Syllabus of Inspector Inland Revenue updated:

Objective Type Test (MCQ)

Part-I 
English = 20 marks
Part-II 
Professional 
Test = 80 marks
Part-I Grammar Usage, Sentence Structuring
Part-II
Functions of Federal Board of Revenue. Fiscal Policy of Pakistan Tax Administration/Reforms in
Pakistan Sales Tax Act 1990 as amended upto July 2016 Federal Excise Act 2005 as amended upto
July 2016 Income Tax Ordinance 2001 as amended upto June 2016 (Chapter-III & Part IV of Chapter-
X
only

2015 Inspector test mcqs included

about FBR head? Chairman

- In order to remove impediments from performing government functions, secretary finance was
separated from FBR and FBR was created Division. 

-English: Synonyms, blanks and Punctuation.

synonyms: hackneyed, Assuage

- number of functional, Supportive and Operational members.

- creation of FBR from CBR? Revenue Act 2007

- KIBOR? Karachi Inter bank offered rate

- Definitions from Section 2

- Promulgation dates from Acts and ordinance 

- Hardly 10 questions were about sections.

Ordinance and acts contained total number of section?

- Salaries from other sources? 

- definition of salaries

- agricultural income exemptions and taxable

- dividend 
- rent
akes rates like one has above 400,000 income what will be the tax? Etc.

A senior citizen aged 55/60 his income 600,000 etc.

Repealed income tax ordinance

Salaried person income of 350000 in 2013 and receive dividend income 90, 000 tax on dividend pay at
source was 10, 000.. what was tax liability of that person for year
.a) zero b) 11, 000 c ) 10000 and d) none

Board can make rules under sec ? STA

__________________
Tax imposed in Pakistan? national assembly
tax imposed on telecom sector? 21%
question regarding accounting(accrual)

All English Section was from the book 'Discovering The World of English'
Example of Tax payer ____ A) WAPDA B) LESCO C) SALARIED PERSON D) ALL OF THESE

The correct answer is perhaps D, because WAPDA and LESCO are registered under Income Tax
Ordinance, 2001; they have to deduct taxes -- they are withholding agents, but FPSC cannot understand
this because this question is taken from the book of Doggar Publishers, the book says only option C is
right, that is, only a salaried person is taxpayer. The professional test part was very unprofessional.

It is clearly mentioned in section 2 (66b) of Income Tax Ordinance, 2001 that every person who deducts
income tax under the Ordinance is a taxpayer; doesn't LESCO, a tax deduction authority, file income tax
deduction statements to FBR? It does, and so does WAPDA. Yet, Doggar Publishers has the wrong
answer and I am afraid FPSC that is already influenced by Doggar Publishers will deem the wrong
answer right.
1Taxs levied by 
2Exemption section in STA
3Cost and charter accountant 
4 About accrual basic
5Exempted schedule in sale tax act
6Gold handshake is exempted 
7Direct tax percentage in total tax revenue
8Special audit is conducted
9Reference to the high court can be filled within how many days
10Faliure to notify registration charge
__________________

which is not principle of taxation 

principle of certainty 
principle of economy
principle of secrecy 
non of these ?

in order to remove impediments in the exercise of administrative powers of a Secretary to the

Government and effective formulation and implementation of fiscal policy measures, the status of FBR as
a Revenue Division was restored under;
Qs regarding FBR vision , its answer was A.
Synonyms asked in evening test:
Provincial
Approbation
Intercede
Meritorious
Decadence
Expostulate
Lurid
Transcend.
Salried person income of 350000 in 2013 and receive dividend income 90, 000 tax on divdend pay at
source was 10, 000.. what was tax libility of that person for year
.a) zero b) 11, 000 c ) 10000 and d) none

Board can make rulea under sec ? STA

)10,000 because dividend income falls under FTR/PTR Therefor it is Full and Final Settelment of tax
liability and it is not refundable

There were questions regarding Appeals, Income tax, Zero rating, exemptions, penalties, few questions
related to Income and income tax, taxing regarding senior citizens, time period of filling of appeals etc.

1) In Pakistan, the power of levy lies with:

2) Further Tax (Non Registered)
3) Zero Rated Products
4) Depreciation on plant and Machinery
5) Salary is chargeable under
6) How to receive tax payable from defaulter.
7) Non Resident person has to pay taxes on
8) Appeal Time
9) Is not function of FBR
10) Most Revenue earned form Taxes
11) Highest share in taxes are of
12) confiscated ciggarette be destroyed
13) Which of the following is not intangible assets
14) Default surcharge Penalty
15) Section 13
18) Posting of IR official under section 40B
19) Budget in Pakistan is finally approved by
20) cost and chartered accountant
21) Property loss can be carry forward to how many years?
22) accrual basis of sale
23) Under Sec 146B FBR can waive of:
24) Resident Owner aircrafts having their operations on Pakistan are required to file tax return in
Pakistan after ________ Months… 
25) Which of the following expenses can be deducted form Salary Income
26) Which of the following is an admissible deduction for computing property Income/
27) Income earned by a trade association from sale of Goods to its members…
28) Which of the following can not be deducted from business income
29) Depreciation of various business assets are specified in: 1st Schedule
30) Faliure to notify material changes
31) Income generated form leasing (Normal Business)
32) Income Generated from renting out property/land 
33) From Last couple of Years, tax ti GDP Ratio has on)
34) Which of the following is True About amount of taxes collected in Pakistan ( Indirect Taxes are more
than direct)
35) Which of the following would cause income to become more unequal: 
36) Sales tax in Pakistan is (Indirect and Proportional)
37) Progressive Taxation is..
39) ____ is the difference Between.. 
40) Tax exempt on bonafide baggage, cigarrates to navy
41) 2.5% to person with 90% sales to registered persons
42) Property kept for more than 1 year will be depreciated reduced by 25%
43) Default surcharge section 34
44) Tax becomes payable on "due date"
45) Person has to keep record for 6 years
46) Tax credit not allowed for fake invoices, tax not paid in supply chain
47) Total income includes exempt income
48) Car provided by employer is considered as perquisite
49) Personal expenditure is not a permissble dedudction
50) Pre-commencement expenditure inculdes feasilibty, prototype
51) Scientific research
52) Recovery letter sent to District Officer (Revenue)
53) Percentage of Direct Taxes earned in Total Taxes
54) 1st numericals
55) Income derived from renting out generator
56) Schedule No. 6
57) FED Duty on telecom 18.5%
58) Practice of Recovery of Income tax from a taxpayer under section 140
59) Depreciation initial Allownce for Capital Asset
60) 2nd numericals
61) special judge appointed by
62) Tax credit for enlistment 65C

