income tax in pakistan

COLLECTION OF INCOME TAX IN PAKISTAN

“In this world, nothing is certain but death and taxes”

-Benjamin Franklin

INTRODUCTION The word tax is derived from the Latin word “taxo” which

means “rate”. It is a financial charge Upon Taxpayer. Taxpayer may be

individual or legal entity.

Types of tax: If tax is charged on personal or corporate income, then it is

a direct tax. If tax is charged on the price of a good or service, then it is

called an indirect tax.

PURPOSE OF TAXATION

The purpose of taxation is to finance government expenditure i.e. providing public goods and services, such as defense, public welfare, social security etc.

Increase level of standard. It influences the direction and structure of money supply,

investments, credits, production, interest rate, inflation, prices and in general, of the national economy etc.

KINDS OF TAXATION INCOME TAX: It is imposed on factors market EXCISE DUTY: It is imposed on product market SALES TAX: It is imposed on buyers & seller side of the

market. WITHHOLDING TAX: It is imposed on assets such as motor

vehicle and property etc.

INCOME TAX Income tax is a type of tax which is collected by the (FBR) federal board of revenue,

It is the semi-autonomous, supreme federal agency of Pakistan that is responsible for auditing, enforcing and collecting revenue for the government of Pakistan.

INCOME TAX LAW: Law concerning taxation of income in Pakistan is stated in the Income Tax

Ordinance, 2001 (the Ordinance) and the rules framed there under viz. Income Tax Rules, 2002 (the Rules).

The Ordinance is a Central statute and is, therefore, applicable to the whole of

Pakistan.

Under section 4 of the Ordinance, income tax is imposed for each tax year at specified rates on every person who has taxable income for the year.

HEADS OF INCOME TAX IN PAKISTANUnder the Ordinance, income is classified into the following five heads:

Salary Income from property Income from business Capital gains Income from other sources

Income from Salary

Income from SalarySalary includes:- Wages Any gratuity Any fees, commission, bonus, perquisite on profits. Any advance of salary Any earned leave Employers contribution (taxable) towards recognized provident

fund.

Income from House Property

CONDITIONS TO BE SATISFIED The property must consist of buildings or lands The assesse must be the owner of such house property. The property should not be used by the owner thereof for the

purpose of any business or profession carried on by him, the profits of which are chargeable to tax.

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Income from Business & Profession

BASIS OF CHARGEThe following income is chargeable to tax under the head “Profits of business or profession” Profits of any business or profession; Any compensation or other payments due to or received by

any person specified Income derived by a trade, professional or similar

association from specific services performed for its members

The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession

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Any profit on transfer of the Duty Entitlement Pass Book Scheme.

Any profit on the transfer of the duty free replenishment certificate

Export incentive available to exporters Any interest, salary, bonus, commission or remuneration

received by a partner from firm; Any sum received for not carrying out any activity in relation to any business or not to share any know-how, patent, copyright, trademark, etc.

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Income from Capital Gains

BASIS OF CHARGECapital Gain’s tax liability arises only when the following conditions are satisfied: There should be a capital asset. The capital asset is transferred by the assesse Such transfer takes place during the previous year. Any profit or gains arises as a result of transfer.

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Income from Other Sources

GENERAL

Income of every kind, which is not to be excluded from the total income and not chargeable to tax under any other head, shall be chargeable under the head “Income from Other Sources”.

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SPECIFIC INCOME

Dividends Lottery winnings Income by way of interest on securities Interest on bank deposits and loans

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IMPACT OF TAXES Types of taxes affect people differently, depending on their

income, three forms of taxes are:

Progressive TaxRegressive TaxProportional Tax

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