1Hotel Sheraton, Karachi 29 – 30 August, 2005 WORKSHOP ON INCOME TAXHotel Sheraton, Karachi 29 – 30 August, 2005
2the most gracious and most merciful. In the name of Allah,the most gracious and most merciful.
3PAYMENT AND REFUND OF TAX Abdul Qadir Memon ByAbdul Qadir MemonFormer President, Income Tax Bar Association Karachi
4In this world nothing is certain, but death and taxes. --- Benjamin Franklin
5Payment and Refund of Tax Advance Tax Presumptive tax regime CONTENTSPayment and Refund of TaxAdvance TaxPresumptive tax regimeWithholding taxWithholding tax statementsAdditional tax & PenaltiesCollection & recovery of taxRefunds
6ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE Historical background & Concept of Advance TaxThe concept of Advance Tax was introduced in the sub-continent as a war measure to combat inflation and to with draw a part of the unprecedented amount in circulation. However in the case Prushottamdas vs CIT 48 ITR (SC) 206, 211; the honorable superior court has observed that like many other innovations in taxation legislation, this innovation also has outlived its exigency which gave it birth. It was further observed that Government rest on the principle of pay as you earn i.e. paying tax by instalments in respect of the income of the very year in which the tax is paid.
7ADVANCE TAX AND DEDUCTION OF TAX AT SOURCE Historical background & Concept of Advance TaxThe Income Tax Ordinance, 2001 provides for following three modes of collecting taxes in advance , which we will discuss in detail :-Advance Tax directly liable to be paid;Deduction at source ; orCollection at source
8ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) Who is liable to pay advance tax?Every taxpayer, whose income was charged to tax for the latest tax/assessment year shall be liable to pay advance tax for the year other than the following:a) Income chargeable to tax under the head Capital Gains;b) Income chargeable to tax under theheads:-i) Dividend (under section 5)ii) Tax on Certain payments to Non Residents (under section 6);iii) Shipping and Air Transport (under section 7);
9ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) c) Income chargeable to tax at source under the head Property Income;d) Income subject to deduction of tax at source under the head Salary;e) Income under the following heads of income on which tax has been collected as final tax liability and no tax credit is allowed as result of sub-section (3) of section 168.i) Imports [section 148 (7)].ii) Payments for goods and services [section 153 (6) or (7)].iii) Export [section 154 (4)].iv) Prizes and Winnings [section 156 (3)].v) Transport business [section 234 (5)].
10ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) f) The provision of this section does not apply to an individual or association of persons (AOP) where the individual’s or AOP’s latest assessed taxable income excluding items mentioned above is less than Rs.200,000/-.In my humble view although the limit of Rs. 200,000/- has been fixed after exclusion of certain incomes; but no machinery has been provided to calculate the share of tax on such excluded incomes in order to arrive the figures of last assessed tax for the purpose of advance tax.
11ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) When advance tax is payable?For a Quarter ofDate of PaymentSeptemberOn or before 15th day of SeptemberDecemberOn or before 15th day of DecemberMarchOn or before 15th day of MarchJuneOn or before 15th day of June
12ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) When advance tax is payable?In the case of Oswal Woolen Mills Ltd vs CIT (Central) Patiala 122 ITR 789 it was held that the date of payment of tax is the date when the cheque is presented and not the date, when it is encashed by the department. It was also held in the case of Life Bond Fabric vs CIT 216 ITR 529, that any advance tax paid after the due date but before the end of the relevant financial year should be treated as advance tax. However, payment of tax after the end of financial year can not be regarded as advance tax and an erroneous credit can be with drawn in rectification proceedings.
13ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) What is the method of payment of advance tax?CompanyThe tax assessed to the taxpayer for the latest tax/assessment year to be paid in four quarterly instalments. The taxpayer shall be allowed to deduct the tax paid in the quarter for which tax credit is allowed under section 168, other than tax deduced on Income from Salary and Property.
14ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) Individuals and Association of PersonsWhere the tax payer having latest assessed income of two hundred thousand rupees or more (after exclusion of incomes mentioned above); the tax assessed to the taxpayers for the latest tax/assessment year to be paid in four quarterly instalments. However, any tax deducted in the quarter on Salary or Income from Property shall not be allowed as deduction while providing the credit of tax collected or deducted in such quarter.
15ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) Whether any taxpayer’s income which islikely to be reduced can file estimates ofhis income and pay advance taxaccordingly ?Yes, the tax payer at any time before the last instalment is due, may furnish to the Commissioner an estimate of the amount of the tax payable by him, and there after pay balance estimated amount in equal instalments on such dates as have not expired.
16ADVANCE TAX U/S. 147 (ADVANCE TAX DIRECTLY LIABLE TO BE PAID) In which Order the credit shall beapplied, in case there are more than onetax Credits?a) any foreign tax credit allowed under section 103; thenb) any tax credit allowed under Part X of Chapter III (Charitable donations, Investment in shares, Retirement Scheme, Profit on Debt and etc.); and thenc) any tax credit allowed under sections 147 (Advance Tax); and 168 (Credit for tax collected or deducted).
17WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRTax administrators all over the world and particularly in the developing countries like Pakistan face major problems of non-reporting and under-reporting of income. The Withholding Tax and Presumptive Tax Regimes are not new concepts. The Presumptive Tax as initially introduced in the Indian Income Tax Act, 1922 under section 18(3BB) through which tax was imposed on Trading in Liquor, Timber and other Forest Produce in India.
18WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRThe scope of these provisions was made applicable in Pakistan through various provisions of Income Tax Ordinance, In Pakistan Prior to July 1991, taxation on presumption was restricted only to the non-residents deriving receipts from shipping, air transport business and having fee from technical services.
19WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRThe Presumptive Taxation approach although has been advocated by the Musgrave and well known French Forfeit System and such law also exist in countries like UK, New Zealand, Nepal, India, Philippines, Hong Kong, China, Indonesia, Mexico, Russia, Czechoslovakia, Channel Islands, Istle of Man and many other countries of the world.
20WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRHowever they are applicable to only those persons whose incomes are likely to be difficult to determine accurately, easier to evade, or more likely to cross national boundaries, but in Pakistan this law has been made applicable to almost all the categories of tax payers not only that but they are being heavily punished for their inadvertent mistakes.
21WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRThrough Finance Act, 1991, provisions of Section 80 C, 80 CC and 80 D were introduced. The then Finance Minister while defending the introduction of such provisions stated that although the contractors, suppliers and importers are liable to with-holding tax, however they were subjected to inconvenience through cumbersome assessment procedures and delay in issuance of refunds.
22WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRIt is to relieve them from the pain, the tax deducted at source is treated as full and final discharge of liability. The tax payer is not required to file any return and he doesn’t have to attend any proceedings in the tax offices.
23WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRIt was further stated that the withholding tax has not only proved a very effective instrument for the recovery of direct taxes but a vast majority of tax payers have also expressed their confidence and satisfaction in this system. In view of these encouraging results, it was decided to extend the system.
24WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRThe with holding and Presumptive Tax Regimes since July 1991 have come into full force. The law which weaved the indirect taxes into direct taxes texture resulted in thousands of Writ Petitions; virus of which were challenged by the tax payers in all round Pakistan on the ground of equity and also on the principles of real income and it’s taxability on the basis of liability to pay in a progressive manner.
25WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR) HISTORICAL BACKGROUND AND OBJECTIVE OF PTRBut in the case of M/s. Elahi Cotton Mills and Others reported as 1997 PTD 1555, the honorable Supreme Court of Pakistan held that the Presumptive Tax imposed u/s. 80C, 80CC and 80D is in consonance with Entry 52 of the Federal Legislative List. The Indian High Courts also in the cases of P.Kunhammed Kutty Haji and Others reported as (1989) 176 ITR 481 and A.Samyasi Roa and Others reported as (1989) 178 ITR 31 have upheld the constitutional validity of the amendment in view of the clear objective of grabbling the evaders and inability of the Administrative machinery to reach them otherwise.
26HISTORICAL BACKGROUND AND OBJECTIVE OF PTR WITHHOLDING AND PRESUMPTIVE TAX REGIME (PTR)HISTORICAL BACKGROUND AND OBJECTIVE OF PTRAccording to latest statistics available more than 54% of total indirect taxes was collected for the year ended 0n 30th June 2005 through withholding tax regime. The analysis of net collection of Indirect Taxes at billion is as follows:-
28[(50(5)] read with Part II of 1st Schedule IMPORTSSECTION 148[(50(5)] read with Part II of 1st Schedule1. In view of section 148 (2), this section shall not apply to –a) The re-importation of re-useable containers for re-export qualifying for Custom duty and Sales Tax exemption on temporary import under the Custom’s notification No. SRO 344(1)/95 dated ; orb) The importation of the following petroleum products:-“Motor Sprit (MS), Furnace Oil (FO), JP-1and MTBE”
29IMPORTSSECTION 148[(50(5)] read with Part II of 1st Schedule2. The Commissioner may issue a reduced rate or exemption certificate to a manufacturer who imports raw-materials (other than edible oil) exclusively for its own use, provided –a) the aggregate of tax paid or collected in a tax year equals the amount of tax paid by the manufacturer in the immediately preceding year; or
30IMPORTSSECTION 148[(50(5)] read with Part II of 1st Scheduleb) a manufacturer is liable to pay advance tax u/s.147; however, he may cancel the exemption certificate issued if manufacturer fails to pay any instalments payable u/s.147; orc) the Commissioner is satisfied that the income of a person during the tax year is exempt from tax or such person is not likely to pay any tax (other than tax u/s.113) on account of depreciation or brought forward of losses.
31IMPORTSSECTION 148[(50(5)] read with Part II of 1st Schedule3. The tax collected under this section including tax collected on the import of edible oil shall be final tax on the income of importer arising from the imports except in the case of an industrial undertaking importing goods as raw-material, plant, machinery and equipment for its own use.
32IMPORTSSECTION 148[(50(5)] read with Part II of 1st Schedule4. The Central Board of Revenue vide SRO No.593(1)(91) dated specified various classes of persons to whom the above sub-section shall not apply and keeping in view the saving clause u/s.239(10) it will continue to be applicable unless the same has specifically been withdrawn. The CBR also confirmed this position vide Circular No.9 of 2002 dated
33IMPORTSSECTION 148[(50(5)] read with Part II of 1st Schedule6.The CBR vide circular letter No.1(38)WHT/91 dated in the case of manufacturers whose annual exports are not less than 80%, authorized the concerned Commissioner of Income Tax to issue exemption certificate u/s.50(5) of the I.T.Ord., 1979 in case they fulfill the conditions prescribed under Circular No.20 of 1992 for assessment u/s.80CC.