FBR:
Our Vision

vision:

       To be a modern, progressive, effective, autonomous and credible organization for optimizing
revenue by providing quality service and promoting compliance with tax and related laws

mission;
 Enhance the capability of the tax system to collect due taxes through application of modern
techniques, providing taxpayer assistance and by creating a motivated, satisfied, dedicated and
professional workforce

our values:

 Integrity
  Professionalism
 Teamwork
 Courtesy
 Fairness
 Transparency
 Responsiveness

INTRODUCTION

Introduction to FBR
The Central Board of Revenue (CBR) was created on April 01, 1924
through enactment of the Central Board of Revenue Act, 1924. In 1944, a
full-fledged Revenue Division was created under the Ministry of
Finance. After independence, this arrangement continued up to 31st
August 1960 when on the recommendations of the Administrative Re-
organization Committee, FBR was made an attached department of the
Ministry of Finance. In 1974, further changes were made to streamline
the organization and its functions. Consequently, the post of Chairman
FBR was created with the status of ex-officio Additional Secretary and
Secretary Finance was relieved of his duties as ex-officio Chairman of
the FBR.

In order to remove impediments in the exercise of administrative powers

of a Secretary to the Government and effective formulation and
implementation of fiscal policy measures, the status of FBR as a Revenue
Division was restored under the Ministry of Finance on October 22,
1991. However, the Revenue Division was abolished in January 1995,
and FBR reverted back to the pre-1991 position. The Revenue Division
continues to exist since from December 01, 1998.

By the enactment of FBR Act 2007 in July 2007 the Central Board of
Revenue has now become Federal Board of Revenue.
You are here: About FBR>> FUNCTIONS OF FBR/REVENUE
DIVISION

Function of FBR / Revenue Division

In the existing setup, the Chairman, FBR, being the executive head of the
Board as well as Secretary of the Revenue Division has the responsibility
 for

(i) Formulation and administration of fiscal policies,

(ii) Levy and collection of federal taxes and

(iii) Quasi-judicial function of hearing of appeals.

 His responsibilities also involve interaction with the offices of the

President, the Prime Minister, all economic Ministries as well as trade
and industry.

FBR Wings
 Inland Revenue:::

incomtax
sales tax
fedral excise duty

 Customs
 Admin
 Taxpayers Audit
 Legal
 FATE
 SPR&S
 HRM
 Information Technology
 Accounting
 RA&R

About Income Tax

Taxation according to a person’s ability to pay is universally accepted principle, and income is
considered a satisfactory though not a sufficient index of such ability to pay. Income Tax is, therefore,
generally recognized as a highly equitable form of taxation. A tax levied on income can normally be
shifted to others and thus its incidence is on those for whom it is intended. Since income tax is
progressive in nature, it tends to reduce economic disparity. Tax rates and method of calculating taxable
income varies with fiscal status of the tax payer. Following are the broad categories of taxpayers:-
   Companies
 Association of Persons (AOP)
 Non Salaried Individuals
 Salaried individuals

OVERVIEW
Sales Tax was a provincial subject at the time of partition. It was being
administered in the provinces of Punjab & Sindh as provincial levy. Sales tax
was declared a federal subject in 1948 through the enactment of General Sales
Tax Act, 1948 and in 1952, this levy was transferred permanently to the
Central Government. Sales tax was levied at the standard rate of 6 pies per
rupee at every stage whenever a sale was effected. The trading community
protested against this system, and this resulted in the enactment of Sales Tax
Act 1951.

A system of licensed manufacturers & wholesalers was instituted whereby

they were allowed to purchase goods free of sales tax from each other and pay
tax on sales to unlicensed traders. Imports were chargeable to Sales Tax but
the licensed manufacturers & wholesalers were allowed to import goods
without the payment of Sales Tax. Later on Sales Tax became chargeable on
locally produced & imported goods at the time of their sales & import,
respectively. The sales tax, was collected under the Finance Ordinance, 1956,
on goods which were chargeable to Central Excise Duty, as if it were a duty
of Central Excise. In April 1981, by virtue of an amendment in the Sales Tax
act, 1951, the collection of Sales Tax on non-excisable goods was also
entrusted to the Central Excise Department.

In the late eighties the government decided to replace Sales Tax with the
Value Added Tax in the country as a part of its structural adjustment program
which was undertaken to correct anomalies & distortions both in our tax &
non-tax regimes. Accordingly new enactment titled Sales Tax Act 1990
replaced Sales Tax Act 1951 with effect from 1-11-1990.
Liability to Sales Tax
Following sectors are required to get registration for sales tax and charge
sales tax on their supplies/ services:

 Manufacturing
 Import
 Services
 Distribution, Wholesale & Retail stage.

Previously it was being charged at the manufacturing & import stage, and its
scope has been extended now to remaining sectors.

