
supplied go to sales registered distributors. And these corporate entities make a large percent of revenue
for inland revenue.
How tax collection/ arrears recovery process can be improved to increase revenues?
1. By imposing strict penalty to tax evaders
2. By increasing incentive to Taxpayer
3. By improvement in relationship of Taxpayer & Tax officials
What is CREST and for what purpose it is used by FBR?
Computerized Risk Based Evaluation of Sales Tax. It is computerized program for analyzing and cross
matching of sales tax returns.
What is the difference between input tax and output tax?
Input tax is the value added tax added to the price when you purchase goods or services liable to GST
Output tax is the value added tax you calculate and charge on your own sales of goods and services for
GST leviable goods
What happens if we pay income tax in Pakistan but do not file a return?
You will become a non-filer.
What is capital account and current account?
Capital Account: It includes the flow of payments used to purchase financial and physical assets.
Current account: The current account is a record of all trade between one nation and other nations. It
includes payment for imports and exports of both goods and services.

Capital Expenses Vs Revenue Expenses

Capital expenditures represent major investments of capital that a company makes to maintain or, more
often, to expand its business and generate additional profits. Capital expenses are for the acquisition of
long-term assets, such as facilities or manufacturing equipment. Because such assets provide income-
generating value for a company for a period of years, companies are not allowed to deduct the full cost of
the asset in the year the expense is incurred; they must recover the cost through year-by-year
depreciation over the useful life of the asset. Companies often use debt financing or equity financing to
cover the substantial costs involved in acquiring major assets for expanding their business.
Revenue expenses are shorter-term expenses required to meet the ongoing operational costs of running a
business, and thus are essentially the same as operating expenses. Unlike capital expenditures, revenue
expenses can be fully tax-deducted in the same year the expenses occur. In relation to the major asset
purchases that qualify as capital expenditures, revenue expenditures include the ordinary repair and
maintenance costs that are necessary to keep the asset in working order without substantially improving
or extending the useful life of the asset. Revenue expenses related to existing assets include repairs and
regular maintenance as well as repainting and renewal expenses. Revenue expenditures can be considered
to be recurring expenses in contrast to the one-off nature of most capital expenditures.
The purpose of capital expenditures is commonly to expand a company's ability to generate earnings,
whereas revenue expenditures are more commonly for the purpose of maintaining a company's ability to
operate. Capital expenditures appear as an asset on a company's balance sheet; revenue expenses are
listed with liabilities.

Depreciation Vs Amortization
Because very few assets last forever, one of the main principles of accrual accounting requires that an
asset's cost be proportionally expensed based on the time period over which the asset was used. Both
depreciation and amortization (as well as depletion) are methods that are used to approrate the cost of a
specific type of asset to the asset's life. It is important to mention that these methods are calculated by
subtracting the asset's salvage value from its original cost.
Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For
example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with
creating the medical equipment is spread out over the life of the patent, with each portion being recorded
as an expense on the company's income statement.
Depreciation, on the other hand, refers to prorating a tangible asset's cost over that asset's life. For
example, an office building can be used for a number of years before it becomes run down and is sold.
The cost of the building is spread out over the predicted life of the building, with a portion of the cost
being expensed each accounting year.
Depletion refers to the allocation of the cost of natural resources over time. For example, an oil well has a
finite life before all of the oil is pumped out. Therefore, the oil well's setup costs are spread out over the
predicted life of the oil well.
Tax, duty, cess, surcharge

All of these are taxes and different words are used to identify the way the taxes will be charged and the
money will be used. Of the words in the question, 'levy' is not a tax, but a verb that means 'the act of
charging the tax. (Eg. Govt will levy a 10% duty, has levied a 0.5% cess, etc)
Now to the terms.

Tax: Any money the government takes from you (legally) for doing any economic activity is tax.
Generally, this is a percentage of the money you receive or give. Taxes are eitherdirect, where the money
goes directly from your pocket to the govt's pocket, or indirect, where the money goes from your pocket
to someone else's pocket and then to the govt's pocket. (Lemme know in comment if you need further
explanation of these terms)

Duty: This is an on-border tax charged on goods (commodities, or things that you can physically touch)
either while coming into the country or going out of the country. Generally, a percentage of the value of
the good.

Cess: This is a tax on tax, levied by the govt for a specific purpose. Generally, cess is expected to be
levied till the time the govt gets enough money for that purpose. The education cess, that is levied
currently, is meant to finance basic education in the country.

Surcharge: This is an additional burden to the tax being already levied. Generally, surcharge is levied for a
certain period time. For instance, the 10% surcharge being levied on super rich in India for one financial
year.

(Surcharge and Cess may look the same, but the difference is in the way of charging. For instance, say
some tax is 30%, so out of Rs 100 earning, Rs 30 is paid as tax. Now if the govt levies a 10% cess, the
total tax will become Rs 33. However, if the govt levies a 10% surcharge, the total tax will become Rs 40.

Modarba
Modaraba or Mudarabah is a special kind of partnership where one partner gives money to another for
investing it in a commercial enterprise. The investment comes from the first partner who is called rabb-
ul-mal, while the management and work is an exclusive responsibility of the other, who is called
mudarib" and the profits generated are shared in a predetermined ratio.

Musharakah
Musharakah is a joint enterprise or partnership structure with profit/loss sharing implications that is used
in Islamic finance instead of interest-bearing loans. Musharakah allows each party involved in a business
to share in the profits and risks. Instead of charging interest as a creditor, the financier will achieve a
return in the form of a portion of the actual profits earned, according to a predetermined ratio. However,
unlike a traditional creditor, the financier will also share in any losses.

Musharakah plays a vital role in financing business operations based on Islamic principles, which prohibit
making a profit on interest from loans. For example, suppose that an individual (A) wants to begin a
business but has limited funds. Individual (B) has excess funds and wishes to be the financier in
musharakah with A. The two people would come to an agreement to the terms and begin a business in
which both share a portion of the profits and losses. This negates the need for A to receive a loan from B.

Tax Regimes

Normal tax regime (Net-income basis)

Under the normal tax regime, tax is charged on taxable income of the taxpayer i.e. gross amounts
chargeable reduced by deductions allowed.
Final tax regime (Gross income basis)
Income subject to final tax are those which are subject to collection or deduction of tax at source and
the tax so collected or deducted at source is treated as final tax on the income arising from such
transactions.

The tax collected or deducted on such transactions is commonly known as non-adjustable tax collected
or deducted at source. The taxation of income subject to final tax is governed by Section 169 of the
Income Tax Ordinance, 2001.

Following rules apply to the income subject to final tax:

(i). Such income is not chargeable to tax under any head of income in computing the taxable income;
(ii). No deduction is allowed for any expenditure incurred in deriving the income
(iii).The amount of the income is not reduced by
(a). Any deductible allowance; or
(b). The set off of any loss
(iv). The tax deducted is not reduced by any tax credit
(v). There is no refund of the non-adjustable tax collected or deducted at source unless such tax is in
excess of the amount of final tax for which the taxpayer is chargeable and
(vi). An assessment is treated to have been made and the person is not required to furnish a return of
income in respect such income.

Various incomes which are treated as final tax liability of the person under the Income Tax
Ordinance,2001 are:
Exports u/s 154
Dividends
Commercial importer under section 148(7)
Person selling petroleum products to petrol pump operator under section 156A
CNG stations under section 234A
Commission and brokerage under section 233

Minimum tax regime

Certain types of incomes are subject to minimum tax under the Income Tax Ordinance,2001 to assure
that certain portion of tax is paid by the taxpayer irrespective of quantum of income.

Various incomes which are treated as minimum tax under the Income Tax Ordinance,2001 are:
(i). Minimum tax under section 113 on turnover
(ii). Minimum tax on builders under section 113A
(vi). Tax collected upto the electricity bill amount of Rs.30,000 per month for a person other than
company under section 235

FTR= tax deducted/ paid shall be full and final discharge of tax liability no deductions are allowed.
NTR= a method in which income of a person under each head is included in total income and reduced by
deductible allowances to arrive at taxable income.
STR= a method in which certain incomes are not included under any head of income, rather separately
charged at different rate, no deductions are allowed in this case .
MTR=a method of taxation under which tax deducted is treated as minimum tax in respect of such
income. Under this method tax deducted shall:
1) become final if tax under NTR is less than this amount.
2) Be adjustable against tax under NTR if tax is higher than this amount.
Facts & Figures
Indirect taxes make distribution more unequal and violates the canons of taxation equality and
certainty -because indirect taxes are more regressive than direct taxes and a taxpayers does not know in
advance how much he has to pay in taxes. Direct taxes reduce income inequality
In many countries withholding on wages and salaries can be as much as 80-90% of total withheld taxes
whereas in Pakistan. This means Pakistan is excessively using withholding schemes vis--vis other
countries. In 2015 only 23% of withholding tax was contributed by income tax and 22% by customs
income tax
Presumptive taxes such as advance tax on air tickets and cash withdrawn from banks, registration of
vehices, electricty,telephone, CNG stations (40% taxes collected/deducted which are never adjusted)
According to Tax Reform Commission (TRC) Pakistans tax regime is heavily tilted in favourof elite
Wealth tax used to be generated as very small amount of revenue and was abolished in July 2001.
However, selective wealth taxes continue to exist in form of Capital Value Tax (CVT) on ownership and
purchase of real estate, cars and stocks
Federal Excise Duty is unadjustable but Excise Duty paid in Sales Tax Mode is adjustable
Losses from property and salary non-adjustable
Capital losses can only be set-off against capital gains
Minimum company tax is applied when no tax is paid
Zero rated charged at the rate 0% sales tax and can have input tax deduction if registered while
exempted supplies are not chargeable to tax and don't need registration for sale tax
When registered person purchases taxable supplies for business tax he pays is called input tax and it is
deductible from output tax at time of sale tax return*
If filed return is complete in all aspects its called deemed assessment order
Canon of taxation:
1. Equality: Tax payments should be proportional to income and applied equally to all concerned areas
Hortizontal equality exist when two similary situated taxpayers are taxed the same.
Vertical equality exists when taxpayers with different situation are taxed differently but fairly in relation to
each taxpayers ability to pay
2. Certainty: Tax liability should be clear and certain.
3. Convenience of payment: Taxes should be collected at a time and in a manner convenient for taxpayer
4. Economy of collection: Taxes should be expensive to collect and should not discourage business

Structure of taxes:
1. Proportional tax: Fixed percent of tax for all income groups
2. Progressive tax: Higher income persons pay higher taxes and lower income persons pay lower taxes
3. Regressive tax: Higher income persons pay less tax and lower income persons pay higher tax

Tax avoidance: Avoiding the taxes by legal tactics

Tax evasion: Evading the taxes by fraud

Interview Tips
Confidence: Sand tall, walk tall, and most of all, sit tall. When standing, stand up straight. Leaning
forward in chair, chin up, putting tips of fingers of one hand against the tips of fingers of other hand in
praying or steepling position, hands joined behind back when standing.
Be confident, be bold, be polite, be positive, while facing interview
Think that, you are going to attend the interview but not to beg the anything from the Interviewer
Dont blame fate, fortune, or your family background or financial matters; this will count as negative
point

GDP growth FY 2015 was 4.71 and some 0.7 was reduced due drastic decline of 27.8% in cotton crop
Pakistan Inflation (CPI) 2.8% aginst 4.53% last year
 Unemployment Rate 5.9% FY 2016
Tax Revenue 8.4% of GDP against 11% last year
Budget deficit 3.4% of GDP against 5.3% last year
GDP size $ 243 billion in 2014 according to World Bank figure
GNP size Rs. 1.178 trillion in 2014 according to State Bank figure
Per capita income $ 1560 in FY 2016
Foreign Direct Investment US$ 1.0163 billion July-April FY 2016
Remittences $16.034 billion July-April FY 2016
Pakistan Public Debt 20.3 trillion which was 6.3 trillion in 2008
Foreign reserves
Circular Debt amount: 337 billion in 31 March 2016
Balance of Payment amount (Trade Deficit OR Current Account Deficit) of Pakistan: $2.33 billion trade
deficit
Federal Budget amount: 4394 billion
Federal Budget deficit 2016-17: 4%
Sindh budget amount: 869 billions
Exports $30 billion
Imports $50 billion
Sales Tax 2014-15: 1087 billion (42%)
Income Tax 2014-15: 1033 billion (40%)
Excise Duty 2014-15: 162 billion (6.25%)
Customs Duty 2014-15: 306 billion (11.82%)

Kindly update these figure from net.

"Advanced concepts, you dont need read, but help for highly competant persons"
Tax
An enforced contribution by legislative or soverigen authority to raise revenue for public or governmental
purposes.

In Wealth of Nations, Adam Smith identified 4 basic requirements for a good tax system. These
requirements include equality, certainity, covenience and economy

1. Equality:
A tax should be based on taxpayers ability to pay. The concept of equality requires consideration of both
horizontal and vertical equity. Hortizontal equity exist when two similary situated taxpayers are taxed the
same. Vertical equity exists when taxpayers with different situation are taxed differently but fairly in
relation to each taxpayer;s ability to pay. This means that taxpayers who have the gretest ability to pay
the tax should pay the greatest proportion of the tax. So does the low-income people pay no tax. As
taxable income increases, the tax rate increases.

2. Certainity:
A taxpayer should know when a nd how a tax is to be paid. In addition the taxpayers should be able to
determine the amount of tax to be paid in advance of paying. (Indirect taxes violate this principle)

3. Convenience:
A tax should be levied at the time it is likely to be convenient for the taxpayer to make payment. The
most convenient time for taxpayers to make payment is as they receive the income and have money
available to pay the tax.
4. Economy:
A tax should have the minimum compliance and administrative cost. The cost of compliance and
administration should be kept at minimum so that the amount that goes to the treasury is as large as
possible.

Tax = Tax base (amount subject to tax) X Tax rate

Tax Rate Structures

Tax rate structures are described as proportional, regressive and prograssive. The structures explain how
the tax rate vary with the change in the amount subject to tax (the tax base)

Marginal Tax Rate is the percentage of tax applied to your income for each tax bracket in which you
qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of taxable income
above a pre-defined income threshold.