34IMPORTSSECTION 148[(50(5)] read with Part II of 1st Schedule7. Provision of this section shall not apply to the various items described in certain clauses of Part IV of 2nd Schedule.8. As per Sub-Section 148(9) and also under section 50(5) of the Repealed Ordinance the tax is deductible on value goods and the same has been defined as under:-
35IMPORTSSECTION 148[(50(5)] read with Part II of 1st Schedule"Value of goods" means the value of the goods as determined under section 25 of the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty increased by the customs-duty and sales tax, if any, payable in respect of the import of the goods."
36[(50(5)] read with Part II of 1st Schedule IMPORTSSECTION 148[(50(5)] read with Part II of 1st ScheduleA controversy arose when the honorable ITAT in its order reported as 2003 PTD (Trib)735, having relied upon the decision of Honorable Lahore High Court reported as 1994 PTD 848, decided that Sales Tax and Custom duty shall not be added in the value of imported goods for the purpose of assessing income of assesses u/s.80C of the Income Tax Ordinance, As a matter of facts the decision of Lahore High Court is distinguishable as it was related to deduction of tax on Supplies under section 50(4) and not on imports.
37IMPORTSSECTION 148[(50(5)] read with Part II of 1st ScheduleThe Honorable Supreme Court of Pakistan in a case reported as 2005 PTD 194 decided that tax u/s.50(5) is leviable on the import value of goods excluding Sales Tax and Custom Duty. To the best of my knowledge an application filed by the tax department for reviewing the order is pending before the Honorable Supreme Court.
38IMPORTSSECTION 148[(50(5)] read with Part II of 1st ScheduleIn the meantime the Honorable Karachi High Court on this subject vide its order reported as 2005 PTD 1328 not agreed with the judgment of Lahore High Court and dismissed the constitutional petition of assessees upholding the treatment of Collector of Customs to charge the tax u/s.50(5) on total value including Custom Duty and Sales Tax. It is interesting to point out that in this case the order of the honourable Supreme Court of Pakistan has not been referred and discussed at all.
39SALARYSECTION 149[50(1)] read with Div. I of Part I of 1st Schedule2. Through Finance Act 2004 the exemption limit of taxable income has enhanced from Rs.80,000/- to Rs. 100,00/-.3. Through Finance Act, 2005 the rates of tax for Salaried persons have also been revised by inserting a new clause 1A in Div.I of Part-I of 1st Schedule to the I.Tax Ord.2001.Whereas Clause I of Part III of 2nd Schedule providing reduction in the tax liability has also been omitted.
40[50(1)] read with Div. I of Part I of 1st Schedule SALARYSECTION 149[50(1)] read with Div. I of Part I of 1st Schedule5. For facilitation of Salaried persons the CBR has issued Circular No.18 of 2004 dated under which the employer in order to work out the tax liability of the employee under section 149 of the Ordinance, is allowed to make adjustments of the income tax paid by such salaried persons under section 234 and 236 of the Income Tax Ordinance, 2001 during a tax year. Such salaried tax payers, are entitled to credit of such tax payment only if they are the owners of the motor vehicle or subscribers of telephone in their own name, as the case may be.
41[50(1)] read with Div. I of Part I of 1st Schedule SALARYSECTION 149[50(1)] read with Div. I of Part I of 1st Schedule6. In the matter regarding withholding and taxability of Salary of Pakistani Seafarer has been resolved by inserting clause (7F) in Part-I of the Second Schedule to the Repealed Ordinance, through Finance Ordinance, 2001 under which the exemption has been granted to the salary received by the Pakistani Seafarer working on a foreign vessel provided that such income is remitted to Pakistan not later than two months of the relevant income. Same exemption is still available as per clause 4 of Part-I of the Second Schedule to the Income Tax Ordinance, 2001.
42i) Public or Insurance Company ii) In all other cases DIVIDENDSSECTION 150[50(6A)] read with Div. III of Part I of 1st ScheduleEvery resident company paying a dividend shall deduct tax from the gross amount of the dividend paid at the following rates:-i) Public or Insurance Companyii) In all other casesiii) Reduced rateRates of deduction5%10%(1) 7.5%
43c) Paid by a company set up for power generation [Clause 20] DIVIDENDSSECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule1. Under the following Clauses of Part II of the 2nd Schedule Reduced rates are applicable to an amount:-a) Received by a non-resident company from a company engaged exclusively in mining operations, other than petroleum. [Clause 16]b) Paid by a purchaser of a power project privatized by WAPDA. [Clause 17]c) Paid by a company set up for power generation [Clause 20]
44a) The Islamic Development Bank [Clause 38B] DIVIDENDSSECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule2. The Provisions of this section shall not apply to the following as provided in Part-IV of Second Schedule:-a) The Islamic Development Bank [Clause 38B]b) Payments made to the NIT (Unit) Trust or a Mutual Fund. [Clause 47B]
45DIVIDENDSSECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule3. In respect of Zakat deduction, the law prescribes that deduction should be made on gross amount; however, the tax authorities vide their letter dated 19th March, 1997 agreed that withholding of tax should be made after deduction of Zakat.
46DIVIDENDSSECTION 150[50(6A)] read with Div. III of Part I of 1st Schedule4. Deduction at source in respect of dividend is to be made at the time of making payment and not at the time of declaration of dividend. - CIT, Companies-I, Karachi v. National Investment Trust Ltd., Karachi  87 TAX 317 (H.C. Kar). = 2003 PTD 589.
