INTRODUCTION TO CORPORATE &

TAXATION (DIRECT AND INDIRECT)

LAWS OF PAKISTAN

Customized Training Program for

Nayatel (Private) Limited

Presentation by Mahmood Saeed, FCCA, FCA

Partner:
F.R.A.N.T.S.
 Direct Taxes

Presentation by Mahmood Saeed, FCCA, FCA

Partner:
F.R.A.N.T.S.
 Tax Structure
- Policy Making

Federal Board of Revenue

- Field Formations

Large Taxpayers’ Units

Regional Tax Offices

F.R.A.N.T.S.
Tax Structure – Policy Making
Federal Board of Revenue
Chairman

Member Inland Revenue Policy
Member Inland Revenue Operations
Member Taxpayers’ Audit
Member Customs
Member Facilitation and Taxpayer Education
Member Administration
Member Special Initiatives
Other Members for Support Services

F.R.A.N.T.S.
Tax Structure – Policy Making
(Contd.)


Chief

Secretary

Second Secretary

Supporting Staff

F.R.A.N.T.S.
Tax Structure – Field Formations
Regional Tax Offices/ Large Taxpayers’ Units

Chief Commissioner

Commissioner Inland Revenue

Additional Commissioner Inland Revenue

Deputy/Assistant Commissioner Inland Revenue

Supporting Staff

F.R.A.N.T.S.
Tax Structure – Appellate Authorities

Commissioner Inland Revenue (Appeals)

First Appellate Authority

Appellate Tribunal Inland Revenue
Second Appellate Authority

High Court

Supreme Court of Pakistan
Highest Authority

F.R.A.N.T.S.
 Type of Taxes

The taxes in Pakistan can be categorized in the following

two categories:

- Direct Taxes
- Indirect Taxes

F.R.A.N.T.S.
 Types of Taxpayers

For the purpose of Taxation, the taxpayer are categorized

into Three Categories:

- Individuals
Natural Persons. A taxpayer is Salaried Individual if more than
50% of his Taxable Income is from Salary.
- Association of Persons
Partnerships
- Companies
Companies, Trusts, Non-Profit Associations, Provincial
Governments, Foreign Associations
F.R.A.N.T.S.
 Direct Taxes

- Normal Corporate Tax

- Presumptive Tax Regime
- Minimum Tax Regime
- Alternative Corporate Tax
- Fixed Tax

F.R.A.N.T.S.
 Indirect Taxes
- General Sales Tax (On Goods)

- Provincial Sales Taxes (On Services)

- Federal Excise Duty (FED)

- Custom Duty

F.R.A.N.T.S.
 Governing Laws

- Income Tax Ordinance 2001

- Sales Tax Act 1990
- Customs Act 1969
- Federal Excise Act 2005
- Provincial Sales Tax Laws

F.R.A.N.T.S.
 Direct Taxes

Income Tax Ordinance, 2001

Income Tax Rules, 2002

F.R.A.N.T.S.
 Compliances

- Direct Tax Compliance:

- Filing of Tax Return (Annually)

- Deduction and Deposit of Withholding Income

Tax

- Filing of Withholding Income Statement (Monthly)

F.R.A.N.T.S.
 Registration - Individual
- New Registration (Having CNIC/NICOP)
- CNIC, Mobile Number and Email Address required.

- Mobile Number should not have been used earlier for another FBR
registration.

- Email should also not have been used for another FBR registration.

- The particulars are submitted online using the following link:

https://iris.fbr.gov.pk/infosys/public/txplogin.xhtml

- After submitting the form, Codes are received on both Email and Mobile

Contd….
F.R.A.N.T.S.
Registration – Individual (Contd…)

F.R.A.N.T.S.
Registration – Individual (Contd…)

F.R.A.N.T.S.
 Registration – Individual (Contd…)
- After putting in the codes in respective fields, password and pin
codes are received in email and on mobile, which can then be
used to log into the tax profile.