Average Tax Rate is the tax rate you pay on income when you add up all sources of taxable income and
divide that number into the amount of taxes you owe. In other words, you can determine your average
tax rate by dividing your total tax obligation by your total taxable income.

Proportional Rate Structure:

A proportional rate structure is defined as a tax for which the average tax rate remains the same
irrespective of tax base increment. This rate structure is also called flat tax. Eg. Sales Tax.

Regressive Rate Structure:

A regressive rate structure is defined as a tax in which the average tax rate decreses as the tax base
increases.

Progressive Rate Strucutre:

A progressive rate structure is defined as a tax in which the average tax rate increases as the tax base
increases. Income tax strucutre fulfils the Adam Smiths equality criterion as the people with higher
taxable income levels pay higher marginal tax rate, which promotes equality and contributes to equitable
income distribution.

Income includes both the taxable as well as the nontaxable income.

Gross Income is income minus income items that are excluded from taxation.

Exculsion is excluded from tax under tax law

Defferral is an item that does no affect not affect current periods taxable income but will affect future tax
year. However, it differs from exclusion in that an exclusion is never subject to taxation, whereas defferal
will be subject to tax at some point in future.

Deductions are amounts that tax law specifically allows as subtraction from gross income. There is a rule
that an amount will not be deducted unless tax law specifically permits it. Deductions are chraterised as
expenses, losses and exemptions.
Expense is a current period expenditure that is incurred to earn income.

Loss refers to 2 distinctly different types of events:

1. Transaction loss: A loss occurs when an asset is disposed of for selling price less than than its tax cost.
It represents loss of capital invested in an asset.
2. Annual loss: It results from an excess of allowable deductions for tax years over the reported income
for the years

Individuals and trusts may subract predetermined amounts called exemption to determine taxable
incomes. Exemption deduction for individuals is states recognision that people need minimum amount of
income to provide for their basic living expenses. This minimum basic cost of living increases each years
with parity of inflation.

Tax credit is a direct reduction in the income tax liablity. A credit is not deducted from taxable income but
is instead subtracted directly from the income tax liablity. A tax credit is more valuable than a deduction
of an equal amount, because the credit yields a larger reduction in the total tax due. Tax credit are often
used as an incentive to encourage taxpayer to enter into specific types of transaction that the government
feels that further some public purpose.

Tax Planning
There are 4 rules of thumb when planning timing of income and deductions; 2 are based on time value of
money propositions AND 2 are based on tax rate considerations.

Time Value of Money

1. Defer recongision of income
2. Accelerate recognision of deductions

Marginal Tax Rate

3. Put income into the year with lowest expected marginal tax rate
4. Put deduction into the year with the highest expected marginal tax rate

Tax evasion occurs when a taxpayer uses fradulent methods or deceptive behaviour to hide the actual tax
liability. Tax evasion is illegal with substaintial penalties.

Tax avoidance is tax planning using legal methods allowed by the law to minimize tax liability. Tax
avoidance generally involves planning an intended transaction to obtain a specific tax treatment.

Income Tax Concepts

Income tax concepts are divided by major functions called general concepts, accounting concepts, income
concepts and deductions concepts

General concepts

General concepts provide guidance on the overall operation and implementation of income tax system. As
such, these concepts apply to almost every aspect of the system, be it an accounting issue, an income
issue, or a deduction issue.
Ability-to-pay: A fundamental concept underlining the income tax structure is the ability-to-pay concept.
This concept states that the tax levied on a taxpayer should be based on the amount that taxpayer can
afford to pay. The final result of this concept of that the income tax base net income number (i.e, income
minus deductions and losses) rather than a gross figure such as total income received.

A second aspect of the ability-to-pay concept is the use of progressive tax rate structure. Recall that a
progressive tax is one in which higher level of tax base are subjected to increasingly higher tax rates.
Individuals with large taxable incomes pay a higher margianl tax rate than do individuals with small
taxable incomes. Thus, both the tax base taxable income and the tax brate applied to the base are
determined by the taxpayers ability to pay.

Administrative Conveniece Concepts

This concept states that items may be omitted from the tax base whenever the cost of implementing a
concept exceeds the benefit of using it. The cost is generally the time and effort for taxpayers to
accumulate the information necessary to implement the concept as well as the cost to the government of
ensuring complaince with the concept.

Pay-as-you-go concept requires taxpayers to pay tax as they generate income. This concept is
implemented through withholding and estimated tax requirements.

Arm's length transaction concept ensures that both parties in the deal are acting in their own self interest
and are not subject to any pressure or duress from the other party.

Accounting method:
There are 2 types of accounting methods:
1. Cash basis
2. Accrual basis

Cash basis accounting states that taxpayer using cash basis are taxed on income as it is received amd
take deductions as they are paid. Income can be received in any form other than cash such as property,
services. Its conversion to cash is not necessary.

Accrual basis states that taxpayers report their income as it is earned and take deductions as theya re
incurred, without regard to the actual reciept or payment of cash.

Income Concepts

All-inclusive-income concept states that all the income received is taxable unless some specific provision
can be found in the law that excludes the item in question from taxation. Income can be received in any
form: cash, property, services and so on. Thus tax law always starts with the proposition that any
anything of value received is taxable.

Capital Asset is a type of asset that is not easily sold in the regular course of a business's operations for
cash and is generally owned for its role in contributing to the business's ability to generate profit.
Furthermore, it is expected that the benefits gained from the asset will extend beyond a time span of one
year. On a business's balance sheet, capital assets are represented by the property, plant and equipment
figure.

The gains or losses from the sale of a capital asset are known as capital gains and capital losses, must be
seperated from all other gains and losses.
Capital recovery concept states that no income is taxed until all capital previously invested in the asset is
recovered. That is that upon purchase of any capital asset all investment in asset must be recorded so
that upon disposal amount of profit (or) may be determined.

Expenditure that benefit more than one year must be capitalised.

Realization Concept

Realization occurs when an arms-length transaction takes place: Goods are sold, serivces are rendered
and so on. Mere changes in value without the advent of realization event in which the taxpayer recieves
the change in value do not result in taxable recognition.

Claim-of-right Doctrine states that a realization occurs whenever an amount is received without restriction
as to its disposition. An item is received without restriction when the reciever has no definite obligation to
repay the amount received. Income received under claim-of-right is reported in the years of reciept. If
income is reported under claim-of-right and a repayment of part or all of reciept occurs in a later year, it
is accounted for a deduction in the year of repayment because of annual accounting period concept. When
a taxpayer receives amount with its use restricted in some substaintial manner, those amounts are not
realised until the restriction is removed.

Constructive reciept is when a taxpayer is entitled to receive income in any form be it service, property,
cash.

Wherewithal-to-pay concept states that income should be recognised and tax paid on income when the
taxpayer has the resources to pay the tax.

Deduction Concept

Legislative Grace concept states that deductions are only allowed as a result of specific legislative
enactments and that any relief granted in for a deduction must be strictly interpreted.

Business purpose concept states that deduction is allowed only for an expenditure that is made fir sine
business or economic purpose that exceeds any tax avoidance motive. This concept has been interpreted
to mean that the expenditure was made in connection of profit-seeking activity unlike personal expense.

Capital Recovery concept states that the amount of deduction can never exceed its cost.

Different terms
gratuity
a sum of money paid to an employee at the end of a period of employment

pension
a regular payment made by the state to people of or above the official retirement age and to some widows
and disabled people.

Provident Fund
An investment fund contributed to by employees, employers, and (sometimes) the state, out of which a
lump sum is provided to each employee on retirement.
Trust
an arrangement whereby a person (a trustee) holds property as its nominal owner for the good of one or
more beneficiaries.

Trustee
an individual person or member of a board given control or powers of administration of property in trust
with a legal obligation to administer it solely for the purposes specified.

Perquisite
a benefit which one enjoys or is entitled to on account of one's job or position.

Mutual Fund
an investment programme funded by shareholders that trades in diversified holdings and is professionally
managed.
set-off
an item or amount that is or may be set off against another in the settlement of accounts.

Set-off losses
Losses that can be adjusted against another income source

* Losses from salary and property are non-adjustable under ITO, 2001

Taxes are collected by the state or sovereign for defense, welfare, development and other such purposes

Job Duties
(i) Recovery out of arrears/current demand.
Arrears demand is for the tax demand for previous years. Current demand is for this year
(ii) Conducting inquiries & submitting reports.
Another responsibility of IIR is to conduct factual inquiry as per observed by the IIR as one felt and seen
on the business premises. The IIR must have service card & should introduce oneself at the business.
Also, have a written empowerment letter. One should observe stock of all inventory, semi-finished at
production site. Also, check the items for sale
(iii) Conducting internal & external survey within jurisdiction.
Conducting internal survey means utilizing the internal FBR resources & data as available by the
subordinate departments as per ITO, 2001
(iv) Ensuring accuracy of demand registers
There is a demand and collection register in which the current year demand and previous years demands
is registered. It could be maintained in manual as well as computerized one.

Three ways of collection.

a) Deduction at source - By Withholding Tax
b) Voluntary payment- By filing Tax return
c) Collection on demand- By assessment
What is withholding tax?
It is an income tax withheld from employees' wages and paid directly to the government by the employer,
and the amount withheld is a credit against the income taxes the employee must pay during the year. It is
deduction of tax at source.
There are different sections dealing with this topic. In case of employment relationship employer deduct
tax from salary of employees and rest of the amount is to be paid to employee, In case of bank
transactions bank deduct tax and rest of the amount is to be paid to receiver, In case of dividend
company deduct the tax from gross amount and rest of the amount is to be paid to shareholders, In case
of non resident providing technical services tax would be deducted from gross amount and rest of the
amount is to be paid to non resident.

Canon of taxation:
1. Equality: Tax payments should be proportional to income and applied equally to all concerned areas

2. Certainty: Tax liability should be clear and certain.

3. Convenience of payment: Taxes should be collected at a time and in a manner convenient for taxpayer

4. Economy of collection: Taxes should be expensive to collect and should not discourage business

Structure of taxes:

1. Proportional tax: Fixed percent of tax for all income groups

2. Progressive tax: Higher income persons pay higher taxes and lower income persons pay lower taxes

3. Regressive tax: Higher income persons pay less tax and lower income persons pay higher tax

Tax avoidance: Avoiding the taxes by legal tactics

Tax evasion: Evading the taxes by fraud

Direct Tax: Income tax, Capital Value Tax (CVT)

Indirect Tax: Custom Duty, Federal Excise Duty, Sales Tax

Pakistan has agreements with more than 50 countries for double taxation including all the developed countries

Federal Taxes
Income tax

General Sales Tax

Customs Duties

Excise Duties

Provincial taxes
General Sales Tax on Services

Stamp Duty

Motor Vehicle Tax

Urban Immovable Property Tax

Professional Tax
Resident is one who has been in Pakistan for 183 days or more.

Non-resident is one who has not resided in Pakistan for that year

Source of Income Resident Non-Resident

Pakistan source Chargeable Chargeable

Foreign source Chargeable Not Chargeable

Resident company is

(a) Pakistan is one incorporated or formed in Pakistan

(b) Control and management wholly in Pakistan

(c) Provincial or local Government

Section Federal Excise Act 2005 Section Sales Tax Act 1990
1 Short title, extent and commencement 1 Short title, extent and commencement
2 Definition 2 Definition
3 Duties specified in First Schedule to be levied 3 Associates (associated persons) mean
4 26 Return
27 Special Return
28 Final Return
7 Determination of tax liability
5 Zero rate of duty and duty drawback 4 Zero Rating
6 Adjustment of duties of excise 8B Adjustable input tax
8 Default surcharge 34 Default surcharge
9 Liability of payment of duty in case of private 58 Liability of payment of duty in case of private
companies or business enterprise or in case companies or business enterprise or in case of
of sale of business ownership sale of business ownership
13 Registration 14 Registration
16 Exemptions 13 Exemption
17 Records 22 Records
18 Invoices 23 Tax Invoices
19 Offences, Penalties 33 Offences and Penalties
20 Appointment of Special Judges 37-C Appointment of Special Judges
21-A Appeal against order of special judge 37-I Appeal against order of special judge to HC
22 Power to arrest and prosecute 37-A Power to arrest
23 Power to summon persons to give evidence 37 Power to summon persons to give evidence
and produce documents in inquiry and produce documents in inquiry
25 Searches and arrests how to be made 40 Searches under warrant
29 Appointment of officers 30 Appointment of officers
34 Appeals to Appellate Tribunal 46 Appeals to Appellate Tribunal
34-A Reference to High Court 47 Reference to High Court
38 Alternate Dispute Resolution 47-A Alternate Dispute Resolution
40 Power to make rules 50 Power to make rules
41 Bar of suits, prosecution and other legal 51 Bar of suits, prosecution and other legal
proceedings proceedings
43 Removal of difficulties and condonation of 55 Removal of difficulties
time limit etc
45 Access to record and posting of excise staff 40-B Posting of IR officer to monitor the production
etc and sale of taxable goods
45-A Monitoring or tracking by electronic or other 40-C Monitoring or tracking by electronic or other
means means
Penalties under Sales Tax Act

Return not filed 5,000

Payment made in 15 days 100 per day
Invoice not issued 5,000 or 3%
Un-authorized issuance of invoice 10,000 or 5%
Failure to notify material changes 5,000
Repeated erroneous calculation in return 5,000 or 3%
Person required to be registered but does not register 10,000 or 5% or 3 years or both
Failure to maintain record 10,000 or 5%
Failure to produce record on (a) 1st notice (b) 2nd notice (c) (a) 5,000 (b) 10,000 (c) 50,000
3rd notice
Failure to furnish required information 10,000
False document, manipulation of record, false declaration 25,000 or 100% or 3 years or both
Denial from premises or office 25,000 or 100% or 5 years or both
Tax fraud 25,000 or 100% or 5 years or both
Violation of embargo on removal of goods 25,000 or 10% or 1 year or both
Obstructing IR officer 25,000 or 100%
Failure to make payment in prescribed manner 25,000 or 3%
Connivance of IR officer 3 years or tax involved or both
Contravention in any provision of this Act 25,000 or 3%
Repeating of offence having penalty in this Act Twice the amount of penalty
Any manipulation of computer record 25,000 or 100% or 1 year or both

