1. WORKSHOP ON INCOME TAX ORGANIZED BY ITBA, KARACHI ON AUGUST 29, 2005 “SALARY TAXATION” by ASIF KASBATI [FCA, FCMA, LLB, LCC(AA)] SENIOR MANAGER A.F. FERGUSON & CO.

2. 2 AREAS TO BE COVERED AScope of Salary income BValuation of perquisites CEmployee share scheme DExemptions & concessions (including tax credit, etc) E Provisions relating to staff retirement benefits

3. 3 (A)SCOPE OF SALARY (A)SCOPE OF SALARY S.12 1CHARGEABILITY S.12(1) 1.1Definition of the “Receipt of income” S.69 1.2Exception S.110 2DEFINITION OF SALARY 2DEFINITION OF SALARY S.12(2) 2.1General definition 2.2Specific inclusion 2.3Directorship S.2(20) to (22) 2.4An issue in respect of Directors

4. 4 3.RECEIPT OF CAPITAL NATURE S. 12(2) 4.TAX BORNE BY EMPLOYER IS TAXABLE S.12(3) 5.NO DEDUCTION IS ALLOWABLE S.12(4) 6.RECEIPTS FROM EMPLOYMENT INCLUDE PAYMENTS RECEIVED FROM CERTAIN PERSON OTHER THAN AN EMPLOYER S.12(5) 7.SALARY RECEIVED IN ARREARS S.12(7)&(8) 8.AVERAGE RATE OF TAX TO BE CHARGED ON RECEIPTS ON ACCOUNT OF (a)Termination of Employment S.12(6)&(8) (b)Other payments on cessation of employment (an issue)

5. 5 BVALUATION OF PERQUISITES & CERTAIN EXEMPTIONS S.13 & SII PI 1.Service of a house keeper, driver, gardner or other domestic assistant S 13(5) 2Utilities provided by employer S.13(6) & SII PI CI.38 3.Loan given by employer on or after July 1, 2002 S.13(7) 4.Use of Loan for taxable income S.13(8) 5.Waiver of obligation of employee to pay or repay amount owing to employer S.13(9) 6.Obligation of employee to repay amount owing by employee to another person, paid by employer S.13(10)

6. 6 BVALUATION OF PERQUISITES & CERTAIN EXEMPTIONS S.13 & SII PI 7.Property transferred by employer to employee or services provided by employer to employee S.13(11) 8.Motor vehicle provided by employer S.13(3) 9.Accommodation or housing provided by employer S.13(12) 10.Medical SII PI CL39 11.Certain perquisites by virtue of employment S.13(13) 12.Perquisites not covered by the section 13 SII P I CL53A

7. 7 RULES FOR VALUATION OF PERQUISITES (IT Rules, 2002) 1.DETERMINATION OF LEVELS SALARY INCOME R.3 to 9 1.1BASIC SALARY R.3(4)(b) 1.2SALARY R.3(4)(c) 2.BASIS OF VALUATION OF PERQUISITES, ALLOWANCES AND BENEFITS (a) House rent allowance in cash R.5 (b) Accommodation and housing provided by employer (i) Rent free unfurnished accommodation R.5A(b)&9(4)(a) (i) Rent free unfurnished accommodation R.5A(b)&9(4)(a) (ii) Rent free furnished accommodation R.5B(b)&9(4)(b) (ii) Rent free furnished accommodation R.5B(b)&9(4)(b)

8. 8 RULES FOR VALUATION OF PERQUISITES (IT Rules, 2002) (c) Conveyance / Motor vehicle (Taxable Salary not exceeding Rs 600,000) (i) Motor Vehicle partly for business and (i) Motor Vehicle partly for business and partly for personal R.6C partly for personal R.6C (ii) Motor Vehicle wholly for business R.6D (ii) Motor Vehicle wholly for business R.6D (d) Motor Vehicle provided by employer (d) Motor Vehicle provided by employer (Taxable Salary exceeding Rs 600,000) R.9(5) (e) Free or concessional passage for travel (e) Free or concessional passage for travel (Taxable salary not exceeding Rs 600,000) R.7 (f) Minor perquisites (f) Minor perquisites

9. 9 C.EMPLOYEE SHARE SCHEME S.14 1. DEFINITION S.14(6) 2.RIGHT OR OPTION TO ACQUIRE SHARES S.14(1) 3.DISPOSAL OF THE RIGHT/OPTION S.14(5) 4.CHARGEABLE TAX ON ISSUE OF THE SHARES (a)The benefit S.14(2) (b)Restriction on transfer S.14(3)(a) (c)Amount chargeable to tax S.14(3)(b) 5.COST OF SHARES S.12(4) 6.GAIN ON DISPOSAL OF SHARES ACQUIRED UNDER THE SCHEME S.37

10. 10 D.1 TAX CREDITS 1.CHARITABLE DONATIONS S.61 2.INVESTMENT IN SHARES S.62 3CONTRIBUTION TO APPROVED PENSION FUND (APF) S.63 4PROFIT ON DEBT S.64 5MISCELLANEOUS PROVISIONS RELATING TO TAX CREDITS S.65

11. 11 D.2 EXEMPTION & TAX CONCESSIONS 1.FOREIGN SOURCE INCOME RETURNING EXPATRIATES S.52(1) 2.FOREIGN SOURCE INCOME OF RESIDENT INDIVIDUAL S.52(2) 3.FOREIGN-SOURCE SALARY OF RESIDENT INDIVIDUAL S.102

12. 12 D.3 OTHER RELEVANT PROVISIONS 1.PERSONS NOT REQUIRED TO FURNISH A RETURN OF INCOME S.115 (a)Employer’s Certificate in lieu of return (b)Statements 2.WEALTH STATEMENT S.116 3.DUE DATES FOR FURNISHING RETURN AND OTHER DOCUMENTS S118 4.WITHHOLDING TAX S.149

13. 13 5.TAX RATES S I Where salary income exceeds 50% of total income [TY 2006] (a) Taxable income does not exceed Rs 100,000NIL (b)Taxable income exceeds from Rs 100,000 to Rs 700,000 3.5% to 25% (c)Above Rs 700,000 30%

14. 14 1.PENSIONS CL8 2.COMMUTATION OF PENSION CL.12 3.GRATUITY OR COMMUTATION OF PENSION CL.13 4.APPROVED SUPERANNUATION FUND, ETC. CL.25 5.ANNUITIES CL.20 & 21 6.PROVIDENT FUND CL.22 & 23 E. EXEMPTIONS RELATING TO STAFF RETIREMENT BENEFITS (Schedule II Part I )