47SECTION 151 (Yield/Profit Interest/Discount/Premium, etc.) on– PROFIT ON DEBTSECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.(Yield/Profit Interest/Discount/Premium, etc.) on–i) On an account, deposit or a certificate under the National Savings Scheme or Post Office savings Account.ii) An account or deposit maintained with the banking company or financial institutioniii) Any security [other than that referred to in clause (a)] issued by Federal or Provincial Govt. or a local authorityiv) Any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking Company or development financial institution)Rates of deduction10% (1)10%20%
48PROFIT ON DEBTSECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.1. In the case of any resident individual, no tax shall be deducted from income or profits paid on,-i) Defence Savings Certificates, Special Savings Certificates, Savings Accounts or Post Office Savings Accounts, or Term Finance Certificates (TFCs), where such deposit does not exceed one hundred and fifty thousand rupees; and [Clause 59(iv)(a) of Part IV of 2nd Sch].ii) Investment in monthly income Savings Accounts Scheme of Directorate of National Savings, where monthly installment in an account does not exceed one thousand rupees. [Clause 59(iv)(b)]
49PROFIT ON DEBTSECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.2. In case of Special US Dollar Bonds purchased by a resident out of deposits made in foreign currency accounts on or after December 16, 1999 shall be 10%. [Clause 82 of Part I of 2nd Sch.)3. The provisions of this section shall not apply in view of various Clauses of Part IV of Second Schedule.
50b) A Provincial Government c) A Local Authority PROFIT ON DEBTSECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.4. Vide SROs bearing No.484 (1)/84 dated and 594 (1)/ issued by the CBR, the following persons have been excluded from operation of this section:-a) Federal Governmentb) A Provincial Governmentc) A Local Authority
51f) A Banking Company receiving interest on inter-bank deposit. PROFIT ON DEBTSECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.d) Recipient who qualify for exemption under clauses (78), (78A) and (79) of the 2nd Schedule to the Repealed Ordinance (now Clauses 78, 79, 80 and 84 of Part I of 2nd Schedule).e) Persons who produce a certificate from the Tax Department that they are not liable to pay any tax under the ordinance during the income year.f) A Banking Company receiving interest on inter-bank deposit.
52PROFIT ON DEBTSECTION 151[50(2) 50(2A) & 50(7D)] read with Div. I of Part III of 1st Schd.In my humble opinion, keeping in view the protection granted under Section 239(10) the above SROs are still valid.
53PAYMENT TO NON - RESIDENT SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-I and Div-II of Part-III of the 1st Schedule.DescriptionRate of DeductionTaxabilityi) Every person paying an amount of Royalty or Fee for Technical Services (other than any royalty where the property or right giving use to the royalty is effectively connected with or any fee for technical services where the services giving rise to the fee are rendered through; a permanent establishment in Pakistan of the Non Resident person.15% (1)Finalii) Any payment other than covered (i) above.30%Adjustable
54PAYMENT TO NON - RESIDENT SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-I and Div-II of Part-III of the 1st Schedule.1. If any reduced rate of tax is available under any treaty for avoidance of double taxation; then the same shall be made applicable instead of 15%.2. In view of clause (c) of sub-section (3) of section 6, withholding of tax shall not be made on any royalty or fee for technical services that is exempt from tax under this Ordinance.
553. The provision of this section shall not apply to the following:- PAYMENT TO NON - RESIDENTSECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-I and Div-II of Part-III of the 1st Schedule.3. The provision of this section shall not apply to the following:-Payments that are subject to deduction of tax under section 149, 150, 153, 155 and 156;Payments that are taxable to permanent establishment in Pakistan of the non-resident person and are duly approved by the Commissioner;Payments made by a person who is liable to pay tax on the amount as a representative of a non-resident person under section 172(3).Payments to a non-resident person who is not chargeable to tax under this Ordinance
56PAYMENT TO NON - RESIDENT SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-I and Div-II of Part-III of the 1st Schedule.4. Sub-section (3) provides that where a person claims to be a representative of the non-resident person then he should file a declaration to that effect with the Commissioner prior to making any payment to the non-resident person.
57PAYMENT TO NON - RESIDENT SECTION 152[50(3), 50(3A)] read with Section 6, Div-IV of Part-I and Div-II of Part-III of the 1st Schedule.5. In view of sub-section (5), where a person intends to make a payment to a non-resident person with out deduction of tax, the person shall be required to furnish the name and address of the non-resident person and the nature of payment to the Commissioner, before making the payment. However, such requirement to furnish information is not applicable in the following cases:-a) Import of goods where title of goods is transferred outside Pakistan; orb) Educational and medical expenses remitted in accordance with the Regulations of State Bank of Pakistan.