Sales Tax is chargeable on all locally produced and imported goods except
computer software, poultry feeds, medicines and unprocessed agricultural
produce of Pakistan and other goods specified in Sixth Schedule to The Sales
Tax Act, 1990.
Registration
Every person in sectors mentioned above, who makes a taxable supply in
Pakistan is required to be registered under the Sales Tax Act. However,
manufacturers having taxable turnover below five million rupees and also
utility bill below Rs. Seven lac during the last twelve months are exempted
from registration and payment of sales tax. Similar exemption is also
available to retailers having total turnover below Rs. five million in the last
twelve months.

The rate for sales tax is 16% of value of supplies. However, there are some
items which are chargeable to sales tax at 18.5% or 21% of value of supplies
(see SRO 644(I)/2007 as amended by SRO 537(I)/2008 dated 11th June 2008)

The Registration Form(s) are submitted to the Central Registration Office,

FBR, or Sales Tax Collectorates/ RTOs for the allotment of a Registration
Number by the persons liable to be registered under the Sales Tax Act. The
taxpayer is then issued a Certificate of Registration.
Returns
As per law each registered person must file a return by the 15th of each month
regarding the sales made in the last month.

All registered persons are required to file returns electronically and in such
cases the payment is to be made by the 15th and return can be submitted on
FBR’s e-portal by 18th.

Detailed procedure in this respect is given in Sales Tax General Order no. 04
of 2007.

There are some sectors which are required to file returns on quarterly (tri-
monthly) basis e.g. retailers including dealers of specified electric goods and
CNG dealers.
Maintenance of Records
All registered persons are required to maintain records at their business
premises of the goods purchased and supplied made by them. All the records
are required to be kept for a period of 5 years.
Refunds of Sales Tax
In cases where the Input Tax exceeds the Output Tax due from the registered
person in respect of a tax period because of exports or other zero-rated
supplies, the excess amount of input is refunded back to the taxpayer within
45 days. In all other cases of excess input tax, the Board can specify the
procedure for refund.
Additional Tax
If a registered person does not pay the tax within the specified time or claims
a tax credit or refund which is not admissible to him, or incorrectly applies the
rate of zero percent to the supplies made by him, he has to pay the additional
tad at the following rates:

One and half percent of tax due or the part thereof per moth;
 However, in case of tax fraud, the rate of additional tax shall be two percent
per month.
Arrears
The work regarding Arrears gets initiated in the following cases:

 Late or no submission of the Returns

 Amount paid is less than the tax amount payable
 A demand raised after an audit/ scrutiny is upheld after adjudicat

OVERVIEW OF FEDERAL EXCISE DUTY

The Federal Excise Act, 2005, was promulgated with effect from 1st July, 2005, repealing the
Central Excises Act, 1944. Following are some of the significant changes brought about by the
new Act:

  The word “Federal” was used in place of “Central”. Therefore, now the term “Federal
Excise Duty” is more appropriate as compared to old “Central Excise Duty” for the
duties of excise levied under the 2005 Act.
 The system of physical supervision has been entirely done away with and now all
clearances will be self-assessed and no prior permission for clearance will be required.
   The payment of duty will be on monthly basis and the duty on all clearances during the
month will be payable by the 15th of next month. This is in contrast to previous
requirement of payment of duty prior to clearance.
 No gate passes are required for clearances as in the old system.
 Double taxation has been eliminated by allowing adjustment of the excise duty paid on
the input goods used directly in the manufacture of excisable goods.
 On some services and goods FED is payable in VAT more i.e. in the same manner as
provided in the Sales Tax Act, 1990. For details see the link ‘Goods/Services Liable to
Excise Duty’ on this page.

  Federal Excise duty is payable on:

(a)goods produced or manufactured in Pakistan;

(b) goods imported into Pakistan;

  (c) such goods as the Federal Government may, by notification in the official Gazette, specify,
as are produced or manufactured in the non-tariff areas and are brought to the tariff areas for
sale or consumption therein; and

(d) services, provided or rendered in Pakistan;

  Special Excise Duty
As part of budgetary measures for the year 2007-08, Special FED at 1% has been levied on
goods which are manufactured or are imported in Pakistan. This duty is in addition to FED as
 
prescribed in First Schedule of the Federal Excise Act, 2005. For list of goods excluded from
purview of this special duty and other details see SRO 655(I)/2007.
Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad
categories, viz., direct and indirect taxes.

A broad description regarding the nature of administration of these taxes is explained below:

Direct Taxes
Direct taxes primarily comprise income tax, along with supplementary role of wealth tax. For the purpose
of the charge of tax and the computation of total income, all income is classified under the following
heads:

• Salaries
• Interest on securities
• Income from property
• Income from business or professions
• Capital gains; and
• Income from other sources

Personal Tax
All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the rates ranging from
10 to 35 per cent.

Tax on Companies
All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at
corporate rate of 39%. However, the effective rate is likely to differ on account of allowances and
exemptions related to industry, location, exports, etc.

Inter-Corporate Dividend Tax

Tax on the dividends received by a public company from a Pakistan company is payable at the rate of 5%
and at the rate of 15% in case dividends are received by a foreign company. 

Inter-corporate dividends declared or distributed by power generation companies is subject to reduced

rate of tax i.e., 7.5%. Other companies are taxed at the rate of 20%. 

Dividends paid to all non-company shareholders by the companies are subject to with holding tax of 10%
which is treated as a full and final discharge of tax liability in respect of this source of income.
Treatment of Dividend Income

Dividend income received as below enjoys tax exemption, provided it does not exceed Rs. 10,000/-.

1. Dividend received by non-resident from the state enterprises Mutual Fund set by the Investment
Corporation of Pakistan.

2. Dividends received from a domestic company out of income earned abroad provided it is engaged
abroad exclusively in rendering technical services in accordance with an agreement approved by the
Central Board of Revenue.