- To complete the registration, Form 181 has to be filed, which

requires the following information:
- Personal Information (which is already filled in)
- Property (Communication/Business Address)
- Business (Business Details)
- Link (Employer, Attorney, Representative)
- Attachment (Electricity Bill, Salary Certificate/Slip)
- Bank Account

F.R.A.N.T.S.
 Registration – Individual (Contd…)
- For Non-Pakistani Individual, registration is done at Local
Registration Offices (LRO) situated at Tax Offices (RTO Islamabad)

- Rent Agreement is required as a proof of Residence

- Rest of the Information Requirement is Same.

F.R.A.N.T.S.
 Registration – Company
- Registration of the Companies is also done at Local Registration
Offices (LRO) situated at Tax Offices (RTO Islamabad)
- Following Documents are Required for NTN:
- Certificate of Incorporation
- Form 21
- Blank Letterhead with Stamp
- Rent Agreement / Ownership Certificate
- Copy of latest Electricity Bill
- NTN of at least two company Directors
- One of these Directors has to be personally present at LRO and must have
Authorization letter from the Other Director (on Company Letterhead)
- Email and Cell Phone Number
- Attested Copies of CNICs of Directors
- Both Hard and Scanned Copies (PDF) of the above are required.
F.R.A.N.T.S.
 Withholding Tax Obligations
The Income Tax Law Enjoins Collection/Deduction of Advance Tax on
Certain Payments to be made by the Prescribed Persons, commonly
known as Withholding Tax.

Withholding Tax is the Advance Payment of Tax on behalf of the

person receiving payment on which the tax is being deducted.

The person responsible for deducting tax from payments is known as

Withholding Agent.

The amount of Tax being withheld is basically the payment of tax in

advance for the person receiving the payment, and the paying
authority is only responsible to deduct the amount of tax from the
payment and pay it to the Government.
F.R.A.N.T.S.
 Payments Exempt/Not Liable to
Withholding Tax
Withholding Tax may not be deducted where:

- The payment during the year remains below the minimum

threshold not liable to deduction.

- The Recipient holds a valid certificate of exemption from

withholding tax issued by the Commissioner.

- The recipient is specifically exempt from withholding tax

deduction under different categories of payments.

F.R.A.N.T.S.
 Payments Liable to Withholding Tax
Following are the most common types of payments, which require
collection / deduction of Withholding Tax at the time of payment :
- Imports Section 148
- Salary Section 149
- Profit on Debt Section 151
- Payment to Non Residents Section 152
- Payment for Goods & Services Section 153
- Income From Property Section 155
- Brokerage and Commission Section 233
- Telephone & Internet Users Section 236

F.R.A.N.T.S.
 Withholding Tax - Salary
Withholding tax has to be deducted on average rate of Tax to be
calculated based upon the taxable salary of the employee.
Salary includes Pay, Wages, Allowances whether of Revenue or
Capital Nature
All the salary and allowances paid to an employee are taxable except
the medical allowance, which is exempt up to 10% of basic salary.

However, provision of medical treatment / hospitalization or

reimbursement thereof is exempt under clause 139.

Salary also includes the value of perquisites provided by an

employer, for example:

F.R.A.N.T.S.
 Withholding Tax - Salary
- Motor Vehicle
Partly for Personal and Business Use 5% of cost
Personal Use Only 10% of cost

- Accommodation
Equal to the amount that would have been paid by the
employer in case such accommodation was not provided
However, not to be less than 45% of MTS or Basic Salary
- Salaries of Servants Provided by Employer
- Utilities Provided by the Employer
- Loan at Concessional Rates
Equal to the difference of interest actually paid and payable
at Benchmark rate (10%)
F.R.A.N.T.S.
 Withholding Tax - Salary
However, no benefit will be added for loan at concessional
rates, if:

- The amount of loan is up to Rs. 500,000

- The employee has waived off interest on his account with
Employer, e.g., Provident Fund
- Amount Waived off by Employer or Obligation of Employee
Discharged by the Employer

- Gratuity
Exempt if Gratuity Fund is approved by the Commissioner
In other Cases, Exempt Up to 50% of Gratuity or Rs. 75,000
Whichever is less

F.R.A.N.T.S.
 Withholding Tax - Salary
- Provident Fund

Recognized Provident Fund:

Employer Contribution: Contribution – Lower of 1/10th of

Basic Pay or Rs. 150,000
Interest Credited: Interest – Higher of 1/3rd of Salary
or Interest Amount at 16% P.A.