58SECTION 153 [50(4) read with Div-II and III of Part-III of 1st Sch. PAYMENT FOR GOODS AND SERVICESSECTION 153[50(4) read with Div-II and III of Part-III of 1st Sch.Particularsi) Payment in full or part including a payment by way of advance to a resident or PE in Pakistan of non-resident on account of:-a) Sale of :-i) Rice, Cotton Seeds or Edible Oilsii) Locally produced Edible Oil purchased for manufacturing of Cooking Oil/Vegetable Ghee [Clause (13C) of Part-II of Second Sch]iii) Other goods including Cottonb) Rendering / Providing of services:-i) Transport Servicesii) Othersc) Contracts other than a contract for the sale of goods or the rendering/ providing of servicesRates of deduction1.5%1%3.5%(1)2%5%6%
59PAYMENT FOR GOODS AND SERVICES SECTION 153[50(4) read with Div-II and III of Part-III of 1st ScheduleParticularsii) Payment in full or part including a payment by way of advance to a non-resident on execution of Contract or Sub-contracts:-a) Under a construction assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such projects; orb) For construction or services rendered other than a contract to which section 152 applies.c) For advertisement services rendered by the Television Satellite ChannelsRates of deduction6%
60(1) Deduction of tax is not required in the following cases- PAYMENT FOR GOODS AND SERVICESSECTION 153[50(4) read with Div-II and III of Part-III of 1st Schedule(1) Deduction of tax is not required in the following cases-i) Where an importer is selling goods in the same condition and has paid tax under section 148 at import stage;ii) Refund of security deposit;iii) Payment made by the Federal Govt., a Provincial Govt. or a Local Authority to a contractor for construction materials supplied to the contractor by the said Govt. or the Authority;
61iv) Purchase of an asset under a lease and buyback arrangements; PAYMENT FOR GOODS AND SERVICESSECTION 153[50(4) read with Div-II and III of Part-III of 1st Scheduleiv) Purchase of an asset under a lease and buyback arrangements;v) Payment for Securitization of receivables by a Special Purpose Vehicle (SPV) to originator; orvi) Payment made by a Small Company as defined in section 2 (59A) of I.Tax Ord
62PAYMENT FOR GOODS AND SERVICES SECTION 153[50(4) read with Div-II and III of Part-III of 1st Schedule(2) The gross amount payable for a sale of goods shall include the sales tax, if any, payable in respect of sale [Section 153(2)](3) The tax deducted under this section shall be a final tax on the income of resident and non-resident persons arising from transactions/contract referred to in clause (a) or (c) of sub-section (1) and specified in sub-section 3.
63PAYMENT FOR GOODS AND SERVICES SECTION 153[50(4) read with Div-II and III of Part-III of 1st Schedule(4) The Finance Act 2005 rationalized withholding of tax on execution of all contracts with non-resident person; whereby a flat rate of 6% has been prescribed for all contracts irrespective of its nature.
64PAYMENT FOR GOODS AND SERVICES SECTION 153[50(4) read with Div-II and III of Part-III of 1st Schedule(6) Sub-section (1) and (3) of thia section requires every Prescribed Person to deduct tax . Sub-section (9) defines "Prescribed Person" which include an association of persons (AOPs) constituted by, or under law. The controversy was arisen that whether Partnership firms are AOP constituted by, or under law? The controversy has now been resolved and the matter has been clarified by the CBR vide it's circular letter C.No.1 (17) W.T.H./91-PT dated November 2, Following is the text of the circular:-
65PAYMENT FOR GOODS AND SERVICES SECTION 153[50(4) read with Div-II and III of Part-III of 1st Schedule" I am directed to refer to your letter dated on the above subject and to say that, in continuation of Board's earlier clarification vide letter of even number dated It is further clarified that a partnership of individuals constituted through an instrument of partnership deed and registered with the Registrar of Firms under the Partnership Act, 1932 does not fall within the meaning of the 'Prescribed Persons' as given in sub-section (9) of section 153 of the Income Tax Ordinance, 2001"
66PAYMENT FOR GOODS AND SERVICES SECTION 153[50(4) read with Div-II and III of Part-III of 1st Schedule(8) In respect of deduction of tax on purchase of entire factory along with factory land, building and machinery, the honourable Lahore High Court in case of M/s. Kawther Grain (Pvt) Ltd v DCIT Guyranwala reported as (1999) 80 Tax 262 (H.C.Lah) held that these items are not liable to withhold tax u/s 50(4), as the same are not goods.
67EXPORTSSECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st ScheduleEvery authorized dealer in foreign exchange/banking company/EPZA/DTRE, direct exporter or an export house registered under the DTRE shall deduct tax from the proceeds at the following rates:1. On export proceeds, sale of goods to direct exporter (includes EPZA realization), indenting commission (3) on the basis of goods specified in various parts of 7th Schedule.Part IPart IIPart IIIPart IV2. Receipts of engineering contracting services rendered or construction contracts outside Pakistan (clause 3 of Part-II of Second Schedule).Rates of deduction0.75%1.0%1.25%1.5% (1)1%
68EXPORTSSECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule(1) The new entry in clause (1) of Division of the Part-III has been inserted through the Finance Act 2005, which prescribes items like raw cotton, cotton yarn etc. By virtue of this amendment the tax on export proceeds of items prescribed in Part-IV of the Seventh Schedule is to be Thus, the rate of tax will be increased by 0.25%.
69a) Rice marketed under a brand name up to fifty kilograms packs; EXPORTSSECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule(2) Clauses 14 and 15 of Part II of Second Schedule specify a rate of 0.75% for the following export proceeds:-a) Rice marketed under a brand name up to fifty kilograms packs;b) Canned and bottled fish including sea-food and other food items;c) Precious and semi-precious stones whether uncut, cut, or polished; andd) Fish and fisheries products packed in retail packs of five hundred grams to kilogram.
70EXPORTSSECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule(3) Clause (5) of Part-II of the Second Schedule to the Income Tax Ordinance, 2001, provides that the tax chargeable in respect of commission received by an export indenting agent or an export buying house shall be at the rate equal to the rate of tax applicable to the exporter on export of goods to which such commission relates.(4) As Per Clause 47C of the Part IV of the 2nd Schedule the Provision of this section is not applicable to an exporter in respect of cooking oil or vegetable ghee exported to Afghanistan, from whom advance tax has been collected under section 148 on import.