Unilateral Relief
A person resident in Pakistan is entitled to a relief in tax on any income earned abroad, if such income has
already been subjected to tax outside Pakistan. Proportionate relief is allowed on such income at an
average rate of tax in Pakistan or abroad, whichever is lower.

Agreement for avoidance of double taxation

The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries
including almost all the developed countries of the world. 
These agreements lay down the ceilings on tax rates applicable to different types of income arising in
Pakistan. They also lay down some basic principles of taxation which cannot be modified unilaterally.
The list of countries with which Pakistan has concluded tax treaties is given below:

Austria Belgium Bangladesh Canada China

Denmark Egypt France Finland Germany
Greece India Indonesia Iran Ireland
Italy Japan South Korea Lebanon Libya
Malta Mauritius Saudi Arabia Singapore Poland
Romania Switzerland Thailand Sri Lanka Sweden
Turkmenistan U.K. Turkey Tunisia Kazakistan
U.A.E. U.S.A

Customs
Goods imported and exported from Pakistan are liable to rates of Customs duties as prescribed in Pakistan
Customs Tariff. 

Customs duties in the form of import duties and export duties constitute about 37% of the total tax
receipts. 

The rate structure of customs duty is determined by a large number of socio-economic factors. However,
the general scheme envisages higher rates on luxury items as well as on less essential goods. The import
tariff has been given an industrial bias by keeping the duties on industrial plants and machinery and raw
material lower than those on consumer goods.

Central Excise
Central Excise duties are leviable on a limited number of goods produced or manufactured, and services
provided or rendered in Pakistan. On most of the items Central Excise duty is charged on the basis of
value or retail price. Some items are, however, chargeable to duty on the basis of weight or quantity.
Classification of goods is done in accordance with the Harmonized Commodity Description and Coding
system which is being used all over the world. All exports are exempted from Central Excise Duty.

Sales Tax
Sales Tax is levied at various stages of economic activity at the rate of 17 per cent on:
• All goods imported into Pakistan, payable by the importers;
• All supplies made in Pakistan by a registered person in the course of furtherance of any business carried
on by him;
• There is an in-built system of input tax adjustment and a registered person can make adjustment of tax
paid at earlier stages against the tax payable by him on his supplies. Thus the tax paid at any stage does
not exceed 17% of the total sales price of the supplies.

As per the Finance Act passed by Government of Pakistan, following slabs and income tax rates
shall be applicable for salaried persons and salaried class for the year 2014-2015:
Where the taxable salary income does not exceed Rs 400,000, the rate of income tax is 0%;
Where the taxable income exceeds Rs 400,000 but does not exceed Rs 750,000, the rate of income tax is
5% of the amount exceeding Rs 400,000.
Where the taxable income exceeds Rs 750,000 but does not exceed Rs 1,400,000,the rate of income tax is
Rs 17,500 + 10% of the amount exceeding Rs 750,000.
Where the taxable income exceeds Rs 1,400,000 but does not exceed Rs 1,500,000, the rate of income tax
is Rs 82,500 + 12.5% of the amount exceeding Rs 1,400,000.
Where the taxable income exceeds Rs 1,500,000 but does not exceed Rs 1,800,000, the rate of income tax
is Rs 95,000 + 15% of the amount exceeding Rs 1,500,000.
Where the taxable income exceeds Rs 1,800,000 but does not exceed Rs 2,500,000, rate of tax is Rs
140,000 + 17.5% of the amount exceeding Rs 1,800,000.
Where the taxable income exceeds Rs 2,500,000 but does not exceed Rs 3,000,000, the rate of income tax
is Rs 262,500 + 20% of the amount exceeding Rs 2,500,000.
Where the taxable income exceeds Rs 3,000,000 but does not exceed Rs 3,500,000, the rate of income tax
is Rs 362,500 + 22.5% of the amount exceeding Rs 3,000,000.
Where the taxable income exceeds Rs 3,500,000 but does not exceed Rs 4,000,000, the rate of income tax
is Rs 475,000 + 25% of the amount exceeding Rs 3,500,000.
Where the taxable income exceeds Rs 4,000,000 but does not exceed Rs 7,000,000, the rate of income tax
is Rs 600,000 + 27.5% of the amount exceeding Rs 4,000,000.
Where the taxable income exceeds Rs 7,000,000, rate of tax is Rs 1,425,000 + 30% of the amount
exceeding Rs 7,000,000.

About Income Tax

Taxation according to a person’s ability to pay is universally accepted principle, and income is considered
a satisfactory though not a sufficient index of such ability to pay. Income Tax is, therefore, generally
recognized as a highly equitable form of taxation. A tax levied on income can normally be shifted to
others and thus its incidence is on those for whom it is intended. Since income tax is progressive in
nature, it tends to reduce economic disparity. Tax rates and method of calculating taxable income varies
with fiscal status of the tax payer. 

Following are the broad categories of taxpayers:-

Companies
Association of Persons (AOP)
Non Salaried Individuals
Salaried individuals

Capital Value Tax

It is payable by individuals, firms and companies which acquire an asset by purchase or a right to use for
more than 20 years.

Corporate Asset Tax

It is levied through section 12 of the Finance Act, 1991. This is one time levy payable by a company as
defined in Companies Ordinance, 1984, on the value of fixed assets held by the company on the
"specified date".
NEW PROPOSED INCOME TAX SLAB RATES FOR BUSINESSMEN AND AOP’s IN
PAKISTAN FOR YEAR 2013-14

POSTED IN: M&M EXCLUSIVE, PAKISTAN FEDERAL BUDGET 2013-14 --NEW

These are the New PROPOSED INCOME TAX SLAB RATES FOR BUSINESSMEN AND AOP’s IN
PAKISTAN FOR YEAR 2013-14 through Finance Bill 2013-14. 