Penalties under Federal Excise Act

Return not filed 5000

Short payment made 10,000 or 5% of duty
Payment made in 15 days 100 per day
Mis-declaration or fake documents 20,000, 5 year imprisonment or both
Obstructing IR officer 50,000 or 5 times or 3 years
Illegally removal of goods 50,000 or 5times or 5 years or both
Manipulation of computer record 75,000 or 10 times or 5 years or both
Inadmissible refund or drawback 100,000 or 5 times or 5 years or both
Retail price not indicated on goods 500% Ad valorem for cigarettes and 40% Ad valorem
Sales Tax Act

Officers appointed 30
e-Intermediary 52-A
Value of goods 2(46)
Determination of tax liability 7
Zero rate supply 4
Exempt goods 13
Default Surcharge 34
Sales Tax return 26
Special Return 27
Final Return 28
Extra Tax 3(5)
Collection of excess tax 3-B
Input tax adjustment 8-B
Application of Customs Act 75
Registration 14
Tax invoice 23
Records 22
Payment of evaded tax 25-5
Duty drawback 62
Power of officer 31
Search under warrant 40
Auditor to have power of IR officer u/s 25, 37 & 38
Audit 32-A
Posting of IR officer 40-B
Special Judge 37-C
Appellate Tribunal 46
Reference to High Court 47
Alternate Dispute Resolution 47-A
Excise Act

Officer appointed 29
Default Surcharge 8
Filing of return & payment of duty 4
Duties specified in 1st Schedule 3
Zero rate goods and duty drawback 5
Exempt supplies 16
Adjustment of duty 6
Recovery of arrears 14
Determination of value for duty 12
Refund of duty 44
Application of Sales Tax Act 7
Sales Tax Mode 3 of Sales Tax Act
Application of Customs Act 15
Special Judges 20 & 21
Power of IR officer to ARREST 22 & 25
Power of IR officer to SUMMON 23
Power of IR officer to SIEZE 26
Registration 13
Maintenance of records 17
IR officer to have access to record and posting 45
Invoices 18
Offences and penalties 19
Appeal to Commissioner (Appeal) 33
Appeal to Appellate Tribunal 34
Appeal to High Court 34-A
Alternate Dispute Resolution 38
Departmental audit once a year 46

Income Tax Ordinance

Fiscal Policy: Government changes level of taxes (T) and government spending (G) to help economy
run at full employment OR

Fiscal policy is use of federal budget to smooth business cycle and encourage economic growth.

Types of Fiscal Policy:

(a) Discretionary Fiscal Policy: It is fiscal policy action initiated by the Government

(b) Automatic Fiscal Policy: It is a fiscal policy action that is trigger by the state of the economy.

Expansionary Fiscal policy: Lower taxes and increase in government spending (applied when economy
is in recession and below Full Employment)

Contractionary Fiscal Policy: Government increases taxes and decreases government spending (when
there is demand pull inflation after this the economy slows down run at Full Employment)

Government budget:
Balance budget: Government Tax Revenue = Government Spending

Budget Deficit: Government Tax Revenue > Government Spending

Government debt decreases

Government has more money

Budget Surplus: Government Tax Revenue < Government Spending

Government debt increases by level of deficit

Government debt: Total of deficits surpluses

Budget Deficit: Difference between G-T (Add the deficit to the debt)

Types of Deficit:
Cyclical Deficit: The deficit that occurs because of downturn in the business cycle, I.e. because the
economy is in recession.

When economy is in recession the tax revenues are less than the potential GDP. Transfer payments are
higher than they would be at full GDP

Structural Deficit: the deficit that would exist if the economy was at Full Employment.

Actual Deficit: Cyclical deficit + Structural deficit

Tax Reforms
Pakistan has one of the lowest tax-to-GDP ratios in Asia.

Pakistan levy high level of indirect taxes which are regressive in nature

Less transparent as SRO (Statuary Regulatory Order) not passed by parliament

Agriculture and service sector dot not contribute their share in proportion of their size

Telecom is the major contributor in the services sector

There are wide exemptions and preferential treatment available to certain segment of society

Current system has high cost of compliance

Tax administration is weak. Deduction at source is major contributor followed by voluntary payment. A very less
amount is collected by tax demands

Tax avoidance is in Pakistan

Actual number of taxpayers is high because of Withholding Tax Regime

Compliance ratio is high in case of salaries individuals due to deduction at source

Large number of businesses is either not registered or do not file return

FBR collects 95% of tax revenue

2-4% is lost in Pakistan due to tax evasion

VAT should replace GST

Power to grant exemption should be vested with parliament

Tax policy and tax administration should be separated

Tax procedures and rules should be simplified

Education and awareness of taxpayers

Strict penalties for tax evasion

Honest and competent top management

Training of FBR officials

Discretionary powers should be reduced of officers of FBR

Special tax evasion courts should be established

Elimination of due to Black Economy because of lack of documentation. CNIC is the key solution to this problem.
 Federal Excise Act 2005
Federal Excise Act was enacted as _______: 1st Schedule to Finance Act 2005
Federal Excise Act published in ____ on _____ : Gazette of Pakistan, 1 st July 2005
Federal Excise Act relates to ________: good produced, manufactured, consumed and services
rendered
Federal Excise Act got approval on _____ : 29th June 2005
Federal Excise Act enforced on _____ : 1st July 2005
Prior to Federal Excise Act ______ dealt with excise laws: Central Excise Act 1944
It was repealed u/s ___ of ____: 2, Finance Act 2005
Adjudicating authority means ____ : any authority competent to pass order or make decision
____ & ____ are not adjudicating authorities: FBR, Appellate Tribunal
Appellate tribunal constituted u/s: 130 of Income Tax ordinance
Board mean ____ established u/s ____: FBR, 3 of FBR Act 2007
Which is the highest tax collecting authority ____ which regulates: Board, all direct and indirect taxes
Officers of Inland Revenue appointed u/s ____: 29 of Federal Excise Act 2005
Conveyance means ____: any transport to carry good and passengers such as vessel, aircraft, animal,
vehicle, etc
Default surcharge means surcharge levied u/s ___ of _____: 8, Federal Excise Act
Default surcharge means ____: Failure of person to pay tax in given time is to pay default surcharge
Default surcharge is charged at rate of ____: KIBOR + 3% of duty due, refund of duty or drawback
Distributor is ____: appointed for specific area to buy goods from manufacturer and sell to whole seller
of the area
Due date is ____ u/s ____: 15th of following month, 8
Dutiable good means all excise-able goods excepts those exempted u/s ____ of FEA: 16
Duty means ____ and includes ____ and ____: sum payable, default surcharge, duty chargeable at 0%
Duty due means ____: duty applicable on supplies made and services rendered during a month
Establishment includes___, ____, ___, ___, ____: undertaking, firm, company, AOP, individual
Goods mean ____ specified in ____: goods leviable to excise duty, 1st schedule
Goods include ____ : Goods manufactured in non-tariff area (AJK, Northern areas, etc) and bought to
tariff area
KIBOR is: Karachi Inter-Bank Offered Rate on 1st day of each quarter
Manufacture means__, __, __ & __: process of manufacturing, re-manufacturing, packing or re-packing
Non-fund banking service means ____: all non-interest based services against fee or commission
Person includes ___, ___, ___, ____, ___, ____: 1. Company2. Association3. body of individual
incorporated or not, public or local govt,
provincial govt, federal govt
Sales Tax Mode means ____ u/s____: excise duty charged as if it is sales tax, 3 of sales tax act
Whole sale dealer means ____: one who buys or sells goods on whole sale bases for trade or
manufacture
Zero-rated means ____ u/s____: excise levied and charged at 0% on good to exported, 5 excise act
 Federal Excise Act 2005

Section Related to
Chapter I
Preliminary
1 Short title, extent and commencement
Enforced from 1st July 2005
2 Definitions
Adjudicating authority excludes Board OR Appellate Tribunal
Appellate Tribunal ITO u/s 130
FBR established u/s 3 of FBR Act 2007
Officers appointed u/s 29
KIBOR 1st day of each quarter
Non-tariff area AJK, Northern Areas
Sales tax mode: excise duty collected as sales tax
Chapter II
Levy, collection and payment of duty
3 Duties specified in 1st schedule
To be levied on goods (a)manufactured in Pakistan (b) imported into Pakistan (c) produced in non-
tariff area but bought to tariff area (d) services originated outside but rendered in Pakistan
At rate 15% ad valorem ELSE as specified in 1st schedule
Duty on import collected as it customs duty u/s 31-A of Customs Act 1969
Duty on manufactured goods will be either on (a) plant / machinery capacity (b) fixed basis
Supply of dutiable goods to non-registered person will result in additional 2% of duty
Government can charge higher or lower rate of duty
Liability for payment of duty (a) person manufacturing goods (b) person importing goods (c)
person rendering service, if services are originated abroad than recipient of services in Pak (d)
person bringing goods from non-tariff area to tariff area
Goods include chapter 1 to 97 of 1st schedule and services include chapter 98 of 1st schedule to
customs Act
4 Filing of return, due date and payment of duty
Duty due will be deposited in designated branch of bank
If duty rate is changed during month than particular days in month will apply to that changed rate
and previous rate for others
Revised return: person can deposit correct return in 120 days of filing of return with approval of
commissioner IR
5 Zero rate of duty and drawback of duty
For exported goods and for those goods imported in Pakistan but exported back outside Pakistan
For such goods drawback of duty is provided
6 Adjustment of duties of excise
Input tax will be subtracted from output tax for goods mentioned in 1 st schedule
It will be done if registered person has valid proof that he has paid the price of goods purchased
including amount of duty AND received the payment for sale of goods through banking channel
including online payment
7 Application of provisions of sales tax act 1990
In case of 2nd Schedule the duty will be payable in sales tax mode
Registered person will allowed for deduction if input tax from output tax during tax period
input tax, output tax, tax period will be applicable as mentioned in Sales Tax Act
8 Default surcharge
If a person does not pay duty due, or receives drawback or makes inadmissible adjustment
Then he will pay default surcharge at rate KIBOR + 3% per annum, in addition to duty due
Period for default will be from date of duty due to actual payment made
 Period for default will be from date of adjustment or refund to the actual receiving of amount
9 Liability of duty in case of private companies or businesses in case of sale of ownership
For businesses that discontinue or change in ownership is made, duty is irrecoverable from
current owner than previous owner(s) will be jointly and severely responsible for duties payable
In case of liquidation the duty due will have first priority on assets of the business
No business will be sold unless NOC obtained from commissioner
10 Applicable value and rate of duty
Date for duty will goods sold or exported
Date for duty will services rendered
Date for duty will imported
11 Collection of excess duty, etc
If excess duty is collected than it should be deposited to Govt.
Claims for refund will not be admissible
All provision of this act will apply for collection of such excess duty collected
12 Determination of value for purpose of duty
If the rate of duty for goods is depended on value of goods than it will be determined u/s 2(46) of
Sales Tax Act
If duty is charged at import stage than duty will determined and paid u/s 25 of Customs Act 1969
Duty for services will be paid on amount of charges for services irrespective of the fact that
payment is made or not
Duty for services will include any ancillary facilities or utilities provided
If duty is paid on retail price it will be paid on retail price of goods including all charges and taxes
BUT excluding sales tax levied u/s 3 of Sales Tax Act
If goods are sold at more than one retail price than the highest price will be considered
FBR can fix minimum price of any goods levy of duty
13 Registration
Person making supplies under this Act will be required to be registered
Person registered under Sales Tax Act 1990 will not be required to be registered for excise
purpose
If person is exempt from registration under Sales Tax Act he has to register under Excise Act
14 Recovery of unpaid duty or of erroneously refunded duty or arrears of duty, etc
Any person not levied or paid any duty or any amount erroneously refund will be sent a show
cause notice within 5 years time
Person has to answer the show cause in 120 days or maximum extendable by 60 days with
approval from commissioner
Further maximum of 30 days can be provided if the case is in Alternate Dispute Resolution or due
to stay order
14-A Short paid amounts recoverable
If person pays duty less than duty due he will pay the short amount duty along with default
surcharge
FBR can stop removal of goods from business premises OR from attached bank accounts
15 Application of custom act 1969 to Federal Excise Act
Any or all provisions of Customs act can be applied by Govt in respect of section 3 and 8
16 Exemptions
All goods produced, imported and services rendered will be exempt from duty except those
mentioned in 1st schedule
Goods in 3rd schedule will be exempt from duty and no adjustment will be admissible
17 Records
Every person will keep record for 6 years or till final order in any proceedings at his business
premises
In English or Urdu
Records for clearance and sales made indicating description, quantity and value of goods and
 name, address of person sold to
Records of sold without payment of duty
Records for purchased made indicating description, quantity and value of goods and name,
address of
supplier
Record of imports and exports
18 Invoices
Person will issue serially number invoices at time of clearance or sale of goods including duty at
rate 0%
Name, address, registration number of seller
Name, address, registration number of buyer
Date of issue of invoice
Description and quantity of goods and services
Value exclusive of excise duty
Amount of excise duty
Value inclusive of excise duty
Person making supplied taxable under sales tax act will not be required to issue separate invoice
for excise purpose and amount of excise duty
FBR can specify goods with which the invoice will be carried along with conveyance
Chapter III
Offences and Penalties
19 Offences, penalties, fines and allied matters
Return not filed 5000
Short payment made 10,000 or 5% of duty
Payment made in 15 days 100 per day
Mis-declaration or fake documents 20,000, 5 year imprisonment or both
Obstructing IR officer 50,000 or 5 times or 3 years
Illegally removal of goods 50,000 or 5times or 5 years or both
Manipulation of computer record 75,000 or 10 times or 5 years or both
Inadmissible refund or drawback 100,000 or 5 times or 5 years or both
Retail price not indicated on goods 500% Ad valorem for cigarettes and 40% Ad
valorem for other goods
20 Appointment of Special Judge for trial of offence
A Special Judge will be the person who is or has been or is qualified to be a Session Judge
Government can appoint more than one special judges each within territorial limits
21 Trial of offence by Special Judge
Special judge will deal with all offences mentioned in this act
Criminal Procedure Code will apply except Chapter 38
Chapter 20 of Criminal Procedure Code will apply
Court of Special Judge will be considered session court and person conducting prosecution will be
considered Public Prosecutor
Government can transfer case from 1 special judge to another special judge
21-A Appeal against the order of Special Judge
Appeal against order of special judge be filed with high court within 30 days of passing of order
22 Power to arrest and prosecute
With approval of commissioner IR officer can arrest offender under this act
Special Judge should immediately be informed about the arrest
Arrested person should be produced within 24 hours before special judge or if special judge is not
within reasonable distance to the nearest Judicial Magistrate
Arrested person will be provided opportunity of being heard and can be denied the bail and
directed for detention or execution of bond for bail, with or without sureties
Bail can cancelled later on
 Judicial Magistrate will authorize the detention and will facilitate his production before Special
Judge on date and time fixed by him
Remand of 14 days can be granted with IR officer written request
Within 24 hours the IR officer should complete inquiry and may ask for further detention before
special judge or nearest judicial magistrate
IR officer will have same powers as SHO under CrPC 1898
If after inquiry no evidence is established the IR officer with commissioners approval can release
that person executing a bond with or without sureties
Special judge can release or ask prosecution for further evidence
IR officer will keep Register of arrests and detention
First Class Magistrate can record confession or statement under this act in accordance with
section 164 of CrPC
23 Power to summon persons to give evidence and produce documents in inquiries
IR officer can summon anyone whose attendance he considers necessary either to give evidence
or produce document or any other information
Exemptions under section 132 and 133 of CrPC 1898 will be applicable
Every inquiry will be considered as judicial proceeding within meaning of section 193 and 228
of PPC 1860
24 Officers required to assist [officer of Inland Revenues]
Police, customs, IR civil armed forces, revenue department, all village officer will assist IR officers
Chapter IV
Searches, arrests and seizures
25 Searches and arrests how to be made under CrPC 1898
26 Power to seize cigarettes or beverages manufactured illegally or duty evaded will be confiscated along
with conveyance, transport, fixtures, fitting
27 Confiscation of counterfeit or injurious to health cigarettes and order for their destruction
28 Power to release seized conveyance by special judge with guarantee from bank for value equal to one
year value of conveyance
Chapter V
Power, Adjudication and Appeals
29 Appointed of Federal Excise officers and delegation of powers
30 Use of powers of subordinate officers
32 Option to pay fine in lieu of confiscated conveyance
33 Appeals to Commissioner (Appeals)
Within 30 days against order passed by officer up to rank of Additional Commissioner
If Commissioner (Appeals) thinks that such order will bring undue hardship to taxpayer he may
stay recovery of tax up to 30 days
Commissioner (Appeals) may confirm, alter, and annul the original decision. Such order can be
passed up to 120 days of filing of appeal, with maximum extended period of 60 days. Due to stay
order or matter being in Alternate Dispute Resolution the period can be extended up to 30 days