71EXPORTSSECTION 154[50(5A), 50(5AA) & 50(5AAA)] read with Div-IV of Part-III of 1st Schedule(6) In my humble view presently under this section and under section 233 only the commission earned by the Indenting Commission Agent locally covered under PTR. Because the commission earned on Export and Import indenting business covers u/s.154(2) of the Ordinance and sub-section (4) of section 154 provides that only the tax deducted under sub-sections (1), (3), (3A) or (3B) shall fall under the Presumptive Tax Regime. It is pertinent to point out that the CBR vide its Circular No.7 of 2004 dated has also clarified that deduction under section 233 on indenting commission would a final tax in respect of such income.
72Rates of deduction Prizes on Prize Bonds 10% PRIZES AND WINNINGSSECTION 156[50(7C)] read with Div-VI of Part-III of 1st SchedulePrizes on Prize Bondsii) Winnings from a raffle, lottery, Prize on winning a quiz, prize offered by companies for promotion of sale or cross-word puzzle.Rates of deduction10%20%
73PRIZES AND WINNINGSSECTION 156[50(7C)] read with Div-VI of Part-III of 1st Schedule(1) By virtue of amendment made in sub-section (2) through Finance Act, 2003 the prizes other wise than cash are also chargeable to tax at fair Market Price.(2) The tax deducted or collected as stated above shall be final discharge of the tax liability on such incomes.
74PETROLEUM PRODUCTSSECTION 156 A[50(7H)] read with Div-VIA of Part-III of 1st ScheduleEvery person selling petroleum products to a petrol pump operator shall deduct tax from the amount of commission or discount allowed to the operator.Rates of deduction10%
75PETROLEUM PRODUCTSSECTION 156 A[50(7H)] read with Div-VIA of Part-III of 1st Schedule(1) The tax deducted under this section shall be a final tax on income arising from the sale of petroleum products.(2) The CBR to remove the hardship of duplicate deduction of tax instructed vide circular No.11 dated that the Commissioner may issue exemption certificate u/s. 153(4) of the Ordinance in cases where tax is being collected u/s. 156(A) as full and final discharge of Tax liability.
76CASH WITHDRAWAL FROM BANKS SECTION 231A[50(2B) read with Div-VI of Part-IV of 1st ScheduleEvery banking company shall, at the time of making a payment for Withdrawal of cash exceeding Rs.25,000/-Rates of deduction0.1%
77(1) This section shall not apply on cash withdrawals made by :- CASH WITHDRAWAL FROM BANKSSECTION 231A[50(2B) read with Div-VI of Part-IV of 1st Schedule(1) This section shall not apply on cash withdrawals made by :-a) Federal and Provincial Govt.b) Foreign diplomat or diplomatic mission in Pakistan orc) A person who produces a certificate from the CIT that his income during the tax year is exempt.
78CASH WITHDRAWAL FROM BANKS SECTION 231A[50(2B) read with Div-VI of Part-IV of 1st Schedule(2) The Central Board of Revenue has clarified various issues related to above new provision of law vide Clarification letter C.No. 1(3) WHT/2005 dated and Circular No.4 of 2005 dated
79ii) Brokerage or Commission earned by others. Rates of deduction BROKERAGE AND COMMISSIONSECTION 233[50(4A) read with Div-II of Part-IV of 1st ScheduleBrokerage or Commission earned by Indenting Commission Agents Advertising Agents and Yarn Dealers.ii) Brokerage or Commission earned by others.Rates of deduction5%10%
80BROKERAGE AND COMMISSION SECTION 233[50(4A) read with Div-II of Part-IV of 1st Schedule(1) This section deals with deduction of tax on Brokerage or Commission made by withholding tax agents i.e. the Federal Government, Provisional Government, a Local Authority, a Company and or an Association of Persons constituted, by or under, any law.(2) In certain cases the agents retain commission or brokerage from any amount remitted by them to the principals they shall be deemed to have been paid commission or brokerage by the principal.
81BROKERAGE AND COMMISSION SECTION 233[50(4A) read with Div-II of Part-IV of 1st Schedule(3) The tax deducted under this section shall be the Final Tax on the income of recipients(4) In order to merge the categories where tax rates are similar, an amendment has been made in this Section read with Part-IV of First Schedule whereby only these two classes of taxpayers have been re-defined according to the tax rates for simplification
82SECTION 233 (A) read with Div-II A of Part-IV of 1st Schedule COLLECTION OF TAXES BY STOCK EXCHANGE REGISTERED IN PAKISTANSECTION 233 (A)read with Div-II A of Part-IV of 1st ScheduleTax is collectible:On purchase and sale of shares in lieu of commission income earned on purchase / sale of shares (clauses a & b)(ii) On trading (sale & purchase) of shares (clause c)(iii) In case of financing of Carry Over Trades (Badla) (clause d)Rates of deduction0.005% of the sale & purchase value of shares0.005% of traded value of shares10% on COT (badla) Mark-up
83COLLECTION OF TAXES BY STOCK EXCHANGE REGISTERED IN PAKISTAN SECTION 233 (A)read with Div-II A of Part-IV of 1st Schedule(1) The tax deducted on the payments fall under clauses (a) and (b) of sub-section (1) of the section shall be final. Whereas, tax deductions cover under clauses (c) and (d) shall be adjustable.(2) This section has been inserted through Finance Act 2004, whereby every Registered Stock Exchange/Member of Stock Exchange/Brokerage House and /or their agents have obligation to with hold Income Tax and Capital Value Tax in the manner prescribed in this section.