Payment of Fund: Exempt from Tax

F.R.A.N.T.S.
 Withholding Tax - Salary
Withholding Tax is deducted from Salary under section 149 at the
rates in First Schedule , after making adjustment of tax withheld
from Employee Under other heads and tax credit admissible for
“Charitable Donations”, “Investment in Shares and Insurance”,
“Contribution to Approved Pension Fund”, and Deductible
Allowances for “Profit on Debt” and “Education Expenses”.

Rates Applicable for Tax Year 2017 From 01 July 2016 to 30 June 2017

Payment to Directors for Directorship Fee or Meeting Fee is

subjected to straight 20% Withholding Tax.

F.R.A.N.T.S.
 Withholding Tax – Payments to Non-Residents
Every person making a payment to a non-resident has to deduct
withholding tax:
Payment Nature Filer Non-Filer
Royalty and Fee for Technical Services 15% 15%
Contracts 7% 12%
Any Other Payment 20% 20%

If different rates are provided under an agreement for avoidance of

double taxation treaty, then the rates provided in the treaty would
become applicable.

F.R.A.N.T.S.
 Withholding Tax – Payments to Permanent
Establishments of Non-Residents

Every person making a payment to a Permanent Establishment of a

non-resident has to deduct withholding tax:

Payment Nature Company Others

Filer Non-Filer Filer Non-Filer
Supplies 4% 6% 4.5% 6.5%
Services 8% 12% 10% 15%
Contracts 7% 12% 7% 12%

F.R.A.N.T.S.
 Withholding Tax – Payments Against Supplies,
Services and Contracts

This is the most important and most used area for withholding tax
deduction. The withholding tax is deducted at:

Payment Nature Company Others

Filer Non-Filer Filer Non-Filer
Supplies 4% 6% 4.5% 6.5%
Services 8% 12% 10% 15%
Contracts 7% 10% 7.5% 10%
Transport Services 2% 2% 2% 2%
Electronic and Print Media for 1.5% 12% 1.5% 15%
Advertisement Services
Sportsperson 10% 10% 10% 10%

F.R.A.N.T.S.
 Withholding Tax – Payments Against Supplies,
Services and Contracts
Withholding tax under section 153 is deducted on Gross amount of
payment on account of:
- Sale of goods (inclusive of sales tax)
- Rendering of or providing of services
- Execution of a contract, other than a contract for the sale of
goods or the rendering of or providing of services

Withholding tax under this section is not required to be deducted in

following cases:
- Payments made to a single person for the supply of goods not exceeding Rs. 25,000 in a
financial year. However, If the total payments to a person in a financial year exceed Rs.
25,000, the withholding tax shall be deducted from the entire supplies made during the
same financial year.
F.R.A.N.T.S.
 Withholding Tax – Payments Against Supplies,
Services and Contracts
- Payment made to a single person for services rendered, and execution of a contract not
exceeding Rs. 10,000 in a financial year. Provided that where the total payments to a
person in a financial year exceed Rs. 10,000, the withholding tax shall be deducted
from all the payments made during the same financial year.

- Payment made to a person whose income is exempt from tax and produces a certificate
of exemption from deduction of tax issued by the concerned Commissioner of Income
Tax.

- Payment made to a company for the sale of electricity and gas.

- Payments made in cash to a hotel or restaurant for providing accommodation or food

or both as the case may be.

- Insurance premiums paid to and claims discharged by insurance companies are not
liable to deduction of tax at source.