34 Appeals to appellate tribunal

Person aggrieved by the order of Commissioner, Commissioner (Appeals), Board will make appeal
with appellate tribunal
Appellate tribunal will decide within 6 months the case
34-A Reference to High Court
Within 90 days the aggrieved person or commissioner may file reference in High Court against the
order of Appellate Tribunal
At least 2 judges will hear the case. Section 98 of CrPC will apply
Irrespective of the fact the reference is filed in High Court the tax will be paid as per order of
Appellate Tribunal. High Court may stay the payment of such tax.
35 Power of board or commissioner to pass take suo moto to examine the records of any proceeding
 under this act
36 Power of It officer to rectify mistake in any order within 3 years
37 Deposit, pending appeals of duty demanded or penalty levied by Commissioner (Appeals) or Appellate
Tribunal to be paid within 6 months
If aggrieved person has deposited 15% of duty demanded or penalty imposed he will not ask for
stay against payment
38 Alternate dispute resolution
Aggrieved person may apply board for formation of committee to settle dispute, unless FIR has
been lodged
Board may appoint such committee within 30 days, consisting of IR officer not below Additional
Commissioner and retired judges not below District and Sessions Judge, CA, lawyers,
representatives of trade bodies
Committee will settle the dispute within 90 days. If it does not the committee will be dissolved
and new committee will be formed.
Board may pass order on recommendation of committee
39 Exclusion of time taken for copy of order passed
Chapter VI
Supplemental Provisions
40 Power of board to make rules
41 Bar of suit and limitation of suit and other legal proceedings
42 Observance of Board orders, directions and instruction by IR officers
42-A Reference to authorities
42-byB Selection for audit by Board through computerized balloting
42-C Reward to Inland Revenue officials and officers
43 Removal of difficulties and condonation of time limit
43-A Issuance of duplicate Federal Excise document by at least AC against payment of 100
44 Refund of duty within 1 year
If such refund is due because of order passed by IR officer or Tribunal or Court the 1 year period
will star from the date of passing the order
44-A Delayed refund will be accompanied by KIBOR per annum plus the duty to be refunded
45 Access to record and posting of excise staff
45-A Monitoring or tracking by electronic or other means
46 Departmental audit once a year with notice served by at least AC
47 Service of notices and other documents
48 Repeal if Central Excise Act 1944
Sales Tax Act 1990
The sales tax was imposed as ____ in ___ through ___: federal tax, 1948, general sales tax act 1948
Previously it was ____ and ____ & ____ charged it: provincial tax, Punjab, sindh
____ introduced a system of licensed manufacturers and wholesalers and sales tax imposed on ___
:sales tax act 1951, sales of local goods and on import of
goods
However ___ were allowed to sell without sales tax: licensed persons
From ____ sales tax levied on exciseable goods only but in ____ it was extended to non-exciseable
goods as well: 1951, April 1981
___ introduced major changes in sales tax law. It substituted ___ of _____ and renamed as _____
:Finance Act 1990, whole provisions, sales tax act 1951,
sales tax (amendment) act 1990
Later ____ omitted the word ____ and title became ___: Finance act 1991, Amendment, Sales Tax Act
1990
Sales tax act 1990 became is effective since ____: 1-11-1990
Sales tax has ____ chapters and ___ sections: 10 chapters, 75 sections
Originally sales tax 1990 contained ___ schedules: 7
Currently on ___ schedules are effective: 3
____ schedule refers to goods applicable to sales tax on retail price fixed by manufacturer: 3 rd schedule
____ schedule refers to goods taxable at ____ rate of 0%: 5th schedule
____ schedule refers to goods exempt from sales tax: 6th schedule
Sales tax was previously not enforced in ____ and since ____ it is enforced: northern areas, 27-12-1999
Arrears mean ___: amount due before that day but not paid
Association of Persons include: firm, hindu undivided family, any artificial juridical person, body of
persons formed under foreign law, but EXCLUDES a company
Banking company ordinance ____ defines a banking company: 1962
Officers of Inland revenue appointed u/s ___ of Sales tax act 1990; 30
Common taxpayer identification number is ____: registration number allocated to registered person
Company includes: 1. Company defined under companies ordinance 1984, 2. A corporate body
formed under any law of Pakistan or law or that foreign country, 3.
Modarba 4. Trust 5. Registered cooperative society or any other society 6.
Foreign association (incorporated or not) declared by board as
company in income tax ordinance, 2001
Computerized system means ____: any comprehensive IT system
Cottage industry is manufacturer whose ____ OR ____:1. Taxable supply for 12 months does not
exceed 50 lack 2. Annual utility bills do
not exceed 7 lacs
CREST: Computerized Risk Based Evaluation of Sales Tax, for cross-matching of sales tax returns
Defaulter means ____ and may include __, __, __, __, __: any person who does not pay arrears,
1. Sole proprietor 2. Director or
 partner of a firm 3. Director of company
4. Guarantor 5. Successor
Default surcharge levied u/s ___ of sales tax act: 34
Person may be liable to pay default surcharge for: 1. Non-payment of tax due 2. Claiming tax credit,
adjustment or refund not admissible 3.
Incorrect application of 0% to supplied made
by him
Distributor means__: person appointed by manufacturer, importer or any other person for specific
are for further supply. Whole sellers and retailer are also considered as
distributor
Due date means ____, with tax period as ____, u/s ____: 15th of following month, 1 month, section 26
Establishment means___, ___, ____, ____: an undertaking, firm or company (incorporated or not),
association of persons, or individual
Goods mean ____ and include ___, ___, ___, ___, ___: actionable claims, money, stocks, shares,
securities
Officer of inland revenue u/s ___ of sales tax act: section 30
Open market price: money that would fetch in open market for that supply or similar supply
Similar supply means ___: closely resembled characteristics , quantities, component and material
Person means following 9 entities: individual, company, AOP, fed govt, provincial govt, local govt,
foreign govt, public international organization, political sub-
division of a foreign government
Retail price means ____. When more than 1 price of the same brand is fixed ____ of the those prices
will be considered & applicable to ___ schedule goods: price fixed by manufacturer inclusive of all
duties, charges, taxes (other than sales
tax) AND higher
Return filled under ___ chapter of sales tax act: 5
Type of return; Sales tax return u/s ____, Return under special procedure rules, Special return u/s ___,
Final return u/s ____: 26, 27, 28
Sales tax account represents ____ accounts of sales tax transactions: double entry
Special audit is conducted by ___ or a ____ u/s ____ of sales tax act: chartered accountant, cost and
management accountant,
37C
The auditor appointed shall have powers of officer of sales tax officer u/s ___, ____, ____, 25, 37, 38
Generally, ____ shall be appointed as Special Judge. Special judge appointed u/s ____ and until such
appointment is made as u/s ___of custom act 1969: retired session judge, 37C, 185
Transaction not amounting to supply ___ & ____: 1. Forward transaction of commodities at Pak
mercantile exchange 2. Goods deliver under
Morabaha
Taxable activity means __: any economic activity carried by person whether for profit or not.
Tax Fraction: a / (100+ a) where a is rate of sales tax specified u/s 3. Currently it is 17%. So, 17/117
Tax fraction is applied on ____: computation of output tax
Taxable goods mean all good other than notified by govt u/s ___ sales tax act: 13
U/s ___ Sales tax act every registered person has to issue tax invoice: 23
 The invoice shall contain: serial number, name, address, registration number of supplier as well as
recipient, date of issue of the invoice, description and quantity of
goods, value before sales tax, amount of sales tax, value inclusive of sales tax
____ is also considered taxable supply u/s ___ sales tax act: zero rate supply, section 4
Value of supply means: it is consideration in money including all duties and taxes (excluding sales tax)
Time of supply is ___ for goods and services: separate
Time of supply for goods is time ___ of the following: (Whichever is early of the 2)1. Time of delivery of
goods 2. Time of receipt of any payment by the
supplied
Time for Supply under hire purchase agreement will be ___: time when entered into hire purchase
agreement
Time for supply for services will be ___: at which services are rendered or provided
Receipt of part payment is ____: 1. part payment received for a supply in a tax period , it shall be
accounted for that tax period 2. When part payment is
reviced for exempt supply, it shall be accounted for return for the
tax period during which the exemption is withdrawn from such
supply
Time of supply for part of payment is received in advance and supplies are made in part over a period
of time than sales tax shall be charged for ____: only on the portion of money received or that portion
of supply which is delivered during the tax
period
Trust means ___: obligation annexed to the ownership of property for the benefit of another and
include unit trust
Unit trust means __: trust under beneficial interested divided into units
Open market price is taken as value of supply when: 1. Given to some1 no or less consideration
2. Consideration is part money and part in
other kind 3. Difficult to ascertain the value of
supply
Value of supply on installment the value of supply will be___: open market price
Value of imported goods shall be u/s ___ of custom act: 25
Valuation committee is ____ and constituted by ___: if there is sufficient reason to believe that value
in tax invoice is incorrect, it will be formed
AND commissioner
Markup on credit sales ___: should not be included in the value of supply
Zero rate supply u/s ___ of sales tax act and include: section 4 AND goods to be exported, goods in fifth
schedule
Difference between exempt supply and zero-rated supply

Sr. No Point of discussion Exempt supply Zero Rated supply

1 Taxability Not taxable Taxable
2 Registration under sales tax act Not required Required
3 Credit for input tax Not allowed Allowed
4 Maintenance of record under sales act Not required Required
5 Filling of return under sales tax act Not required Required
 Sales Tax Act 1990