84SECTION 234 [50(6) read with Div-III of Part-IV of 1st Schedule TRANSPORT BUSINESSSECTION 234[50(6) read with Div-III of Part-IV of 1st ScheduleAny person at the time of collecting motor vehicle tax shall collect advance tax.Rates of deductionAs per Div. III of Ist Schedule1. The Tax is not Collectable on :-aMotor car used for more than Ten years in Pakistan.bPassenger transport vehicle with registered Seating capacity of ten or more after ten years from its making.cGoods transport vehicle with registered laden weight less than 8120 after a period of ten years from its date of Registration in Pakistan.2. The tax collected under this section from person from plying or hiring out of such vehicle being the owner of goods transport vehicle, shall be final discharge of tax liability on income of such person.
85What are the consequences if the tax payer fails to collect or deduct tax or having collected or deducted tax fails to pay the same?1) Personally liable to pay the amount of tax and additional tax thereof. However, no recovery shall be made if it is established that the payee has already made the payment of such tax. However, additional tax may be recovered from the payer at the rate of 18% per annum from the date he failed to collect or deduct the tax to the date tax paid.
86What are the consequences if the tax payer fails to collect or deduct tax or having collected or deducted tax fails to pay the same?2) Under section 21 of the I.T.Ord. 2001, no deduction shall be allowed in computing the income of a person under the head 'Income from Business' for any salary, rent, brokerage or commission, profit on debt, payment to non-resident, payment for services or fee paid by the person from which the person is required to deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, unless the person has paid or deducted and paid the tax as required by Division IV of Part V of Chapter X.
88Particulars Quantum of Penalty Section 182(1)[108(a)(i) of I.T. Ordinance1979]ParticularsQuantum of PenaltyA taxpayer who fails to pay any tax (other than penalty imposed under this section ) by the due date. (Note: In consequence of any order, the amount of tax in respect of which penalty imposed is reduced, the amount of penalty shall also be reduced accordingly).i) First default:5% of the amount of tax in default.ii) Second default:Penalty on First default + 25% of the amount of tax in default.iii) Third default:Penalty up to Third default + 25% of the amount of tax in default.
89iv) Fourth & Subsequent default: PENALTYSection 182[91 of I.T. Ordinance1979]ParticularsQuantum of Penaltyiv) Fourth & Subsequent default:Penalty up to 4th default + 50% of the amount of tax in default.(Note: Total penalty should not exceed 100% of such amount of tax).
90PENALTYSection 183[ 91 of I.T. Ordinance 1979]ParticularsQuantum of PenaltyAny person who, without reasonable excuse, fails to furnish Return of Income or a statement u/s.115(4) or Wealth Statement within the stipulated time.1/10th of 1% of tax payable for each day of default (minimum Rs.500/- and maximum 25% of the tax payable for that year).
91Equal to the amount of tax which the person sought to evade. PENALTYSection 184[111 of I.T. Ordinance1979]ParticularsQuantum of PenaltyWhere any person in the course of any proceeding conceal income or furnish in accurate particulars of such income.Equal to the amount of tax which the person sought to evade.
92Subsequent Failure: Rs.10,000/- PENALTYSection 185[109 of I.T. Ordinance1979]ParticularsQuantum of PenaltyA person who, without reasonable excuse, fails to maintain records under this ordinance.First Failure: Rs.2,000/-Second Failure: Rs.5,000/-Third &Subsequent Failure: Rs.10,000/-
93Third and Subsequent Failure: Rs.10,000/- PENALTYSection 186[110 of I.T. Ordinance1979]ParticularsQuantum of PenaltyA person who, without reasonable excuse, fails to comply with any notice served on the person under section 116 (Wealth Statement) or 176 (Notice to obtain information or evidence).First Failure: Rs.2,000/-Second Failure: Rs.5,000/-Third and Subsequent Failure: Rs.10,000/-
94ii) In any other instance, 25% of the tax shortfall. PENALTYSection 187ParticularsQuantum of PenaltyWhere a person makes false or misleading statement whether in writing or orally before an income tax authority in various forms.i) Where the action is willful or reckless, 200% of the tax shortfall; orii) In any other instance, 25% of the tax shortfall.
95PENALTYSection 187ParticularsQuantum of Penalty(Note: Exception has been made through sub-section (2); whereby no penalty shall be , if shortfall arose, due to inadvertent mistake or difference of opinion or no deliberate or willful misdeclaration)
96PENALTYSection 188[112 of I.T. Ordinance1979]ParticularsQuantum of PenaltyWhere a person fails to give notice of the discontinuance of the person's business as required u/s.117.Not exceeding the amount of tax payable for the tax year in which the business was discontinued up to Rs.10,000/-
97Where any person obstructs in discharge of Taxation Officers function. PENALTYSection 189[115 of I.T. Ordinance1979]ParticularsQuantum of PenaltyWhere any person obstructs in discharge of Taxation Officers function.
98ADDITIONAL TAX – A COMPARATIVE STUDY SectionITO 1979ITO 2001Charge of Additional Tax for failure8687205(3)205 (1A)To deduct and pay tax under sections 148 to156B and 233 to 236.To pay advance tax under section 147.
99ADDITIONAL TAX – A COMPARATIVE STUDY SectionITO 1979ITO 2001Charge of Additional Tax for failure87(4)88205 (1B)205 (1)(a)To pay advance tax under section 147(6) lesser than 80% of the estimated tax chargeable.To pay tax with the Return of Income.
100ADDITIONAL TAX – A COMPARATIVE STUDY SectionITO 1979ITO 2001Charge of Additional Tax for failure8992205 (1)(b)205 (1)(c)To pay tax or Penalty.To pay amount holding on behalf of a taxpayer under section 140.