S.No. Taxable income Rate of tax

1 Where the taxable income does not exceed Rs.400,000 0%

2 Where the taxable income exceeds Rs.400,000 but does not exceed Rs.750,000 10% of the amount
exceeding Rs.400,000 

3 Where the taxable income exceeds Rs.750,000 but does not exceed Rs.1,500,000 Rs.35,000 + 15% of
the amount exceeding Rs.750,000

4 Where the taxable income exceeds Rs.1,500,000 but does not exceed Rs.2,500,000 Rs.147,500 + 20%
of the amount exceeding Rs.1,500,000 

5Where the taxable income exceeds Rs.2,500,000 but does not exceed Rs.4,000,000 Rs.347,500 + 25% of
the amountexceeding Rs.2,500,000 

6Where the taxable income exceeds Rs.4,000,000 but does not exceed Rs.6,000,000 Rs. 722,500 + 30%
of the amount exceeding Rs.4,000,000 

7Where the taxable income exceeds Rs.6,000,000 Rs. 1,322,500 + 35% of the amount exceeding
Rs.6,000,000”
Tax Year 2014: Company tax rate to be 34 percent under Finance Act

The rate of tax imposed on the taxable income of a company other than a banking company, shall be 34
percent for the Tax Year 2014 under Finance Act 2013. The income tax circular issued on Friday said that
through Finance Act, 2013 a proviso has been added to Division II of Part-I in the First Schedule to the
Income Tax Ordinance, 2001 providing that the rate of tax imposed on the taxable income of a company
other than a banking company, shall be 34 percent for the tax year 2014. 

This means that the rate of Income Tax for the Tax Year 2013 shall be 35 percent and for the Tax
Year 2014 the rate of income tax shall be 34 percent on the taxable income of a company other than
a banking company. Explaining the Cash Withdrawal from a bank (Section 231A], the FBR said that the
rate of deduction of income tax by every banking company has been increased to 0.3 percent.
Fiscal policy

Fiscal policy is the use of government revenue collection (mainly taxes) and expenditure(spending) to
influence the economy. 

According to Keynesian economics, when the government changes the levels of taxation and government
spending, it influences aggregate demand and the level of economic activity. 

Fiscal policy can be used to stabilize the economy over the course of the business cycle. 
The two main instruments of fiscal policy are changes in the level and composition of taxation and
government spending in various sectors. These changes can affect the following macroeconomic
variables, amongst others, in an economy:

•Aggregate demand and the level of economic activity;

•Savings and Investment in the economy
•The distribution of income
Fiscal policy can be distinguished from monetary policy, in that fiscal policy deals with taxation and
government spending and is often administered by an executive under laws of a legislature, whereas
monetary policy deals with the money supply, lending rates and interest rates and is often administered by
a central bank.

The three main stances of fiscal policy are:

Neutral fiscal policy is usually undertaken when an economy is in equilibrium. Government spending is
fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic
activity.

Expansionary fiscal policy involves government spending exceeding tax revenue, and is usually
undertaken during recessions.

Contractionary fiscal policy occurs when government spending is lower than tax revenue, and is usually
undertaken to pay down government debt.
Direct vs Indirect tax

Taxation is an extremely important source of funding for any state to finance the running of the
governmental functions. Even the oil rich Arab states are now beginning to recognise the importance of
this and starting to shift towards a lasting economy with citizens contributing to the national treasury with
their share of the taxes.
To put it simply, in all global economies there is taxation, both direct and indirect (in different
combinations). 

Direct taxation is a tax directly levied on an individual or business’s income

while indirect taxation entails taxes on products and services whereby consumers are made to pay
taxes when they consume these.

During the last financial year, the share in the GDP of direct taxes in the national tax revenue was
3.50pc and of indirect taxes 6.40pc.

Big companies pay billions in taxes which are collected from customers through the supply chain, as
companies merely act as collectors and consolidators of those tax sums.

About 25 pc tax revenue is collected through direct taxes and the remaining 75 pc through indirect
taxes.

Consumers mostly do not know as to whose burden they are made to carry. Even if some of them realise
it, the individual burden is so small that they do not consider it worthwhile to mount a challenge socially
or legally.
In Pakistan, ordinary people are taxed indirectly on just about everything. 
Nowhere in the developed world is indirect taxation utilised as heavily as in Pakistan due to the negative
effects that it creates for the economy. In Pakistan’s case (and that of many other developing countries
following this strategy) the negative impacts far outweigh the contributions raised in this manner due to
the missed opportunity costs.

For example, 25-30% had been routinely charged as an indirect tax on every litre of fuel (mainly petrol,
diesel, etc) in Pakistan which is a basic necessity for everyday life compared to only 13% in the USA. 

This way of collecting taxes indirectly leads to inflationary pressures in the economy as the increased
transportation costs translates into increased prices for just about everything including the commonly used
commodities. 

The effects are hyper-inflationary in nature because there is a multiplicative rather than an additive
element in the inflation passed-on at every level.
Furthermore the pay-rises are not proportionate to inflation thereby 

forcing people to rely on expensive credit to make their ends meet. 

Similarly businesses also require more finance to run their operations. 

This hyper-inflationary environment then leads to higher interest rate which negatively affects the
businesses. 

With higher finance costs many business projects which would otherwise be viable becomes non-
feasible. 

The resulting lack of employment opportunities combined with the limited money-supply puts
recessionary pressures on the market.

The above issues lead to the devaluation of the currency which in turn results in increased foreign debt
burden. 

As a result, financing costs of the foreign debts rise leading to a higher proportion of GDP spent on debt
financing. 