Section Related to
Chapter I
1 Short title, extent and commencement
2 Definition
Chapter II
Scope and Payment of Tax
3 Scope of tax
Sales tax at 17% of value of (a) taxable supplies (b) goods imported into Pakistan
Taxable supplies mentioned in 3rd schedule at 17% legible printed on package
Taxable supplies mentioned in 8th schedule at rate as described in it
Taxable supplies mentioned in 9th schedule at rate as described in it
Govt can charge higher or lower rate of tax on any taxable supplies
Liability of taxable supplies on person making the supply
Liability of goods imported on person importing
Govt can specify goods whose purchase has to pay the sales tax
Govt can charge extra tax not exceeding 17%
Govt can specify manner, mode or time payment of amount of tax
CNG at 17%
Monthly bill of retailer at 5% for up to 20,000 and 7.5% for more than 20,000
3-B Collection of excess sales tax etc
Excess tax has to be deposited with Govt
Burden of proof for excess tax shall lie on person collecting the tax
4 Zero rating on following goods:
Goods exported or goods mentioned in 5th schedule
Govt can restrict amount of tax credit for input tax actually paid and claimed by person
making zero-rated supply of goods otherwise chargeable to sales tax
5 Change in the rate of tax
Tax rate shall apply as in force at time of supply
Tax rate on imported goods for home consumption on date of goods declaration is presented
Tax rate on imported goods for clearance of warehouse on date of goods declaration for
clearance
If GD is presented before arrival of convenience than date on which manifest of conveyance
is delivered
If tax is not paid in 7 days of presenting GD than u/s 104 tax will be charged on rate in force
on date of payment of tax
6 Time and manner of payment
Sales tax on imported goods will be collected in same manner and time as if it is a customs
duty
All provisions of Customs Act 1969 will apply where no specific provisions exist in this act
Section 31-A (related to collection, enforcement ) of Customs Act to be consider incorporated
in this act
Tax for taxable supplies for a tax period will be paid at the time of filing tax return
Tax shall be deposited in designated bank or as Board specifies
7 Determination of tax liability
Registered person can deduct input tax from output tax
If registered person does not deduct input tax within relevant tax period it can deduct in 6
succeeding periods
Registered person can deduct input tax only if (a) he has tax invoice of supply having his
name and registration number (b) bill of entry or goods declaration of imported goods having
his name and registration number, cleared under section 79 or 104 of custom act (c) if goods
 purchased from auction having name and tax number
7-A Levy and collection of tax on specified goods on value addition
Govt can charge sales tax on difference between supply purchased and supply made
Govt can specify minimum value addition required to be declared for certain persons or
goods
8 Tax credit not allowed
Registered person not be allowed to deduct input tax from output tax only if (a) goods or
services are used for purpose other than taxable supplies made (b) goods under subsection
5 of section 3 (c) sales tax not deposited in treasury by supplier CREST cross-matches the
input tax in supply chain (d) fake invoices (e) purchases made by registered person fails to
furnish required information
8-A Joint and several liability of registered persons in supply chain where tax unpaid
8-B Maximum 90% adjustable input tax against output tax
Fixed assets and capital goods are exempt from 90% limit
90% limit does not apply to these (a) registered persons accounts audited under companies
Ordinance 1984 in 2nd month of end of financial year
Any auditor found guilty of misconduct shall be refered for council of disciplinary action
under 20D of Chartered Accountants Ordinance 1961
9 Debit and credit note
Supply made with modification of invoice the requires for corresponding debit or credit note
10 Refund of input tax
If input tax exceed the zero-rated local or export supplies will be refunded to registered
person within 45 days
If input tax exceed supply other than zero-rated supplies such input tax will be carried
forward to next tax period
Any refund will be made after payment of any outstanding dues such as tax, default
surcharge or penalty
If inadmissible input tax refund has been claimed the proceeding against him will be
completed in 60 days extendable by 120 days by officer not blow Additional Commissioner.
The case should not exceed 9 months
11 Assessment of Tax and recovery of tax not levied r short levied or erroneously refunded
If a person does not file return by due date or pays less amount than amount due or claims
inadmissible input tax credit such person will be imposed penalty and default surcharge u/s
33 and 34 after IR officer sending a show cause notice
120 days after issuance of show cause notice order will be passed extendable by 90 days with
approval of Commissioner. If the case is Alternate Dispute Resolution extendable by further
60 days
11-A Short paid amounts recoverable without notice by stopping removal of goods from business
premises and through attachment of bank accounts
No penalty will be imposed u/s 33 unless the show cause notice has been served
13 Exemption
Supply of goods or imports of goods mentioned in 6th schedule will be exempt from tax
Chapter III
Registration
14 Registration
21 De-registration, blacklisting and suspension of registration
IR officer can de-register a registered person or such registered person not required to be
registered
Person issuing fake invoice will be blacklisted. After a person has been blacklisted no invoices
will be considered for input tax credit or tax refund
During suspension of registration invoiced issued will not be considered for input tax credit
Chapter IV
 Book Keeping and Invoicing Requirement
22 Records
Registered person will keep record in English or Urdu of goods purchased or imported and
supplied (zero-rated and exempt supply) made by him
Double entry sales tax accounts
23 Tax Invoices
Name, address and registration number of supplier
Name, address and registration number of receipt
Date of issue, description, quantity, value exclusive of sales tax, amount of sales tax and value
inclusive of tax
No more than 1 invoice will be issued for a supply
Only registered person or person paying retail tax can issue invoice
24 Retention of record and documents for 6 years or when the case has been closed
25 Access to record, documents, etc
If Commissioner has information or evidence an officer not below AC will conduct inquirey
under section 38
During audit or before a show cause notice he wants to pay the evaded amount of tax he
may pay the default surcharge u/s 34 and 25% of penalty payable u/s 33
After issuance of show cause notice he has to pay evaded amount, default surcharge and
100% of penalty
25-A Drawing of samples
25-AA Transaction between Associates (AOP) can be determined for fair market value of supplies by
Commissioner
Chapter V
Returns
26 Return
Board can ask specific person to file return annually, quarterly and monthly basis. While
others can pay on monthly basis
A revised return can filed to incorporate true data in 120 days
Before a show cause notice he can pay the evaded amount of tax he may pay the default
surcharge u/s 34 and 25% of penalty payable u/s 33
After issuance of show cause notice he has to pay evaded amount, default surcharge and
100% of penalty with updated return
27 Special Returns
Registered person will file special return with data such as purchases made, quantity
produced, , goods supplied, payment of arrears
28 Final Return
If a person applied for de-registration u/s 21 he will furnish final return to commissioner
29 Return deemed to have been made
Chapter VI
Appointment of Officer of Sales Tax & their Powers
30 Appointment of Authorities
30-A Directorate General, (Intelligence and Investigation) Inland Revenue
30-B Directorate General Internal Audit
30-C Directorate General of Training and Research
30-D Directorate General of Valuation
30-DD Directorate of Post Clearance Audit
30-E Powers and Functions of Directorate etc
31 Powers
32 Delegation of powers
32-A Special Audit by Chartered Accountants or Cost Accountants
CA may be appointed under Chartered Accountants Ordinance 1961 or Cost and
 Management Accountants Act 1966 to conduct audit of records of registered person
Auditor will be empowered with power of IR officer u/s 25, 37, 38
Chapter VII
Offences and Penalties
33 Offences and penalties
Return not filed 5,000
Payment made in 15 days 100 per day
Invoice not issued 5,000 or 3%
Un-authorized issuance of invoice 10,000 or 5%
Failure to notify material changes 5,000
Repeated erroneous calculation in return 5,000 or 3%
Person required to be registered but does 10,000 or 5% or 3 years or both
not register
Failure to maintain record 10,000 or 5%
st
Failure to produce record on (a) 1 notice (a) 5,000 (b) 10,000 (c) 50,000
(b) 2nd notice (c) 3rd notice
Failure to furnish required information 10,000
False document, manipulation of record, 25,000 or 100% or 3 years or both
false declaration
Denial from premises or office 25,000 or 100% or 5 years or both
Tax fraud 25,000 or 100% or 5 years or both
Violation of embargo on removal of 25,000 or 10% or 1 year or both
goods
Obstructing IR officer 25,000 or 100%
Failure to make payment in prescribed 25,000 or 3%
manner
Connivance of IR officer 3 years or tax involved or both
Contravention in any provision of this Act 25,000 or 3%
Repeating of offence having penalty in Twice the amount of penalty
this Act
Any manipulation of computer record 25,000 or 100% or 1 year or both
34 Default Surcharge
If a registered person does not pay tax or claims inadmissible input tax credit will be laible to
KIBOR + 3% per annum of tax due or the amount of refund erroneously made
If a person has committed tax fraud will pay 2% per month of tax evaded or refund
fraudulently claimed
Date for inadmissible tax credit will be from date of adjustment or when the refund is
received
Date for non-payment of tax will be from 16 th day of the month to day of actual payment
34-A Exemption from penalty and default surcharge
37 Power to summon persons to give evidence and produce documents in inquiries under the Act
IR officer can summon anyone whose attendance he considers necessary
Person exempt from personal appearance in court u/s 132 and 133 of Code of Civil procedure
Code 1908 will not be required to appear in person
Any inquiry of IR officer shall be considered as judicial proceeding u/s 193 and 228 of
Pakistan Penal Code 1860
37-A Power to arrest and prosecute
IR officer not below AC of IR on evidence of tax fraud can arrest any person
All arrest shall be under Code of Criminal Procedure 1898
37-B Procedure to be followed on arrest of a person
A person can be arrested under section 37-A by IR officer
Special Judge should immediately be informed about the arrest
 Arrested person should be produced within 24 hours before special judge or if special judge
is not within reasonable distance to the nearest Judicial Magistrate
Arrested person will be provided opportunity of being heard and can be denied the bail and
directed for detention or execution of bond for bail, with or without sureties
Bail can cancelled later on
Judicial Magistrate will authorize the detention and will facilitate his production before
Special Judge on date and time fixed by him
Remand of 14 days can be granted with IR officer written request
Within 24 hours the IR officer should complete inquiry and may ask for further detention
before special judge or nearest judicial magistrate
IR officer will have same powers as SHO under CrPC 1898
If after inquiry no evidence is established the IR officer with commissioners approval can
release that person executing a bond with or without sureties
Special judge can release or ask prosecution for further evidence
IR officer will keep Register of arrests and detention
First Class Magistrate can record confession or statement under this act in accordance with
section 164 of CrPC
37-C Special Judges
A Special Judge will be the person who is or has been or is qualified to be a Session Judge
Govt can appoint more than one special judges each within territorial limits
37-D Cognizance of Offences by Special Judges
Special judge shall deal with all offences mentioned in this act
Criminal Procedure Code will apply except Chapter 38
Court of Special Judge will be considered session court and person conducting prosecution
shall be considered Public Prosecutor
Govt can transfer case from 1 special judge to another special judge
37-E Special Judge, etc. to have exclusive Jurisdiction
No court other than special judge or high court will try an offence punishable under this act
No court other special judge or high court shall entertain application or petition or give any
direction
37-G Transfer of cases
Case can be transferred from one special judge to another special judge
37-H Place of Sittings
Mostly at headquarter but for convenience of parties at other places
37-I Appeal to the High Court
Within 60 days the aggrieved person or commissioner may file reference in High Court
against the order of Appellate Tribunal
At least 2 judges will hear the case. Section 98 of CrPC will apply
Irrespective of the fact the reference is filed in High Court the tax will be paid as per order of
Appellate Tribunal. High Court may stay the payment of such tax.
38 Authorized officers to have access to premises, stocks, accounts and records
38-A Power to call for information
38-B Obligation to produce documents and provide information
40 Searches under warrant
IR officer can search after obtaining a warrant from magistrate
40-B Posting of Inland Revenue Officer
40-C Monitoring of Tracking by Electronic or other means
Chapter VIII
Appeals
45-A Power of the Board and Commissioner to call for records
45-B Appeal
Any person aggrieved by IR officer decision or order passed under section 10, 11, 25, 36 or 66
 shall file an appeal with Commissioner (Appeal) within 30 days with fee of Rs. 1000
If commissioner (Appeal) consider that tax payment will bring undue hardship to taxpayer he
may stay its payment
The commissioner appeal can annual, confirm or modify the order
The commissioner appeal should pass the order within 120 days from date if filing of appeal.
Further extendable by 60 days
If the case if in Alternate Dispute Resolution or there is stay order it shall be extended by 30
days
46 Appeals to Appellate Tribunal
Any person including officer of IR not below Additional Commissioner aggrieved by order
passed by (a) Commissioner (Appeals) (b) Commissioner IR (c) Board under 45-A within 60
days of passing such order
Appellate tribunal may hear admit and dispose appeal as per section 131 and 132 of income
tax ordinance
47 Reference to the High Court
Within 90 days the aggrieved person or commissioner may file reference in High Court
against the order of Appellate Tribunal
At least 2 judges will hear the case. Section 98 of CrPC will apply
Irrespective of the fact the reference is filed in High Court the tax will be paid as per order of
Appellate Tribunal. High Court may stay the payment of such tax.
47-A Alternative dispute resolution
Aggrieved person may apply board for formation of committee to settle dispute, unless FIR
has been lodged
Board may appoint such committee within 30 days, consisting of IR officer not below
Additional Commissioner and retired judges not below District and Sessions Judge, CA,
lawyers, representatives of trade bodies
Committee will settle the dispute within 90 days. If it does not the committee will be
dissolved and new committee will be formed.
Board may pass order on recommendation of committee
Chapter VIII-A
Settlement of Cases
Chapter IX
Recovery of Arrears
48 Recovery of arrears of tax
For purpose of recovery of tax, penalty the officer of IR will have same power as Code of Civil
Procedure 1908, and considered a Civil Court
Chapter X
Miscellaneous
49 Sales of taxable activity or transfer of ownership
For businesses that discontinue or change in ownership is made the previous owner(s) will be
jointly and severely responsible for duties payable
In case of liquidation the duty due will have first priority on assets of the business
As ongoing concern the future taxes will be paid by the next owner of the business
49-A Liquidators
Liquidators include (a) a liquidators of a company (b) receiver appointed by court (c) trustee
of bankrupt (d) mortgagee in possession
Liquidator will inform within 14 days of being appointed of taking possession to
commissioner
Commissioner within 3 months of being notified will inform about sales tax payable
Liquidator will not sell any assets until notified by commissioner
Liquidator will pay the sales tax liabilities due to the person whose assets are in possession
If assets are less than sales tax amount due liquidator will sell the assets
50 Power to make rules
50-A Computerized system
51 Bar of suits, prosecution and other legal proceedings
52 Appearance before Appellate Tribunal or any IR officer by authorised representative
52-A e-intermediaries to be appointed
53 Tax liability will be first priority on the estate of deceased person
54 Person bankruptcy to pass to his estate
55 Removal of difficulties
56 Service of order, decisions, etc
57 Rectification of mistake or clerical mistake should not be done before the expiry of next financial
year on date of detecting a mistake
58 Liability for payment of tax in the case of private companies or business enterprises lies to its
owner, partner, director, etc
58-A Representatives
Representative of non-resident, guardian of minor, director of company
No person will be considered as representative of non-resident unless of being heard and
approved by the commissioner
58-B Liability and obligations of representatives
59 Tax paid on stocks acquired 30 days for purchases and 90 days for imports before getting
registration
60 Powers to deliver certain goods without payment of tax
61 Repayment of tax in certain cases
61-A Repayment of tax to persons registered in Azad Jammu and Kashmir on import of goods from AJK
62 7/8th amount of import duty paid will be paid as drawback on re-export
63 Drawback on goods taken into use between importation and re-exportation
64 Power to declare what goods are identifiable and to prohibit drawback in case of specified foreign
territory
65 Exemption of tax not levied or short levied as a result of general practice
66 Refund to be claimed within one year
67 Delayed Refund payments will be paid with KIBOR per annum from expiry of period u/s 10
68 Liability of the registered person for the acts of his agent
69 Issuance of duplicate of sales tax documents
70 Computation of limitation period
71 Special procedure
72 Officers of Inland Revenue to follow Board's orders, etc
73 Certain transactions not admissible
Amounts more than 50,000 to be paid in crossed cheque to the seller showing amount of
sales tax
Online payments and payments done through credit card will be considered banking
transaction
If payment in not done in manner mention above it will not be considered for any tax credit
Transaction on credit is to be transferred within 180 days
If first 2 points are not followed the supplier will not be considered for input tax credit
74 Condonation of time-limit by Board
75 Application of the provisions of Customs Act 1969 to Sales Tax imposed u/s 3
 Income Tax Ordinance 2001