F.R.A.N.T.S.
 Withholding Tax – Payments Against Supplies,
Services and Contracts
- Payment made to Pakistan State Oil Company Limited, Shell Pakistan Limited or Caltex
Oil (Pakistan) Limited for the sale of petroleum products.

- Payments made to oil distribution company or an oil refinery or Permanent

Establishment of Nonresident Petroleum Exploration and Production (E&P) Companies
for supply of its petroleum products.

F.R.A.N.T.S.
 Withholding Tax – Income From Property
Withholding tax is required to be deducted on rent of immovable
property (including rent of furniture and fixtures, and amounts for
services relating to such property) at the following rates, at the time
the rent is actually paid.
Rent Paid to Individual / AOP
Amount of Rent Withholding Tax Rate
Where the gross amount of rent does not exceed Rs. Nil
200,000
Where the gross amount of rent exceeds Rs. 200,000 5% of the gross amount exceeding
but does not exceed Rs. 600,000 Rs. 200,000
Where the gross amount of rent exceeds Rs. 600,000 Rs. 20,000 plus 10% of the gross
but does not exceed Rs. 1,000,000 amount exceeding Rs. 600,000
Where the gross amount of rent exceeds Rs. Rs. 60,000 plus 15% of the gross
1,000,000 but does not exceed Rs. 2,000,000 amount exceeding Rs. 1,000,000
"Where the gross amount of rent exceeds Rs. Rs. 210,000 plus 20% of the gross
2,000,000 amount exceeding Rs. 2,000,000

F.R.A.N.T.S.
 Withholding Tax – Income From Property
Rent Paid to Company

15% of Gross Amount of Rent

F.R.A.N.T.S.
 Withholding Tax – Brokerage and Commission
Withholding tax is required to be deducted from Brokerage and
Commission on the following rates:

Payment Nature Filer Non-Filer

Commission Paid to Advertising Agents 10% 15%
Commission Paid to Other Persons 12% 15%

F.R.A.N.T.S.
 Withholding Tax – Telephone and Internet Users
Advance Tax shall be collected on the following rates:

Payment Nature Rate

Telephone Subscriber (other than mobile) if the bill 10% of the exceeding
exceeds Rs. 1,000 amount of bill
Internet, Mobile, Prepaid Internet & Telephone Card 14%

F.R.A.N.T.S.
 Deposit/Payment of Tax Deducted
The deducted Withholding Tax is required to be deposited in the
Government Treasury within 7 days from the end of each week.

Income Tax Payment Challan can be generated from e-FBR portal by

visiting the following link:
e.fbr.gov.pk
Following Particulars will be required for Challan:

1. NTN/CNIC
2. Business Name and Address
3. Payment Section
4. Status of the Taxpayer, Active (Filer) or Otherwise
5. Amount Paid and Tax Deduction

F.R.A.N.T.S.
 Deposit/Payment of Tax Deducted
The Data can be input on the portal by logging into the portal and
following the chain as below:

E-payments > Create Payment > Income Tax

F.R.A.N.T.S.
 Deposit/Payment of Tax Deducted
The Data can either be directly input into the fields or an Excel File
can be prepared manually and uploaded.

The withholding tax deducted can be paid either in Cash or through

Cheque.

After selecting the mode of payment and filling in the particulars of

cheque, PSID is generated.

The PSID is then taken to National Bank or State Bank along with
Cash or Cheque.

After deposit of cash/clearance of cheque, Computerized Payment

Receipt (CPR) is generated showing the particulars of payment of
withholding tax.
F.R.A.N.T.S.
 Searching Payment
Any Payment made earlier can be searched by logging into the portal
and following the chain as below:

E-payments > Search Payment > Income Tax

F.R.A.N.T.S.
 Verification of CPR
Any CPR can be verified from the E-FBR Portal by following the chain
as below:

e.fbr.gov.pk (Please do not log in)

Helpdesk & Support > Online Document Verification

From the Drop Down Menu, Select “Computerized Payment

Receipt” and insert the CPR No. in the give field, ensuring that
the CPR No. is inserted exactly in the following format:

IT-20170327-1234-1234567

F.R.A.N.T.S.
 Status of Payee
In the preceding slides we have discussed that the rates of
withholding taxes depend on the status of the Payee (Taxpayer) as
Filer (Active) or Otherwise.