All this combined with hyper-inflation drags the already estranged economy further back in Pakistan’s
case.
The above is a summary of the mess created by the taxation policies pursued by the previous government
which are unfortunately continued by the incumbent finance ministry.
Pakistan Latest Economic Indicators

GDP 237 USD Billion

GDP Growth Rate 4.14 percent

Gross National Product 11175600 PKR Million

GDP per capita 806 USD

GDP per capita PPP 4549 USD

Import Prices 159 Index Points

Food Inflation 1.19 percent

Inflation Rate Mom -0.9 percent

Interest Rate 8.5 percent

Interbank Rate 8.96 percent

Foreign Exchange Reserves 12987 USD Million

Balance of Trade -100609 PKR Million

Exports 207806 PKR Million

Imports 308415 PKR Million

Current Account -715 USD Million

Current Account to GDP -1.1 percent

External Debt 64338 USD Million

Remittances 4287 USD Million

Gold Reserves 64.43 Tonnes

Crude Oil Production 92.3 BBL/D/1K

Foreign Direct Investment 2816 USD Million

Government Budget -8 percent of GDP

Government Debt to GDP 63.3 percent

Government Budget Value -1833864 PKR Million

Government Spending 3047404 PKR Million

Credit Rating 10.84 

Industrial Production 4.44 percent

Corporate Tax Rate 34 percent

Personal Income Tax Rate 20 percent

Sales Tax Rate 17 percent

Excise Duty

An excise or excise tax (sometimes called a special excise duty) is an inland tax on the sale, or production
for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or licenses for
specific activities. 

Excises are distinguished from customs duties, which are taxes on importation. 

Excises are inland taxes, whereas customs duties are border taxes.

An excise is considered an indirect tax, meaning that the producer or seller who pays the tax to the
government is expected to try to recover or shift the tax by raising the price paid by the buyer. 

Excises are typically imposed in addition to another indirect tax such as a sales tax or value added tax
(VAT). 

In common terminology (but not necessarily in law), an excise is distinguished from a sales tax or VAT in
three ways:

(i) an excise typically applies to a narrower range of products; 

(ii) an excise is typically heavier, accounting for a higher fraction of the retail price of the targeted
products; and 
(iii) an excise is typically a per unit tax, costing a specific amount for a volume or unit of the item
purchased, whereas a sales tax or VAT is an ad valorem tax and proportional to the price of the good.

Typical examples of excise duties are taxes on gasoline and other fuels, and taxes on tobacco.
Value Added Tax (VAT) Pakistan

Value added Tax(Or VAT for short) has been declared as the new sales tax in pakistan with effect from
01 July 2010. In an effort to keep you up beat with the new law, we have compiled this short guide to
highlight the significant changes the new VAT law is bringing for your business.

Difference between VAT and Sales Tax: 

VAT is levied on goods and services while sales tax is imposed generally on goods. Contrary to sales tax
VAT has no cascading effect. 

VAT is a multistage tax, levied only on the value added at each stage in the chain of supply of goods and
services with the provision of a set-off for the tax paid at earlier stages in the chain. Thus, VAT
eventually becomes a single point tax.

Scope of VAT: 
VAT will cover supply (including import) of both goods and services at uniform rate of 15 percent unless
exempted under the VAT law. The businesses whose annual turnover is less than Rs.7.5 million will be
out of VAT net. 

Documentation of economy and improve revenue collection

Generally, all the commercial activities involving production and distribution of goods and provision of
services are brought under tax net giving tolerance for a pre-fixed registration threshold level. 

This results in documentation of every body in the supply chain. Those who are not registered in the chain
are not in a position to claim or deduct tax paid at purchase levels. VAT promotes economic
documentation with the help of its in-built invoice-based credit mechanism. Tax invoice is blood line of
VAT-induced documentation. VAT has self-enforcing features and documents business transactions
through tax invoicing. 

Impact of VAT on food prices

In Pakistan, most of the processed packaged/branded food items are already chargeable to sales tax. Basic
food items being out of VAT net, there will be no tangible price increase in food items usually sold in
processed packaged/branded form. 

Consumer prices of the food items which are currently being charged to sales tax on retail price basis are
likely to fall because VAT will be charged on actual sale or open market price, not on printed retail price
basis. 

Retailers will be in position to discount their prices to attract consumers.

Difference between goods and services

Goods are tangible supplies (materials, commodities and articles) and services are intangible supplies. 
VAT will regulate mixed supplies on the basis of their contractual character. Under VAT, services means
anything that is not goods, immoveable property or money. However, actionable claims, money, stocks
and securities are not included in goods. 
Threshold of VAT : Since standard rate is being decreased from 16% to 15% and registration threshold is
being increased from Rs.5 million to Rs.7.5 million and most of the exemptions are being withdrawn,
people are generally expecting that VAT will bring economic equity and price stability in the market.

VAT VS GST 
VAT is more broad-based, equitable and efficient and is without cascading (tax over tax) and hence, is
preferable to narrow-based and cascading-ridden traditional sales tax. 

VAT and cost of compliance

There will be no increase in compliance cost of those who are already registered and operating under
sales tax regime and will automatically switchover to VAT. The new taxpayers will however, have to
incur nominal expense on VAT compliance. Due to IT- based VAT processes, VAT compliance cost
usually remain low for the taxpayers who discharge their tax obligations regularly on fair lines. 

Zero rating in VAT regime. 

All exports of goods and services shall be zero-rated under VAT. The input tax involved therein shall be
refunded expeditiously. 

Exemptions under VAT 

Upfront VAT exemptions are available under the First Schedule each of the Federal and Provincial VAT
Bills. Exemptions will generally cover basic foods items, charities, public sector education and health and
international commitments. 

Exempt goods VS zero-rated goods 

Exempt supplies are input-taxed and zero-rated supplies enjoy effective exemption because the input tax
involved therein is creditable/refundable. 
Misuse of Discretionary powers of VAT officials regarding recovery and raiding business premises.

Fiscal Deficit

Fiscal deficit is the difference between the government’s expenditures and its revenues (excluding the
money it’s borrowed). 

A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP). 