Section Related to
Chapter III
Tax on taxable income
Part I
Computation of Taxable Income
9 Taxable Income
Taxable income will total income (section 10) for the tax year reduced by (but not below zero)
any deductable allowances Part 9 of this chapter
10 Total Income
Total income of person for tax year will be total of:
(a) Persons income under all heads of income
(b) Persons income exempt from tax under any provision of this ordinance
11 Heads of income
Heads of income will be classified as:
(a) Salary
(b) Income from Property
(c) Income from Business
(d) Capital Gains
(e) Income from other sources
If deduction for any head exceed the total income for that head that person will be considered
as having a loss
Income for resident persons will have their Pakistan-source income and foreign-source income
considered both considered
Income for non-resident will have their only Pakistan source income considered
Part II
Head of income Salary
12 Salary
Salary other than exempt from tax will be chargeable to tax
Salary include pay, wage, including leave pay, overtime, bonus, commission, fees, gratuity,
amount for dangerous working conditions
Also include any perquisite (benefit) whether paid or provided.
Cost of living, rent, utilities, education, entertainment, travel allowance
Any expenditure incurred by employee paid by employer
Any amount received to join, change in employment, terminate service, golden hand shake,
provident fund, pension, annuity, employee share schemes
If the employer pay the tax for income of employee than tax amount will be added to the
taxable salary
If the person who receives payment for termination of service may request commissioner to
be taxes under following formula:

A / B%

Where,
A is total tax paid or payable for last 3 years
B is total income for last 3 years
If salary has been paid in arrear the person may request that he be taxed in year in which he
rendered service
13 Value of perquisite
 House, car, driver, guard, loan. Loan considered at benchmark rate
14 Employee share schemes
Employee share scheme is (a) when a company or associated company issues share to
employee (b) trustee of a trust under trust deed transfer the employee
Any option or right to acquire share is exempt from tax. Share at fair market value less any
amount given the employee
Transfer of shares having following restrictions that no amount will be chargeable to tax until
(a) the employee has free right to transfer the shares (a) the time employee disposes off the
shares earlier of both be considered
Cost of share will be total of (a) amount given by employee for shares (b) any amount given for
the right to get any shares
When an employee disposes of a right to acquire shares under employee share scheme the
amount taxable under head Salary will be under following formula:

AB

Where,
A is amount received for disposal of right or option
B is employees cost for right or option
Part III
Head of Income: Income from Property
15 Income from Property
Rent received or receivable other than exempt under this section is considered for head
Income from Property
Rent includes any amount received by owner as consideration for use or occupy a land or
building and includes any deposit paid under contract to for sale of land or building
This does not include building along with plant and machinery and also amenities, services
connected with renting of building which is considered for Income from other sources
Where the rent is less than fair market rent but it will be considered for fair market rent
15-A Deductions in computing income chargeable under the head income from property
Repair allowance of 1/5th considered before any of following deductions
Any premium paid to insure building
Any local cess, tax, charge paid to local authority or government
Any profit paid on money borrowed by the way of mortgage, to aquire, construct, renovate,
and reconstruct the property. Also include money got from HBFC or any other ban
Any expenditure not exceeding 6% of rent chargeable to tax before any deduction allowed for
the purpose of collecting the rent
Any expenditure to defend the legal title to the property
Where the unpaid rent is irrecoverable, an allowance equal to unpaid rent. If recovered that
portion of unpaid rent will be included in that years head income from property
When a person is allowed deduction and has not paid in 3 years of tax year in which allowed
such deduction. Such amount will be chargeable from 1 st year after the end of 3rd year. If the
person pay the liability or portion of liability such person will be allowed the deduction for
amount paid in the tax year in which the payment is made
Any expenditure for which deduction is allowed in this section will not be considered for any
other heads deduction
16 Non-adjustable amounts received in relation to buildings
Non-adjustable amount against the rent payable will be chargeable to tax under head income
from property in the tax year it is received and following 9 years in equal proportion
If the tenancy is terminated before the ten years the earlier amount payable is refunded no
portion will be allocated in that year or subsequent years
If owner lets building to next tenant, the succeeding amount as decrease by earlier amount
 will be charged under head income from property
Part IV
Head of Income: Income from Business
18 Income from business
Following incomes of person other than exempt from tax will be chargeable to tax under head
income from business
The profit or gains from any business carried by the person in any time of tax year
Income from hire or lease of tangible moving property
Any perquisite by virtue of past, present or prospective business relationship
Any management fee derived by management company (including modharba)
Any profit on debt income from business not income from other sources
Lease of any asset by any institution, bank, modaraba
Mutual fund income from profit on debt under head income from business not income
from other sources
19 Speculation business
Speculation business means any contract for purchase and sale of commodity or stocks
Speculation business is considered separate from other business of person
This will be a separate part in head income from business
Any loss will be dealt under section 58
Speculation does not include
Any contract to safeguard loss against future price fluctuation
Any contract entered by investor or dealer to guard loss of holding shares
Division II
Deductions: General Principles
20 Deductions in computing income chargeable under head Income from Business
Any expenditure incurred by person in the tax year
21 Deduction not allowed
Any amount of tax deducted under Division III of Part V of Chapter X from an amount derived
by person
Any cess, tax paid or payable by person in Pakistan or foreign that applied on the profits of
business or assessed as percentage of such profit
Any salary, commission, rent profit on debt to non-resident
Any entertain expenditure
Any contribution other than provident fund, approved pension fund, approved gratuity fund,
approved superannuation fund
Any fine or penalty
Any personal expenditure
Any amount carried to reserve fund
Any salary commissioner, brokerage, profit on debt paid by AOP to member of AOP
Any payment other crossed chaque in excess of 50,000. Online payment like credit card also
considered as banking transaction
Expenditure not exceeding 10,000
Utility bills, freight charges, travel fare, postage and payment of duty, fees fines as statuary
obligation
Any salary paid or payable exceeding 15,000 per month other than by crossed chaque or to
directly to employee bank account
Division III
Deductions: Special Provisions
22 Depreciation
The depreciation deduction for tax year will be computed by applying the part I of 3 rd schedule
If asset is partly used for business and partly for other than such proportion will be considered
as it was wholly used for business. The written down value is increased by the amount used for
 other purpose
Formula for above condition will be as following:

AxB/C

Where,
A is the amount of depreciation as whole or part of usage
B is number of months in tax year
C is number of months in tax year

The written down value of depreciable asset at beginning will be:

Where the asset was acquired in tax year, the cost of asset reduced by initial allowance u/s 23
Cost of asset decreased by total depreciation deductions in previous years
The total depreciation allowed will not exceed the value of asset
When a person disposes of depreciation deduction will not be allowed if amount received for
asset is GREATER than the written down value of asset
But if the amount receive on disposal of asset is LESS than the written down value than its
difference will be allowed as deduction under head Income from business
Cost of immovable property or renovation will not include cost of land
When consideration received on disposal of immovable property exceeds the cost of land such
amount will be treated as cost of the land
If person exports depreciable asset its consideration will be treated as equal to the cost of
asset
23 Initial allowance
A person who places an eligible depreciable asset into commercial production in Pakistan for
the first time in a tax year will be allowed a deduction called initial allowance.
The amount of initial allowance will be computed under Part 2 of 3 rd schedule
23-A First year allowance
Plant, machinery and equipment installed by any industrial undertaking set up in specified
rural and under developed areas, and owned and managed by a company will be allowed first
year allowance under part 2 of 3rd schedule
23-B Accelerated depreciation to alternate energy projects
Any plant, machinery and equipments installed for generation of alternate energy by an
industrial undertaking set up will be allowed first year allowance in lieu of initial allowance
under part 2 of 3rd schedule
24 Intangibles
A person will be allowed an amortization deduction in accordance with this section in a tax
year for the cost of the persons intangibles
(a) that are wholly or partly used by the person in the tax year in deriving income from business
chargeable to tax, and
(b) that have a normal useful life exceeding one year
No deduction will be allowed under this section where a deduction has been allowed under
another section of this Ordinance for the entire cost of the intangible in the tax year in which
the intangible is acquired
the amortization deduction of a person for a tax year will be computed according to the
following formula

A/B

Where
A is the cost of the intangible; and
B is the normal useful life of the intangible in whole years
 Where an intangible is not used for the whole of the tax year in deriving income from business
chargeable to tax, the deduction allowed under this section will be computed according to the
following formula

A x B/C

Where,
A is the amount of amortization computed in above given formula
B is the number of days in the tax year the intangible is used in deriving income from business
chargeable to tax; and
C is the number of days in the tax year

An intangible asset is one with:

(a) with a normal useful life of more than ten years; or
(b) that does not have an ascertainable useful life
will be treated as if it had a normal useful life of ten years

The total deductions allowed to a person under this section in the current tax year and all
previous tax years in respect of an intangible will not exceed the cost of the intangible

Where, in any tax year, a person disposes of an intangible, no amortization deduction will be
allowed under this section for that year and
(a) if the consideration received by the person are GREATER than the written down value of the
intangible at the time of disposal, the excess will be income of the person chargeable to tax in that
year
under the head Income from Business
(b) if the consideration received is LESS than the written down value of the intangible at the time of
disposal, the difference will be allowed as a deduction in computing the persons income chargeable
under the head Income from Business in that year

For the purposes of this section, an intangible that is available for use on a day (including a
non-working day) is treated as used on that day

cost in relation to an intangible, means any expenditure incurred in acquiring or creating the
intangible, including any expenditure incurred in improving or renewing the intangible; and

intangible means any patent, invention, design or model, secret formula or process,
copyright, trade mark, scientific or technical knowledge, computer software, motion picture
film, export quotas, franchise, license, intellectual property], or other like property or right,
contractual rights and any expenditure that provides an advantage or benefit for a period of
more than one year (other than expenditure incurred to acquire a depreciable asset or
unimproved land).
25 Pre-commencement expenditure
A person will be allowed a deduction for any pre-commencement expenditure in accordance
with this section
Pre-commencement expenditure will be amortized on a straight-line basis at the rate specified
in Part III of the Third Schedule
The total deductions allowed under this section in the current tax year and all previous tax
years in respect of an amount of pre-commencement expenditure will not exceed the amount
of the expenditure
 No deduction will be allowed under this section where a deduction has been allowed under
another section of this Ordinance for the entire amount of the pre-commencement
expenditure in the tax year in which it is incurred
pre-commencement expenditure means any expenditure incurred before the
commencement of a business wholly and exclusively to derive income chargeable to tax,
including the cost of feasibility studies, construction of prototypes, and trial production
activities, but will not include any expenditure which is incurred in acquiring land, or which is
depreciated or amortized under section 22 or 24
26 Scientific research expenditure
A person will be allowed a deduction for scientific research expenditure incurred wholly and
exclusively for the purpose of deriving income from business chargeable to tax

scientific research means any activity undertaken in Pakistan in the fields of natural or applied
science for the development of human knowledge;

scientific research expenditure means any expenditure incurred by a person on scientific research
undertaken in Pakistan for the purposes of developing the persons business, including any
contribution to a scientific research institution to undertake scientific research for the purposes of the
persons business, other than expenditure incurred
(a) in the acquisition of any depreciable asset or intangible;
(b) in the acquisition of immovable property; or
(c) for the purpose of ascertaining the existence, location, extent or quality of a natural deposit; and

scientific research institution means any institution certified by the 4 [Board] as conducting scientific
research in Pakistan
27 Employees training and facilities
A person will be allowed a deduction for any expenditure (other than capital expenditure) incurred in a
tax year in respect of
(a) any educational institution or hospital in Pakistan established for the benefit of the persons
employees and their dependents;
(b) any institute in Pakistan established for the training of industrial workers recognized, aided, or run
by the Federal Government or a Provincial Government or a Local Government or
(c) the training of any person, being a citizen of Pakistan, in connection with a scheme approved by
the Board for the purposes of this section.
28 Profit on debt, financial costs and lease payments
A deduction will be allowed for a tax year for
(a) any profit on debt incurred by a person in the tax year to the extent that the proceeds or benefit of
the debt have been used by the person for the purposes of business
(b) any lease rental incurred by a person for the purposes of business
(c) any amount incurred by a person in the tax year to a modaraba or a participation term certificate
holder for any funds borrowed and used by the person for the purposes of business
(d) any amount incurred by a person in the tax year to a banking company under a scheme of
musharika representing the banks share in the profits of the musharika
(e) any amount incurred by a scheduled bank in the tax year to a person maintaining a profit or loss
sharing account or a deposit with the bank as a distribution of profits by the bank in respect
of the account or deposit
(f) the financial cost of the securitization of receivables incurred by an Originator in the tax year from a
Special Purpose Vehicle being the difference between the amount received by the Originator and the
amount of receivables securitized from a Special Purpose Vehicle

29 Bad debts
A person will be allowed a deduction for a bad debt in a tax year if the following conditions are
satisfied, namely:
 (a) the amount of the debt was
(i) previously included in the persons income from business chargeable to tax; or
(ii) in respect of money lent by a financial institution in deriving income from business chargeable to
tax;
(b) the debt or part of the debt is written off in the accounts of the person in the tax year; and
(c) there are reasonable grounds for believing that the debt is irrecoverable

The amount of the deduction allowed to a person under this section for a tax year will not
exceed the amount of the debt written off in the accounts of the person in the tax year