The status of the taxpayer can be checked by visiting the E-FBR

Portal:

Visit e.fbr.gov.pk (Do not log in)

Go to “Search Taxpayers > Active Taxpayers (IT)

The Registration Number of the Taxpayer (CNIC/NTN) is required

only for checking the status.

F.R.A.N.T.S.
 Certificate of Deduction of Tax
For every withholding tax deduction, a Certificate of Tax Collected or
Deducted, in the prescribed form, serially numbered, has to be
issued to the person from whom such tax has been collected or
deducted.

Certificate for deduction of Tax must be issued within 15 days from

the end of the financial year.

However, If the person from whom tax has been collected or

deducted requests for the issuance of the certificate before the end
of the financial year, the certificate is to be issued for the period in
that year within 7 days of the request made.

Certificate can also be generated from E-FBR portal.

F.R.A.N.T.S.
Consequences of Default in Deduction or Payment
of Withholding Tax
Expense not allowed as Deduction

In case of not deduction of withholding tax at source the

expenditures on which tax has not been so deducted shall not be
allowed as deduction for the purpose of computing income.

Recovery of tax not collected or deducted

The amount of tax not collected or deducted or having deducted or

collected, but not paid to the Government shall be
payable/recoverable from the person failing to deduct, as if it is due
under an assessment order under the Income Tax ordinance, 2001.

F.R.A.N.T.S.
Consequences of Default in Deduction or Payment
of Withholding Tax
Charge of Default Surcharge

In addition to the recovery of principal amount of withholding tax

not so collected or deducted, further tax as “Default Surcharge” shall
also be payable/ recoverable at the rate of 12% P.A. on the amount
of tax not collected or deducted or having collected or deducted not
paid computed for the period commencing on the date the amount
was required to be collected or deducted and ending on the date on
which it is actually paid.

F.R.A.N.T.S.
Consequences of Default in Deduction or Payment
of Withholding Tax
Prosecution

Any person who, without reasonable excuse, fails to comply with the
obligation to collect or deduct tax or having collected or deducted
fails to pay the tax shall tantamount to committing an offence
punishable on conviction with a fine or imprisonment for a term not
exceeding one year, or both.

F.R.A.N.T.S.
 Filing of Monthly Statement
Monthly Statement of withholding taxes is required to be filed for
each month, by 15th of the next month. The statement is filed using
IRIS Module of FBR.

The Data can either be input directly on the Portal or an Excel File
can be prepared and uploaded. Excel File can be downloaded from
IRIS Module > Help

The Monthly Statement can be found under “Withholding / Advance

Tax > 165(1) (Statement of Withholding Taxes filed Voluntarily)

F.R.A.N.T.S.
 Filing of Annual Statement
Annual Statement is required to be filed for tax deduction from
Salary.

The Data can either be input directly on the Portal or an Excel File
can be prepared and uploaded. Excel File can be downloaded from
IRIS Module > Help

The Annual Statement can be found under “Withholding / Advance

Tax > 149 (Annual Statement of Withholding Taxes filed Voluntarily)

F.R.A.N.T.S.
 Persons Required to File Return
- Every Company
- Every Other Person whose income Exceeds the
taxable income (Rs. 400,000)
- Non-Profit Organization [Section 2(36)]
- Welfare Institution [Clause 58 Part I]
- Others:
- Charged to Tax in the preceding two tax years
- Claiming Carry Forward Loss
- Owner of Immovable Property (250 Sq. Yards) or flat
- Owner of Motor Vehicle Exceeding 1,000CC
- NTN Holder
Contd….