Fiscal Deficit=Govt. Spending –Govt. Earning 

Causes of Fiscal Deficit 

High Govt. Spending 

Lower Revenue 
Inflation

BUDGET 2015-16 salient features/summary

Income Tax Authorities

The Federal Board of Revenue

Definition
"Federal Board of Revenue" means the Federal Board of Revenue (FBR) established under the Federal
Board of Revenue Act, 2007.

Who appointed the FBR?

The Federal Government has appointed the Federal Board of Revenue (FBR) by the authority of the
Federal Board of Revenue Act, 2007.

Basic function of the FBR:

Tax collection shall be the basic function of the FBR.

Status of the FBR:

FBR shall be the highest executive authority in Pakistan.

Head of the FBR:

Chairman of the FBR shall be the main authority in the FBR who shall be appointed by the Federal
Government.

Members of the FBR:

FBR shall consist of at least seven members who shall be appointed by the Federal Government.
Powers and Functions of the Federal Board of Revenue (FBR):

The FBR has following powers and performs the following functions in the presence of its powers:

1) Approval of research institutions: [26(2)]

The FBR may approve any institution engaged in scientific research in Pakistan as “Scientific Research
Institution” so that such institution may claim its scientific research expenditures as deduction against
income from business.

2) Approval of employee training scheme: [27(c)]

The FBR may approve a Pakistani employee training scheme against which deduction is allowed to
business.

3) Approval of Leasing Companies and Modaraba: [28(3)]

The FBR may approve any leasing company or Modaraba, where lease rental payment made to such
company is allowed as deduction against income from business to that person who makes such payment.

4) Approval of charitable institutions: [61]

The FBR may approve any institution as a charitable institution for the purposes of the Income Tax
Ordinance, 2001, especially, for donation purposes.

5) Method of accounting: [32(3)]

The FBR may specify that any class of persons shall record its "Income from Business" on a cash or
accrual basis.

6) Apportionment of deductions: [67(2)]

The FBR may make rules u/s 237 for the purposes of apportioning deductions where the expenditure
relates to the derivation of more than one head of income.

7) Permission for tax year: [74]

The FBR may permit person or class of persons to use special tax year instead of normal tax year.

8) Power to demand particular data: [180]

The FBR may demand any data regarding exempted income of any industrial and commercial
organization (By delivering data collection and compilation responsibility to any government or private
department)

9) Authority of circulars: [206]

The FBR may issue circulars to achieve consistency in the administration of the Ordinance and to provide
guidance to taxpayers and officers of the FBR.

10) Empowerment of general administration:

The FBR shall exercise the general administration of the Income Tax Ordinance, 2001.

11) Appointment of income tax authorities: [208]

The FBR may appoint as many income tax authorities as are necessary.

12) Criterion for selection of audit: [177(1)]

The FBR may define criterion to guide the Commissioner of Income Tax that how the CIT select a
particular person to conduct audit of its income tax affairs during a particular tax year.
13) Appointment of the auditor: [177(8)]
The FBR may appoint a firm of Chartered Accountants, to conduct an audit of the income tax affairs of
any person.

14) Determination of the scope of audit: [179(8)]

The scope of any audit conducted by firm of Chartered Accountants or Cost and Management Accounts
shall be determined by the FBR on a case to case basis.

15) Determination of jurisdiction: [209(6)]

Where a question arises as to whether a Commissioner has jurisdiction over a person or not, the question
shall be decided by the RCIT or RCITs concerned and, if they are not in agreement, it is determined by
the FBR.

16) Authority of approval: [212]

The FBR may authorize the RCIT or the CIT to grant approval on behalf of the FBR.

17) Registration of income tax practitioners: [223(10)]

The FBR may make rules u/s 237 for the registration of income tax practitioners.

18) Power to make rules: [237(1)]

The FBR may, by notification in the Official Gazette, make rules for carrying out the purposes of the
Income Tax Ordinance, 2001.

19) Delegation of powers: [209(2)]

The FBR may delegate all or any of its powers and functions to any income tax authority.

20) Unexplained income or assets:

The FBR may make rules u/s 237 for the procedure of taxation of any unexplained income or asset of any
person discovered by any income tax authority.

21) Supervision of subordinate authorities:

The FBR supervises the functions, duties and jurisdiction of its subordinate authorities.

Fiscal Policy in Pakistan

Government Receipts
The Government receipts consist of the following four sources:

1.Revenue Receipts (Net of Provincial Shares): In Pakistan, the heavy dependence is upon revenue
receipts, about 65-70% of the revenue is estimated to be drawn from revenue receipts. It includes tax
revenue, non-tax revenue, and surcharges.

(a) Tax Revenue: In taxes we have direct taxes such as income tax, and wealth tax. Indirect taxes such as
central excise, sales tax, and custom duty. Direct tax comprises about 70% of Pakistan’s total tax revenue.

(b) Non-Tax Revenue: It includes income from government property and enterprises and receipts from
Civil Administration and other functions.
(c) Surcharges: Surcharges on natural gas and petroleum fall under this category.

2. Capital Receipts: Capital receipts include external borrowing and internal non-bank borrowings
consisting of unfunded debt, public debt, treasury and deposit receipts besides the revenue account
surplus and the surplus generated by public sector, etc.

3. External Resources: External resources are loans and grants which come from various sources. These
sources include consortium, non-consortium and Islamic sources of aid:

(a) Consortium: Consortium provides aid at both bilateral and multilateral levels:

(i)Sources of consortium bilateral aid are Belgium, Canada, France, Germany, Italy, Japan,
Netherlands, Norway, Sweden, United Kingdom and United States.

(ii) Consortium multilateral aid comes from Asian Development Bank (ADB), International Bank for
Reconstruction and Development (IBRD), Int. Development Association (IDA), Int. Finance Corporation
(IFC), and Int. 
Fund for Agricultural Development (IFAD).