Where a person has been allowed a deduction in a tax year for a bad debt and in a subsequent
tax year the person receives in cash or kind any amount in respect of that debt, the following
rules will apply, namely:
(a) where the amount received exceeds the difference between the whole of such bad debt and the
amount previously allowed as a deduction under this section, the excess will be included
in the persons income under the head Income from Business for the tax year in which it was
received; or
(b) where the amount received is less than the difference between the whole of such bad debt and
the amount allowed as a deduction under this section, the shortfall will be allowed as a bad debt
deduction in computing the persons income under the head Income from Business for the tax year
in which it was received
29-A Provision regarding consumer loans
A non-banking finance company or the HBFC will be allowed a deduction, not exceeding three
per cent of the income for the tax year, arising out of consumer loans for creation of a reserve
to off-set bad debts arising out of such loans
Where bad debt cannot be wholly set off against reserve, any amount of bad debt, exceeding
the reserves will be carried forward for adjustment against the reserve for the following years
consumer loan means a loan of money or its equivalent made by a non-banking finance
company or the House Building Finance Corporation to a debtor (consumer) and the loan is
entered primarily for personal, family or household purposes and includes debts created by
the use of a lender credit card or similar arrangement as well as insurance premium financing
30 Profit on non-performing debts of a banking company or development financial institution
A financial institution or modaraba will be allowed a deduction for any profit accruing on a
non-performing debt of the banking company or institution or Non-Banking Finance Company
(NBFC) or modaraba where the profit is credited to a suspense account in accordance with the
Prudential Regulations for Banks or Non-Banking Finance Company or modaraba Non-bank
Financial Institutions, as the case may be, issued by the State Bank of Pakistan or the Securities
and Exchange Commission of Pakistan
Any profit deducted under above that is subsequently recovered by the banking company or
development finance institution or Non- Banking Finance Company (NBFC) or modaraba will
be included in the income of the company or institution or Non-Banking Finance Company
(NBFC) or
modaraba chargeable under the head Income from Business for the tax year in which it is
recovered
31 Transfer on participatory reserve
Subject to this section, a company will be allowed a deduction for a tax year for any amount
transferred by the company in the year to a participatory reserve created under section 120 of
the Companies Ordinance, 1984 in accordance with an agreement relating to participatory
redeemable capital entered into between the company and a banking company as defined in
the Financial Institutions (Recovery Of Finances) Ordinance,2001
The deduction allowed under 1st point for a tax year will be limited to five per cent of the value
of the companys participatory redeemable capital.
No deduction will be allowed under 1st point if the amount of the tax exempted accumulation
 in the participatory reserve exceeds ten per cent of the amount of the participatory
redeemable capital.
Where any amount accumulated in the participatory reserve of a company has been allowed
as a deduction under this section is applied by the company towards any purpose other than
payment of share of profit on the participatory redeemable capital or towards any purpose not
allowable for
Deduction or exemption under this Ordinance the amount so applied will be included in the
income from business of the company in the tax year in which it is so applied.
Division IV
Tax Accounting
32 Method of accounting
Companies will taxed under head Income from business on accrual basis
Persons may opt either cash or accrual basis
33 Cash-basis accounting
Cash basis: Tax on income when received and expenditure when paid
34 Accrual-basis accounting
Accrual basis: income when becomes due and expenditure when becomes payable
35 Stock-in-trade
The cost of stock-in-trade disposed of by person will be computed under formula:

(A + B) C

Where,
A is the opening value of persons stock-in-trade for the year
B is cost of stock-in-trade acquired by the person
C is the closing value of stock in trade

A will be the closing value of persons stock-in-trade of last year

B for commencement will be fair market value for any stock-in-trade acquired
C will be will be lower of cost OR net realization value of stock in trade

Person using cash basis may compute the stock-in-trade value by either prime-cost method or
absorption-cost method
For accrual basis persons stock-in-trade will be computer using absorption-cost method
Where particular items of stock-in-trade are not readily identifiable, a person may account for
that stock on the first-in-first-out method or the average-cost method

absorption-cost method means the generally accepted accounting principle under which the
cost of an item of stock-in-trade is the sum of direct material costs, direct labour costs, and
factory overhead costs;
average-cost method means the generally accepted accounting principle under which the
valuation of stock-in-trade is based on a weighted average cost of units on hand;
direct labour costs means labour costs directly related to the manufacture or production of
stock-in-trade;
direct material costs means the cost of materials that become an integral part of the stock-
in-trade manufactured or produced, or which are consumed in the manufacturing or
production process;
factory overhead costs means the total costs of manufacturing or producing stock-in-trade,
other than direct labour and direct material costs;
first-in-first-out method means the generally accepted accounting principle under which the
valuation of stock-in-trade is based on the assumption that stock is sold in the order of its
acquisition;
 prime-cost method means the generally accepted accounting principle under which the cost
of stock-in-trade is the sum of direct material costs, direct labour costs, and variable factory
overhead costs;
stock-in-trade means anything produced, manufactured, purchased, or otherwise acquired
for manufacture, sale or exchange, and any materials or supplies to be consumed in the
production or manufacturing process, but does not include stocks or shares; and
variable factory overhead costs means those factory overhead costs which vary directly with
changes in volume of stock-in-trade manufactured or produced.
36 Long-term contracts
Persons income arising from long term contract will be on the basis of percentage of
completion method which will be determined by comparing the total costs allocated to the
contract and incurred before the end of the year with the estimated total contract costs as
determined at the commencement of the contract.
long-term contract means a contract for manufacture, installation, or construction, or, in
relation to each, the performance of related services, which is not completed within the tax
year in which work under the contract commenced, other than a contract estimated to be
completed within six months of the date on which work under the contract commenced; and
percentage of completion method means the generally accepted accounting principle under
which revenue and expenses arising under a long-term contract are recognized by reference to
the stage of completion of the contract
Part V
Head of Income: Capital Gains
37 Capital gains
A gain arising on the disposal of a capital asset by a person in a tax year.
the gain arising on the disposal of a capital asset by a person will be computed in accordance with
following formula:

AB

Where,
A is the consideration received by the person on disposal of the asset; and
B is the cost of the asset
Where a capital asset has been held by a person for more than one year the amount of any gain arising
on disposal of the asset will be computed in accordance with the following formula:

Ax

Where,
A is the consideration received by the person on disposal of the asset

Where the capital asset becomes the property of the person

(a) under a gift, bequest or will;
(b) by succession, inheritance or devolution;
(c) a distribution of assets on dissolution of an association of
persons; or
(d) on distribution of assets on liquidation of a company,
the fair market value of the asset, on the date of its transfer or acquisition by the person will be
treated to be the cost of the asset

capital asset means property of any kind held by a person, whether or not connected with a
business, but does not include
(a) any stock-in-trade, consumable stores or raw materials held for the purpose of business;
(b) any property with respect to which the person is entitled to a depreciation deduction under
 section 22 or amortization deduction under section 24
(c) any movable property held for personal use by the person or any member of the persons family
dependent on the person
37A Capital gain on disposal of securities
The capital gain arising from disposal of securities held for a period of less than a year will be
chargeable to tax at the rates specified in Division 7 of Part 1 of the First Schedule
The gain arising on the disposal of a security by a person will be computed in accordance with
the following formula:

AB

Where,
A is the consideration received by the person on disposal of the security; and
B is the cost of acquisition of the security

The holding period of a security will be considered reckoned from the date of acquisition to
the date of disposal of such security
Gain under this section will be treated as a separate block of income
When a person sustains a loss on disposal of securities in a tax year, the loss will be set off only
against the gain of the person from any other securities chargeable to tax under this section
and no loss will be carried forward to the subsequent tax year
38 Deduction of losses in computing the amount chargeable under head Capital Gains
a deduction will be allowed for any loss on the disposal of a capital asset
No loss will be deducted under this section on the disposal of a capital asset where a gain on
the disposal of such asset would not be chargeable to tax
The loss arising on the disposal of a capital asset by a person will be computed in accordance
with the following formula:

AB

Where,
A is the cost of the asset; and
B is the consideration received by the person on disposal of the asset

No loss will be recognized for painting, sculpture, postage stamp, coin, medal, antique under
this section
Part VI
Head of Income: Income from other sources
39 Income from other sources
Income of every kind received by a person in a tax year, if not included in any other head be
chargeable to tax in that year under the head Income from Other Sources, including
following:
Dividend
Royalty
Profit on debt
Additional payment on delayed refund under any tax law
ground rent
rent from the sub-lease of land or a building
income from the lease of any building together with plant or machinery
income from provision of amenities, utilities or any other service connected with renting of
building
any annuity or pension
 any prize bond, or winnings from a raffle, lottery
any other amount received as consideration for the provision,
use or exploitation of property, including from the grant of a
right to explore for, or exploit, natural resources
the fair market value of any benefit from use or exploitation of property
Any amount received by a person as consideration for vacating. Tax to be paid in 10 equal
proportion each year
the possession of a building or part thereof, reduced by any amount paid by the person to
acquire possession of such building
Approved Income Payment Plan or Approved Annuity Plan
issuance of bonus shares to shareholder
any amount received as a loan, advance,
deposit for issuance of shares or gift by a person in a tax year from another person except
from crossed chaque drawn on a bank or through a banking channel from a person holding a
National Tax Number be treated as income chargeable to tax under the head Income from
Other Sources for the tax year
Above point will not apply to an advance payment for the sale of goods or supply of services
40 Deduction of losses in computing the amount chargeable under head Income from other sources
in computing the income of a person chargeable to tax under the head Income from Other
Sources for a tax year, a deduction will be allowed for any expenditure paid by the person in
the year to the extent to which the expenditure is paid in deriving income chargeable to tax
under that head, other than expenditure of a capital nature
A person receiving any profit on debt chargeable to tax under the head Income from Other
Sources will be allowed a deduction for any Zakat paid by the person at the time the profit is
paid to the person
Expenditure is of a capital nature if it has a normal useful life of more than one year
Part VII
Exemptions and Tax Concessions
41 Agricultural income
Agricultural income derived by a person will be exempt from tax
42 Diplomatic and UN exemptions
The income of an individual entitled to privileges under the Diplomatic and Consular Privileges
Act,
1972 will be exempt from tax
The income of an individual entitled to privileges under the United Nations (Privileges and
Immunities) Act, 1948, will be exempt from tax
43 Foreign government officials
Any salary received by an employee (a foreign citizen) of a foreign government
44 Exemptions under international agreement
Any Pakistan-source income which Pakistan is not permitted to tax under a tax treaty or Aid
Agreement will be exempt from tax
Any income received by a person (not being a citizen of Pakistan) engaged as a contractor,
consultant, or expert on a project in Pakistan will be exempt from tax under bilateral or
multilateral technical assistance agreement (a grant fund)
45 Presidents honour
Any allowance attached to any Honour, Award, or Medal awarded to a person by the President
of Pakistan will be exempt from tax

46 Profit on debt
Any profit received by a non-resident person on a security issued by a resident person will be
exempt from tax, where,
(a) the persons are not associates
 (b) security was issued outsider Pakistan
(c) profit was paid outside Pakistan
(d) security is approved by FBR for this section
47 Scholarships
Any scholarship will be exempt from tax
48 Support payment under agreement to live apart
Any income received by a spouse as support payment under an agreement to live apart will be
exempt from tax
49 Exemption of Federal government, provincial government and local government
income of the Federal Government will be exempt from tax
income of a Provincial Government or a Local Government will be exempt from tax other than
income chargeable under the head Income from Business from a business carried on outside
its
jurisdictional area
any payment received by the Federal Government, a Provincial Government or a Local
Government will not be liable to any collection or deduction of advance tax
Any other corporation, company, authority, body, institution of govt will not be exempt from
tax
50 Foreign source income of short-resident individuals
A person:
(a) who is a resident individual solely by reason of the individuals employment; and
(b) who is present in Pakistan for a period or periods not exceeding three years
will be exempt from tax
This section will not apply to:
(a) any income derived from a business of the person established in Pakistan; or
(b) any foreign-source income brought into or received in Pakistan by the person
51 Foreign source income of returning expatriates
Any foreign-source income derived by a citizen of Pakistan in a tax year who was not a resident
individual in any of the four tax years preceding the tax year in which the individual became a
resident will be exempt from tax under this Ordinance in the tax year in which the individual
became a resident individual and in the following tax year Where a citizen of Pakistan leaves
Pakistan during a tax year and remains abroad during that tax year, any income chargeable
under the head Salary earned by him outside Pakistan during that year will be exempt from
tax
53 Exemptions and tax concessions in Second Schedule
The income or classes of income, or persons or classes of persons specified in the Second
Schedule will be exempt from tax
54 Exemption and tax concessions in other laws will not apply until provided in this Ordinance also
55 Limitation on exemption
Part VIII
Losses
56 Set off of losses
Subject to sections 58 and 59, where a person sustains a loss for any tax year under any head
of income specified in section 11, the person shall be entitled to have the amount of the loss
set off against the persons income, if any, chargeable to tax under any other head of income
except income under the head salary or income from property for the year
Where, in a tax year, a person sustains a loss under the head Income from Business and a
loss under another head of income, the loss under the head Income from Business shall be
set off last
56-A Set off of losses of companies operating hotels
operating hotels in Pakistan or AJ&K, sustains a loss in Pakistan or AJ&K for any tax year under
the head income from business shall be entitled to have the amount of the loss set off
 against the companys income
57 Carry forward of business losses
Where a person sustains a loss for a tax year under the head Income from Business (other
than a loss to which section 58 (speculation)applies) and the loss cannot be wholly set off
under section 56, so much of the loss that has not been set off shall be carried forward to the
following tax year and set off against the persons income chargeable under the head Income
from Business for that year
no loss can be carried forward to more than six tax years immediately succeeding the tax year
for which the loss was first computed
Where a person has a loss carried forward under this section for more than one tax year, the
loss of the earliest tax year shall be set off first
Where the loss referred to in 1st point includes deductions allowed under sections 22, 23, 23A,
23B and 24 that have not been set off against income, the amount not set off shall be added to
the deductions allowed under those sections in the following tax year, and so on until
completely set off. the deductions allowed under those sections shall be taken into account
last
57-A Set off of business loss consequent to amalgamation
The assessed loss (excluding capital loss) for the tax year, other than brought forward and
capital loss, of the amalgamating company or companies shall be set off against business
profits and gains of the amalgamated company, and vice versa, in the year of amalgamation
and where the loss is not adjusted against the profits and gains for the tax year the unadjusted
loss shall be carried forward for adjustment up to a period of six tax years succeeding the year
of amalgamation
58 Carry forward of speculation business losses
Where a person sustains a loss for a tax year in respect of a speculation business carried on by
the person (hereinafter referred to as a speculation loss), the loss shall be set off only against
the income of the person from any other speculation business of the person chargeable to tax
for that year
no speculation loss shall be carried forward to more than six tax years immediately succeeding
the tax year for which the loss was first computed
Where a person has a loss carried forward under this section for more than one tax year, the
loss of the earliest tax year shall be set off first
59 Carry forward of capital losses
Where a person sustains a loss for a tax year under the head Capital Gains (hereinafter
referred to as a capital loss), the loss shall not be set off against the persons income, if any,
chargeable under any other head of income for the year, but shall be carried forward to the
next tax year and set off against the capital gain, if any, chargeable under the head Capital
Gains for that year
no loss shall be carried forward to more than six tax years immediately succeeding the tax year
for which the loss was first computed
Where a person has a loss carried forward under this section for more than one tax year, the
loss of the earliest tax year shall be set off first
59-A Limitation on set off and carry forward of losses
In case of association of persons 4 [any loss] shall be set off or carried forward and set off only
against the income of the association
any member of an association of persons to set off any loss sustained by such association of
persons or have it carried forward and set off, against his income