101ADDITIONAL TAX – A COMPARATIVE STUDY SectionITO 1979ITO 2001Charge of Additional Tax for failure114205 (1)(c)By the liquidator to pay any amount set-aside under section 141(4).
102ADDITIONAL TAX – A COMPARATIVE STUDY NOTE:i) The additional tax shall be charged at the rate of twelve percent (12%) per annum.ii) Section 205A provides allowability of reduction in additional tax, wherein consequence of any order made under this Ordinance, the amount of tax or penalty is reduced.
103The additional tax and penalty is levieable only if tax payers FAILS to pay tax or comply with the provision of law.The Honorable High Court Lahore in the case of Commissioner of Income Tax, North Zone Lahore v. Warris Silk Weaving & Knitting Mills, Gujranwala reported as (1973) 28 Tax 181 has held that:
104The additional tax and penalty is levieable only if tax payers FAILS to pay tax or comply with the provision of law." If a person is required by a law to do some thing which becomes impossible for him to do not on account of his own negligence or fault, but on account of something which was unavoidable and in any case not subject to his control, he cannot be said to have failed to perform that which the law or an order passed under the law required him to do."
105a) The due date of furnishing the return of income COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 20011. Due date for payment of tax including under section 113 and 113 A is -a) The due date of furnishing the return of incomeb) Within 30 days of the assessment order or amended assessment order from the date of service of notice.2. On written application by the tax payer the Commissioner may grant extension of time for payment of tax or allow payment in installments of equal or varying amounts.
106COLLECTION AND RECOVERY OF TAX SECTIONS 137 to 146 of I.T.Ord., 20013. In case of default of any instalment, the whole balance of outstanding tax will become payable.4. Additional tax will however be payable even if extension or instalments to pay tax are granted. However, it is held in number of Superior Courts decisions that no additional tax is liable to be paid during the period of stay granted by the High Court or Supreme Court of Pakistan.
1075. Recovery of tax can be effected through/from - COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 20015. Recovery of tax can be effected through/from -a) Attachment and sale of any movable or immovable property [section 138 (2) (a)]b) Appointment of a receiver for the management of moveable and immoveable property [section 138(2) (b)]c) Arrest of taxpayer and detention for a period not exceeding 6 months [section 138 (2) (c)]d) The offices of District Officer (Revenue) as arrears of Land Revenue (section 138A)e) Director of private limited company other than an employed director [section 139 (1) (a)]
108h) Person holding money on behalf of a taxpayer (section 140). COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 2001f) Shareholder of private limited company owning not less than 10% of paid up capital [section 139( 1) (b)]g) If tax cannot be recovered from the member of AOP, then the AOP shall be liable for the tax due by member. ([section 139(4)]h) Person holding money on behalf of a taxpayer (section 140).i) Liquidator of a company, Receiver, Trustee for a bankrupt or a mortgagee in possession (section 141)j) AOP or resident member of AOP in case of tax of a non-resident member of AOP (section 142)
109m) Person leaving Pakistan permanently (section 145) COLLECTION AND RECOVERY OF TAXSECTIONS 137 to 146 of I.T.Ord., 2001k) Master of the ship in case of ship owned or chartered by a non-resident person (section 143)l) Non-resident aircraft owner or charterer or an agent authorized by the non-resident person (section 144)m) Person leaving Pakistan permanently (section 145)n) Azad Jammu and Kashmir assessed tax may be recovered from persons who have residence in Pakistan and who have no movable and immovable property in Azad Jammu Kashmir (section 146)6. Initiation, validity, etc. of recovery proceedings.
110a) the date of issuance of assessment order by the Commissioner; or REFUNDS & COMPENSATIONSECTIONS 170 & 171 of I.T.Ord., 20011. A taxpayer who has paid tax in excess of the amounts which tax payer is properly chargeable under this Ordinance may apply for refund.2. An application for refund must be made within two years of the later of -a) the date of issuance of assessment order by the Commissioner; orb) the date on which tax was paid
111a) adjust against any other income-tax due; REFUNDS & COMPENSATIONSECTIONS 170 & 171 of I.T.Ord., 20013. If the Commissioner is satisfied that the tax has been overpaid, he shall -a) adjust against any other income-tax due;b) adjust any outstanding liability of the tax payer in reduction to pay other taxes; andrefund the remainder, if any.4. The Commissioner within 45 days of receipt a refund application has to issue an order in writing of the decision. If a person is not satisfied with the decision or Commissioner fails to pass the order than he can file an appeal there against.
112REFUNDS & COMPENSATION SECTIONS 170 & 171 of I.T.Ord., 2001Additional payment for delayed refunds1) Where a refund due to a taxpayer is not paid within three months of the due date, the Commissioner shall pay Compensation at the rate of 6% from the date commencing at the end of the three months period after the refund become due.
113c) in any other case, on the date the refund order is made. REFUNDS & COMPENSATIONSECTIONS 170 & 171 of I.T.Ord., 20012) For the purpose of this section, a refund shall be treated as having become due -a) in the case of a refund required to be made in consequence of an order on an appeal to the Commissioner (Appeals), and appeal to the Appellate Tribunal, a reference to the High Court to an appeal to the Supreme Court, on the date of receipt of such order by the Commissioner; orb) in the case of a refund required to be made as a consequence of a revision order under section 122A, on the date the order is made by the Commissioner; orc) in any other case, on the date the refund order is made.