F.R.A.N.T.S.
 Persons Required to File Return
Contd …..
- Others:

- Holder of Commercial or Industrial Connection of

Electricity with Annual Bill Exceeding Rs. 500,000

- A Resident Person registered with any Chamber,

Trade or Business Association, Market Committee or
Professional Body

- Income from Business exceeding Rs. 350,000 but not

exceeding Rs. 400,000

F.R.A.N.T.S.
 Persons Not Required to File Return

- The following owners of Immovable Property (250 Sq.

Yards) or flat, are not required to file the return (if
they do not have any other taxable income)
- Widow
- Orphan (below the age of 25 years)
- Disabled Person
- Non-Resident Person

F.R.A.N.T.S.
 Persons Required to File Return
Electronically
- Salary Income (Limit of Rs. 500,000 abolished from
Tax Year 2015 vide SRO 791(I)/2015)
- Company (July 2007 onwards)
- Sales Tax Registered Person (July 2009 onwards)
- AOP (July 2009 onwards)
- Tax Refund Claim Case (From Tax Year 2009)

F.R.A.N.T.S.
DEMONSTRATION

F.R.A.N.T.S.
 Penalties
Some of the most common penalties are:
Offence
Failure to furnish a Return of Income
Failure to furnish Monthly Statement of
Withholding Tax
Failure to deposit the Amount of Due Tax
Failure to collect or deduct tax and deposit
tax so collected
Penalties
0.1% of tax payable for each day of default.
Maximum Penalty would be higher of:
- 50% of the tax payable
- PKR 20,000
PKR 2,500 per day (with minimum penalty of
PKR 10,000)
First Default – 5% of the tax amount
Second Default – Additional 25% of the tax
amount
Subsequent Default – Additional 50% of the
tax amount
In addition to the recovery, penalty would be
Higher of:
- 10% of the tax payable
- PKR 25,000
F.R.A.N.T.S.
 Alternate Remedies
Federal Tax Ombudsman (FTO)

FTO is a body outside the structure and control of FBR. The complaints of
tax “maladministration” can be filed with the office of the FTO. It has
offices in all the four provincial headquarters with the main office in
Islamabad.

Mostly the cases are heard by the Advisors of FTO and opportunity
of being heard is provided to both the Complainant and the
Department. After the hearing(s), the order is passed by FTO.

Alternative Dispute Resolution (ADR)

Any aggrieved person, in respect of any matter pending before Appellate

Authority may apply to FBR for appointment of ADR.
F.R.A.N.T.S.
 Alternate Remedies
On receipt and examining of the application, the Board will appoint a
committee consisting of an officer of Inland Revenue (not below
Commissioner) and Two Persons from a penal (CA, CMA, ITP, Advocates or
Reputable Taxpayers).

The Committee shall examine the issue and will make its recommendations
to the Board.

The Board may pass an order on the recommendation of the committee

within 90 days of the receipt of recommendations of the Committee.

As inserted vide Finance Act 2016, the recommendations of the Committee

shall be treated to be an order by the Board, if Board does not pass such
order within 90 days.

F.R.A.N.T.S.
 Alternate Remedies
Advance Ruling

On Application in writing by a non-resident taxpayer, the Board may issue

advance ruling regarding the application of Income Tax Ordinance, 2001, to
a transaction proposed or entered into by the taxpayer.

The advance ruling is binding on the Commissioner.

Advance Ruling can only be availed by the non-resident taxpayers. The

Permanent Establishments of Non-Resident have been specifically excluded
from the benefit of Advance Ruling.

F.R.A.N.T.S.
 Alternate Remedies
Representation to Chairman of Board

Any person aggrieved by any action done or taken for the enforcement of
the fiscal laws or due to any act of maladministration, corruption and
misbehavior by any officer or employee of the Board or any unnecessary
delay or hardship caused due to any administrative process may prefer
representation to the Chairman for redressal of his grievance, under
Section 7 of Federal Board of Revenue Act, 2007.

The Chairman or the Board or any other designated officer shall take the
appropriate action to redress such grievance.

F.R.A.N.T.S.
THANK YOU

F.R.A.N.T.S.