59-AA Group taxation

Locally incorporated, holding companies and subsidiary companies of 100% owned group may
opt to be taxed as one fiscal unit. In such cases, besides consolidated group accounts as
required under the Companies Ordinance, 1984 (XLVII of 1984), computation of income and
 tax payable shall be made for tax purposes
The companies in the group shall give irrevocable option for taxation under this section as one
fiscal unit
The relief under group taxation would not be available to losses prior to the formation of the
group
59-B Group relief
any company, being a subsidiary of a holding company, may surrender its assessed loss
(excluding capital loss) for the tax year (other than brought forward losses and capital losses),
in favour of its holding company or its subsidiary or between another subsidiary of the holding
company
Provided that where one of the company in the group is a public company listed on a
registered stock exchange in Pakistan, the holding company shall directly hold 55% or more of
the share capital of the subsidiary company. Where none of the companies in the group is a
listed company, the holding company shall hold directly 75% or more of the share capital of
the subsidiary company
The loss surrendered by the subsidiary company may be claimed by the holding company or a
subsidiary company for set off against its income under the head Income from Business in
the tax year and the following two tax years
The subsidiary company shall not be allowed to surrender its assessed losses for set off against
income of the holding company for more than three tax years
Where the losses surrendered by a subsidiary company are not adjusted against income of the
holding company in the said three tax years, the subsidiary company shall carry forward the
unadjusted losses in accordance with section 57.
If there has been any disposal of shares by the holding company during the aforesaid period of
five years to bring the ownership of the holding company to less than fifty-five per cent or
seventy-five per cent, as the case may be, the holding company shall, in the year of disposal,
offer the amount of profit on which taxes have not been paid due to set off of losses
surrendered by the subsidiary company.
Loss claiming company shall, with the approval of the Board of Directors, transfer cash to the
loss surrendering company equal to the amount of tax payable on the profits to be set off
against the acquired loss at the applicable tax rate. The transfer of cash would not be taken as
a taxable event in the case of either of the two companies.
The transfer of shares between companies and the share holders, in one direction, would not
be taken as a taxable event provided the transfer is to acquire share capital for formation of
the group and approval of the Security and Exchange Commission of Pakistan or State Bank of
Pakistan, as the case may be, has been obtained in this effect. Sale and purchase from third
party would be taken as taxable event
Part IX
Deductable Allowances
60 Zakat
A person shall be entitled to a deductible allowance for the amount of any Zakat paid by the
person in a tax year under the Zakat and Ushr Ordinance, 1980
60-A Workers welfare fund
A person shall be entitled to a deductible allowance for the amount of any Workers Welfare
Fund
60-B Workers participation fund
A person shall be entitled to a deductible allowance for the amount of any Workers
Participation Fund paid by the person in a tax year in accordance with the provisions of the
Companies Profit (Workers Participation) Act, 1968
Part X
Tax Credits
61 Charitable donations
 A person shall be entitled to a tax credit in respect of any sum paid, or any property given by
the person in the tax year as a donation to
(a) any board of education or any university in Pakistan established by, or under, a Federal or a
Provincial law;
(b) any educational institution, hospital or relief fund established or run in Pakistan by Federal
Government or a Provincial Government or a Local Government, or
(c) any non-profit organization
The amount of a persons tax credit allowed for a tax year shall be computed according to the
following formula, namely

(A/B) x C

where
A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under
this Part;
B is the persons taxable income for the tax year; and
C is the lesser of :

(a) the total amount of the persons donations referred to in 1 st point in the year, including the fair
market value of any property given; or
(b) where the person is
(i) an individual or association of persons, thirty per cent of the taxable income of the person for the
year; or
(ii) a company, 20% per cent of the taxable income of the person for the year

62 Tax credit for investment in share and insurance

Resident person other than a company shall be entitled to a tax credit for a tax year either
(a) in respect of the cost of acquiring in the year new shares offered to the public by a public company
listed on a stock exchange in Pakistan, provided the resident person is the original allottee of the
shares or the shares are acquired from the Privatization Commission of Pakistan; or
(b) in respect of any life insurance premium paid on a policy to a life insurance company registered by
the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000, provided
the resident person is deriving income chargeable to tax under the head salary or income from
business
The amount of a persons tax credit allowed under 1 st point for a tax year shall be computed
according to the following formula, namely

(A/B) x C

where
A is the amount of tax assessed to the person for the tax year
before allowance of any tax credit under this Part;
B is the persons taxable income for the tax year; and
C is the lesser of

(a) the total cost of acquiring the shares, or the total

contribution or premium paid by the person referred to in
sub-section (1) in the year;
(b) 20% per cent of the persons taxable income for the
year; or
(c) 1 million rupees
63 Contribution to approved Pension Fund
An eligible person as defined in sub-section (19A) of section 2 deriving income chargeable to tax under
 the head Salary or the head Income from Business shall be entitled to a tax
credit for a tax year in respect of any contribution or premium paid in the year by
the person in approved pension fund under the Voluntary Pension System Rules,
2005.
The amount of a persons tax credit allowed under 1 st point for a tax year shall be computed
according to the following formula, namely:

(A/B) x C

Where.-
A is the amount of tax assessed to the person for the tax year, before allowance of any tax credit
under this Part;
B is the persons taxable income for the tax year; and
C is the lesser of
(i) the total contribution or premium referred to in 1 st point paid by the person in the year; or
(ii) twenty per cent of the eligible persons taxable income for the relevant tax year; Provided that an
eligible person joining the pension fund at the age of 41 years or above, during the first ten years
starting from July 1, 2006 shall be allowed additional contribution of 2% per annum for each year of
age exceeding forty years. Provided further that the total contribution allowed to such person shall not
exceed 50% of the total taxable income of the preceding year
64 Profit on debt
A person shall be entitled to a tax credit for a tax year in respect of any profit or share in rent
and share in appreciation for value of house paid by the person in the year on a loan by a
scheduled bank or non- banking finance institution regulated by the Securities and Exchange
Commission of Pakistan or advanced by Government or the Local Government or a statutory
body or a public company listed on a registered stock exchange in Pakistan where the person
utilizes the loan for the construction of a new house or the acquisition of a house.
The amount of a persons tax credit allowed under 1 st point for a tax year shall be computed
according to the following formula, namely:

(A/B) x C

where
A is the amount of tax assessed to the person for the tax year before
allowance of any tax credit under this Part;
B is the persons taxable income for the tax year; and
C is the lesser of
(a) the total profit referred to in 1st point paid by the person in the year;
(b) 50% per cent of the persons taxable income for the year;
or
(c) 750,000 rupees.
65 Misc provisions related to tax credits
65-A Tax credit for person registered under Sales Tax Act 1990
Every manufacturer, registered under the Sales Tax Act, 1990, shall be entitled to a tax credit of
two and a half per cent of tax payable for a tax year, if ninety per cent of his sales are to the
person who is registered under the aforesaid Act during the said tax year.
For claiming of the credit, the person shall provide complete details of the persons to whom
the sales were made.
No credit will be allowed to a person whose income is covered under final tax or minimum tax.
Carry forward of any amount where full credit may not be allowed
against the tax liability for the tax year, shall not be allowed
65-B Tax credit for investment
Where a taxpayer being a company invests any amount in the purchase of plant and
 machinery, for the purposes of extension, expansion, balancing, modernization and
replacement of the plant
and machinery, already installed therein, in an industrial undertaking set up in Pakistan and
owned by it, credit equal to ten per cent of the amount so invested shall be allowed against
the tax payable, including on account of minimum tax and final taxes payable under any of the
provisions of this Ordinance, by it in the manner provided here
65-C Tax credit for enlistment
Where a taxpayer being a company opts for enlistment in any registered stock exchange in
Pakistan, a tax credit equal to 15% of the tax payable shall be allowed for the tax year in which
the said company is enlisted
65-D Tax credit for newly established industrial undertakings
Where a taxpayer being a company formed for establishing and operating a new industrial
undertaking including corporate dairy farming sets up a new industrial undertaking including
a corporate dairy farm, it shall be given a tax credit equal to hundred per cent of the tax
payable
, including on account of minimum tax and final taxes payable under any of the provisions of
this Ordinance, on the taxable income arising from such industrial undertaking for a period of
five years beginning from the date of setting up or commencement of commercial production,
whichever is later.
65-E Tax credit for industrial undertaking established before the 1st day of July 2011
Where a taxpayer being a company, setup in Pakistan before the first day of July, 2011, invests
any amount, with hundred per cent new equity raised through issuance of new shares, in the
purchase and installation of plant and machinery for an industrial undertaking, including
corporate dairy
farming, for the purposes of:
expansion of the plant and machinery already installed therein;
or
undertaking a new project,
a tax credit shall be allowed against the tax payable for a period of five years beginning from
the date of setting up or commencement of commercial production from the new plant or
expansion project, whichever is later
Chapter X
Part IV
Collection and Recovery of Tax
137 Due date for tax payment
Tax will payable on due date
If tax is to be paid on assessment order or amended assessment order it will be payable in 15
days from date of serving of notice
Tax payable on provisional assessment u/s 122-C will be payable in 60 days of serving a notice
Commissioner can grant extension in time for payment and allow installments
When paying in installments of person defaults any payment whole tax will be immediately
payable
138 Recovery of taxes out of property and through arrest of taxpayer
Commissioner will serve a notice to taxpayer, if he does not pay the tax within due time he
may:
(a) arrest him for 6 months
(b) sale any movable or immovable property
(c) appoint receiver of any movable or immovable property of taxpayer
For doing above commissioner will have powers of Civil Court under Code of Civil Procedure
1908
138-A Recovery of taxes by District Officer (Revenue) upon forwarded by commissioner IR as if it is revenue
dues
 District Officer (Revenue) will have power of Civil Court under Code of Civil Procedure 1908
138-B Tax liability will pass on to the estate in bankruptcy
It will be considered current expenditure in the estate
And it will have the first priority over other creditors claims
139 Collection of tax in the case of private companies and associations of persons will be collected from:
(a) Director (b) shareholder (c) member of AOP
140 Recovery of taxes from persons holding money on behalf of a tax payer
141 Liquidators
Liquidators include (a) a liquidators of a company (b) receiver appointed by court (c) trustee of
bankrupt (d) mortgagee in possession
Liquidator will inform within 14 days of being appointed of taking possession to commissioner
Commissioner within 3 months of being notified will inform about sales tax payable
Liquidator will not sell any assets until notified by commissioner
Liquidator will pay the sales tax liabilities due to the person whose assets are in possession
If assets are less than sales tax amount due liquidator will sell the assets
142 Recovery of Tax due by non-resident member of an association of persons will be received from
resident member of AOP
143 Non-resident ship owner or character
Master of ship will furnish commissioner a return showing gross amount in sub-section 1 of
section 7
Commissioner will assess the tax liability and issue assessment order to master of ship
If non-resident owner or master of ship has not furnished the return the commissioner may
give 30 days of departure of ship to file return
Collector customs will not give port clearance until he is satisfied that tax liabilities have been
paid u/s 7
144 Non-resident aircraft owner or character should file return of gross amount to be filed in 45 days
from last days of each quarter
Commissioner will issue tax assessment. The owner has to pay in 3 months if he does not he
will be refused for clearance from any airport of Pakistan
145 Assessment of person about to leave Pakistan
A person leaving Pakistan and not intending to come back to Pakistan will give notice at least
15 days before his departure
Along with notice the person will also file return showing his tax year ending the said date
146 Recovery of tax from person assessed in AJK
If income tax authorities in AJK cannot recover amount from a person because (a) he is in
Pakistan (b) he has not property in AJK
The DC in AJK will forward certificate of recovery to commissioner. Upon receiving such
certificate the commissioner will recover the tax
Certificate will include (a) person residence in Pakistan (b) persons property in Pakistan (c)
amount of tax payable by the person
146-A Initiation, validity, etc of recovery proceedings at any time by commissioner u/s 138-A
146-B Tax arrears settlement incentive scheme

1) Deduction at source means deduction of tax at the time of payments against

supplies/services/services under contract/commission etc by the buyer being a withholding agent and
deposit with the Government treasury within 7 days of the following the week in which deduction was
made.

2) Advance payment of tax means payment of tax in advance in 4 four installments (quarterly) in respect
of current year liability.
1st Installment - 25th September
2nd Installment - 25th December
3rd Installment - 25 March
4th Installment - 15 June

3) Payment of tax while filing the income tax return.

Total liability - Advance tax payment = Tax Payable and tax payable will be
deposited under section 137(1) of the Income Tax Ordinance, 2001

4) Payment of tax on demand by authorities means amount of tax required to be deposited after amended
assessment.

5) Recovery through tax recovery procedure, if taxpayer fails to pay tax on demand - recovery under
section 138(2) read with recovery rules under Income tax rules, 2002.