Danish Bashir

Mangi
Lecturer
Tax year and resident Institute of Law,

Chapter 1

Tax Year and Residential Status

1. Tax Year – section 74

1.1. Tax year is of 3 types; Normal tax year, Special tax year and Transitional tax year.

1.2. Normal Tax Year:

A period of 12 months from 1 July to 30 June denoted by the calendar year in which the
normal tax year ends. For the year ending 30 June 2015 the tax year shall be 2015.

1.3. Special Tax Year:

Any income year ending other than 30thJune is special tax year and denoted by the calendar
year relevant to the normal tax year in which the closing date of the special tax year
falls.

Special year 1.1.2012 to 31.12.2012 – this year end falls in the normal tax year 1.7.2012 to
30.6.2013 and therefore tax year relevant to the normal tax year i.e. TAX YEAR 2013 shall
be the tax year for this special year as well.

Special tax year 1.10.2010 to 30.9.2011 – tax year shall be 2012

The FBR has authority to prescribe any special tax year in respect of any particular class of
taxpayers.

If the tax year is not specified by the FBR and a taxpayer wants to have any special tax year
then he is required to make an application to the FBR specifying the reasons for the purpose.

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 Danish Bashir
Mangi
Lecturer
Tax year and resident Institute of Law,
1.4. Transitional Tax Year:
If a normal tax year or special tax year changes then the period from the day next following
the last full tax year to the date of commencement of new tax year shall be treated as
transitional tax year.

Normal tax year 1.7.2009 to 30.6.2010 i.e. Tax year 2010 changes to special year 1.1.2011 to
31.12.2011 i.e. Tax year 2012. In this case, period from 1.7.2010 to 31.12.2010 shall be
treated as a transitional tax year i.e. Transitional tax year 2011.

1.5. Change in the Tax Year:

(a) A person using normal tax year may apply to the Commissioner to allow him to use any
special tax year.

(b) A person using special tax year may apply to the Commissioner to allow him to use any
other special tax year or normal tax year.

(c) The Commissioner shall grant permission subject to conditions, if any, as the
Commissioner may impose only if the person has shown a compelling need for the change.

(d) If the Commissioner wants to reject the application or to withdraw his permission earlier
allowed, he shall provide an opportunity of being heard to the person and shall record in the
order the reasons for such rejection or withdrawal of permission. In this case the person may
file a review application to the FBR and the decision of the FBR shall be final.

2. Residential Status of an Individual – section 82

Residential status for tax purpose has no relationship with nationality or domicile.
Residential status of an individual is based on number of days he is physically present in
Pakistan during a tax year. Therefore, a foreigner can also be a resident person for Pakistan
tax purpose. On the other hand, a Pakistan national may become non-resident for tax
purpose.

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 Danish Bashir
Mangi
Lecturer
Tax year and resident Institute of Law,

Physical stay in a tax year in Pakistan Status

0 – 182 days Non-Resident
183 or more days Resident
A government employee posted abroad in the tax year is resident
irrespective of his physical stay in Pakistan
Rule 14 of the Income Tax Rules 2002:
Rule to count days an individual present in Pakistan becomes vital when a
person has frequent visits to or from Pakistan. Rule 14 of the Income Tax
Rules prescribes the procedure for counting of days as under:

o Part of a day that an individual is present in Pakistan counts as a

whole day including:

 A day of arrival in Pakistan

 A day of departure from Pakistan
 A public holiday
 A day of leave
 A day that the individual’s activity in Pakistan is interrupted
because of a strike, lock-out or delay in receipt of supplies
 A holiday spent in Pakistan before, during or after any activity
in Pakistan

o A day in Pakistan solely by reason of being in transit does not

count as a day present in Pakistan

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 Danish Bashir
Mangi
Lecturer
Tax year and resident Institute of Law,

3. Residential Status of a company – section 83

3.1 A company incorporated in Pakistan, provincial government and local government is
resident without any condition.

3.2 Other company (i.e. a company incorporated outside Pakistan) is resident if control and
management of the affairs is situated wholly in Pakistan in the year.

3.3 Definition of company – section 80(2)(b)

“company” means –

(i) a company as defined in the Companies Ordinance, 1984 including a small

company;

(ii) a body corporate formed by or under any law in force in Pakistan;

(iii) a modaraba;

(iv) a body incorporated under the law of a country outside Pakistan relating to
incorporation of companies;

(iii) a co-operative society, a finance society or any other society;

(iv) a non-profit organisation;

(v) a trust, an entity or a body of persons established or constituted by or under any law
for the time being in force;

(vi) a foreign association, whether incorporated or not, which the Board has, by general
or special order, declared to be a company for the purposes of this Ordinance; or

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 Danish Bashir
Mangi
Lecturer
Tax year and resident Institute of Law,
(vii) a Provincial Government or a Local Government in Pakistan.

4. Residential Status of Association of Persons (AOP) – section 84

AOP shall be considered as resident if control and management of the affairs is situated
wholly or partly in Pakistan in the year.
AOP includes a firm, a Hindu undivided family, any artificial juridical person and any body
of persons formed under a foreign law, but does not include a company – section 80(2)(a)

Note for students: Partnership firm and joint venture are the common examples of AOP.

5. Income with reference to Resident and Non-Resident

(i.e. Scope of Total / Taxable Income)

5.1 A resident person is taxable for his worldover income subject to agreement for the
avoidance of double taxation (Tax Treaty). A non-resident person is taxable only for his
Pakistan-source income subject to Tax Treaty. {section 11(5)(6)}

Tax Treaty: section 107

Tax treaty shall apply in case of any contradiction between local laws and tax treaty e.g. if a
tax treaty provides exemption to a particular income say dividend income then the local laws
regarding taxability of dividend would have no effect.

Note for students:

Tax treaty shall be considered for:
- Foreign source income of a resident person; and
- Pakistan source income of a non-resident person.
Foreign source income of a non-resident person is not taxable in Pakistan
irrespective of tax treaty and the tax treaty has nothing to do with Pakistan
source income of a resident person.

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 Danish Bashir
Mangi
Lecturer
Tax year and resident Institute of Law,
5.2 Foreign source income of a short term resident – Section 50
An individual shall be exempt in respect of his foreign-source income which is not brought /
received in Pakistan if he is resident only by reason of his employment and he is present in
Pakistan for not exceeding 3 years.

This section does not apply on business established in Pakistan by an individual foreigner.

5.3 Foreign source income of a returning expatriate – Section 51

If an individual citizen of Pakistan (returning expatriate) is resident in the current tax year
but was non-resident in the 4 preceding tax years, his foreign-source income shall be exempt
in the current tax year and in the following tax year.

5.4 Foreign source salary of resident individual

Foreign source salary by a resident individual is exempt in Pakistan if he has paid foreign
income tax on foreign source salary or his employer has deducted tax at source from salary
and paid to the revenue authority of that foreign country – Section 102

Salary earned outside Pakistan shall be exempt if a citizen of Pakistan leaves Pakistan during
a tax year and remains abroad during that tax year –
Section 51(2)