(b) Non-Consortium: Non-consortium sources of loans and grants mostly provide bilateral aid. These
include Australia, China, Czech Republic, Denmark, Finland, Rumania, Switzerland, Russia and
Yugoslavia.
(c) Islamic Aid: Bilateral aid from Islamic countries come from Saudi Arabia, Kuwait, Qatar, United
Arab Emirates, Turkey, Lebanon, Libya and Iran. While multilateral Islamic sources of aid are OPEC
Fund, and IDB.
Loans and grants received by Pakistan can be classified into ‘project’ and ‘non-project aid’. Non-project
aid can be further decomposed into food, non-food, BOP and Relief aid.

4. Self-Financing by Autonomous Bodies: This is actually the surplus left after meeting all the expenses
of these bodies. This surplus is available to government for revenue and development expenditures.

Government Expenditure
Government expenditure is classified into current expenditure and development expenditure:

1. Current Expenditure: It comprises mainly debt servicing, defence, general administration, social
services, law and order, subsidies, community services, economic services, grants to Azad Jammu and
Kashmir, Railway and others.

2. Development Expenditure: Public Sector Development Program (PSDP) is another name given to

Government’s development expenditure. The priority areas are transport and communication, power and
water. These three sectors combined cover about 50% of total allocation of PSDP.
The share of current expenditure is always remain substantial, it constituted around 70-80% of total
Government expenditure. Non-development expenditure is generally regarded as being excessive and
therefore subjected to persistent public criticism. With sharp increase in population, constant threat from
the enemies and increasing cost of corruption, non-development expenditure is subjected to a rising trend
which could only be controlled by rapid economic development. On the other hand, negligence of non-
development expenditure may result into ill-equipped and under-staffed hospitals, dispensaries and
educational institutes, and arrears in maintenance of roads, dams, bridges, electricity and forests. Non-
development expenditure should be economically managed in order to ensure the economic development
of Pakistan.
There are six major heads of current expenditure of Federal Government of Pakistan:

1. Defence,
2. Debt servicing,
3. Subsidies and grants,
4. General administrative,
5. Social services, and
6. Others.

Tax Structure of Pakistan

1. The narrow base enigma has been a base in Pakistan’s tax structure from the beginning.

2. In 1987 when population of the country was more than a hundred million, the total number of taxpayer
was just over a million.

3. The main base taxes imposed are direct and indirect taxes. 

1. Direct tax of the Federal Government comprises of income tax, wealth tax and corporate tax

2. Indirect tax, on the other hand, consists of custom duty, excise duty, sales tax, import duty and all
others.

4. Indirect tax contributes the predominant share to the total tax collection. Direct taxes have persistently
dropped their share in total tax revenue.

5. Indirect tax, on the other hand, contributes more than 70% of the total tax revenue. Indirect tax is
regressive. It may cause the inflation to rise and its incidence is fall on poor class of the economy.

Deficit Financing in Pakistan

Following are the sources of deficit financing in Pakistan:

1. Printing new currency notes

2. Public borrowings
3. Foreign loans, aid and grants
4. Using previous balances, and
5. Borrowings from banks including from the central bank.

Dr. Mahboobul Haq defines deficit financing in the following words:

(i) Net borrowings by the government from the banking system which includes the State Bank of Pakistan
(SBP) and commercial banks but excludes non-banking institutions and individuals, and

(ii) Net borrowings by the Government from the SBP only.

But the public debt does not only constitute the above sources, it also includes money lent to Government
out of the balances of the banks which would have been held if the Government had not borrowed them.
Deficit financing is a sound and necessary instrument of the Government finance and its role, its
desirability and limitations of its use in mobilising revenue, must be properly analysed in the context of
its broad implications on the economy and compared to the adequacy of other techniques of resource
mobilisation.
It was planned in Third Five-Year Plan that there will be no deficit financing during the said plan but the
government had to revise the plan. In the Fourth Five-Year Plan there were annual plans and major upsets
in the economy. In the Fifth and Sixth Five-Year Plans, though there were very large amounts of foreign
remittances but there was not remarkable reduction in deficit financing.

A well-managed deficit financing could be a key to greater economic achievements especially for a less
developed country. A wise finance minister has to keep an eye on all the factors of the economic
development and spent the public fund in the manner that is most beneficial to the nation.

“Input Tax” in relation to a registered person means the tax levied on the supply of goods received by
that person, or imported by that person or levied by the Azad Jammu & Kashmir Government on the
supply of goods received by that person.

“Output Tax” in relation to any registered person means the Sales Tax charged in respect of a supply of
goods made by that person.

At the period end input tax is adjusted with output tax

Refund of input tax. – –

If the input tax paid by a registered person on taxable purchases made during a tax period exceeds the
output tax on account of zero rated local supplies or export made during that tax period, the excess
amount of input tax shall be refunded to the registered person not later than forty-five days of filing of
refund claim in such manner and subject to such conditions as the Board may, by notification in the
official Gazette specify:
The difference between exempt and zero-rated

If you sell zero-rated goods or services, they count as taxable supplies, but you don't add any VAT to your
selling price because the VAT rate is 0 per cent.

If you sell goods or services that are exempt, you don't charge any VAT and they're not taxable supplies.
This means that you won't normally be able to reclaim any of the VAT on your expenses.

Generally, you can't register for VAT or reclaim the VAT on your purchases if you sell exempt goods or
services. If you sell exempt goods or services you may not be able to reclaim the VAT on all of your
purchases.

If you buy and sell only - or mainly - zero-rated goods or services you can apply to HM Revenue &
Customs to be exempt from registering for VAT. This could make sense if you pay little or no VAT on
your purchases.

“zero-rated supply”

under sales tax act 

“zero-rated supply” means a taxable supply which is charged to tax at the rate of zero per cent under
section 4.]