BUSINESS TAXATION

(TAX YEAR 2022)

Asad Rafaq
 CHAPTER 1
INCOME TAX
 INTRODUCTION

• DEFINATION OF LAW :
• "A "law' is a rule of conduct imposed and enforced by the sovereign." – Austin
• "Law is the body of principles recognized and applied by the State in the administration of
Justice. Law is not right alone or might alone, but a perfect combination between the
two."-Salmond
• Law is the command of a sovereign, containing a common rule of life for its subjects and
obliging them to obedience.- Jhon Erskine
• "Law is the system of rights and obligations which the state enforces." – Green
• According to Paton there are two sides of law, i.e. from one side it is an abstract body of
rules, from the other it is a social process of compromising the conflicting interests of
men.
 Legislation (termed as Enacted law)

Rules, regulations or bye-laws (termed as

procedural law)

SOURCES OF Precedent (termed as case law)

LAW
Custom (termed as customary law having
its source in custom);

Agreement (termed as conventional law,

based on agreement between the parties).
 The Income Tax Ordinance was promulgated on
September 13, 2001. It was published in the
Extraordinary Gazette of Pakistan at pages bearing Nos.
969 through 1217.

The Income Tax Ordinance was promulgated in such a

hurry that original text was full of ambiguities,
shortcomings and flaws.
INCOME TAX
ORDINANCE
2001 In order to streamline the legal provisions the
Government had to bring huge number of amendments
in the Ordinance even prior to the date of its
enforcement.

Series of amendments were introduced through the

Finance Ordinances,

S H O RT T I T L E
,APPLICABILITY AND
E N F O R C E M E N T DAT E
Like all other laws, section 1 of the
Income Tax Ordinance (XLIX of
2001), 2001 deals with the following
three issues, namely:
• The short title (name) of the law
• The applicability of the law
• The date of its enforcement.
The ordinance specify that “the
income tax ordinance ,2001” is the
short title of the law and it extends
to the whole of pakistan
 OBJECT OF THE INCOME TAX
ORDINANCE

STATUS OF THE ORDINANCE

CONTINUE…
TAX TREATIES

STATUS OF THE TAX TREATIES

 • A good tax system is designed on the
basis of an appropriate set of rules
ADAM
SMITH’S • The system should strike a balance
CANNONS, between the interests of the taxpayer
WEALTH OF and the tax authorities
NATIONS 1776
 • Every person should pay depending on
the individual's ability to pay
• Higher income individuals should pay
more because without protection of
CANNON OF government they could not have earned
EQUITY and enjoyed their income
• Taxes should be proportionate to income
 Cannon of Certainty
• The tax a person should pay should not be arbitrary
• Taxpayer should know in advance
• How much is to be paid
• What time the tax is to be paid
• The form the tax is to be paid
• The government should also be certain of the amount it will collect
from the tax
 Cannon of Convenience
• The method and timing of tax payment should be convenient for the
tax payer
• If based on income should be paid at the time the income is earned
• If based on sales at the time the transaction takes place
• If based on wealth (gift, inheritance, property) at the time of transfer
 Cannon of Economy
• The cost of collection should be low compared to the tax collected

• Tax collection should be efficient taking no more from the taxpayer

than is necessary to defray the cost of providing services

• The amount collected should cover the full cost of providing

governmental services. (balanced budget)
 Cannon of Certainty
• The tax a person should pay should not be arbitrary
• Taxpayer should know in advance
• How much is to be paid
• What time the tax is to be paid
• The form the tax is to be paid
• The government should also be certain of the amount it will collect
from the tax
 Cannon of Convenience
• The method and timing of tax payment should be convenient for the
tax payer
• If based on income should be paid at the time the income is earned
• If based on sales at the time the transaction takes place
• If based on wealth (gift, inheritance, property) at the time of transfer
 Cannon of Economy
• The cost of collection should be low compared to the tax collected

• Tax collection should be efficient taking no more from the taxpayer

than is necessary to defray the cost of providing services

• The amount collected should cover the full cost of providing

governmental services. (balanced budget)
 • BOARD'S POWER TO MAKE RULES
• The Federal Board of Revenue (Board) being the
regulatory body in respect of Federal Taxes is
empowered to make rules regarding the procedural
INCOME matters connected with the implementation of the
TAX concerned laws (including the Income Tax Ordinance,
2001). The legal provisions in this respect are
RULES summarized below:
2002 • The rules are to be made by issuing a notification in
the official Gazette. [237(1)]
• The rules may provide for all or any of the
following matters: [237(2)]
• The procedure for determining the income other documents
chargeable to tax and tax payable in a case • The procedure for issuance of orders or notices.
where the income is partly from agriculture and • The procedure for approval of non-profit
partly from other business organization.
• The procedure for determining the income and • The procedure for levy of default surcharge and
tax liability of a non-resident person. penalties.
• Determination of any income to be included in • Provisions of saving or transitional nature
the total income of a taxpayer and also the consequent upon the making of the Income Tax
deductions to be allowed against such income. Ordinance.
• Amount of fees and other charges payable under • Imposition of penalty for contravention of the
the Income Tax Ordinance. rules made by Board.
• Anything, which is to be or may be prescribed
under the Income Tax Ordinance.
• The procedure for furnishing of returns and
 CONTINUE...

1. The Board shall arrange previous publication of the rules before these are finally made. It
means the draft rules shall be published in the official Gazette for comments of the public.
[237(3)]
2. Under the following cases the rules made by Board may provide that these shall take effect
from the date on which the Income Tax Ordinance came into force (i.e., July 01, 2002) or
some later date: [237(4)
• The rules adversely affect à person
• The rules are of a transitional nature
• The rules are made within twelve (12) months after commencement of the Income Tax
 DEFINITIONS

• Accumulated Profits
• Amalgamation
• Amalgamating Company
• Amalgamated Company
• Appellate Tribunal
• Approved Gratuity Fund
• Approved Annuity Plan
• Approved Income Payment Plan
• Approved Pension Fund
• Approved Employment Pension or Annuity Scheme
 CONTINUE….
• Approved Occupational Savings Scheme
• Approved Superannuation Fund Assessment
• Asset Management Company
• Asset Move
• Association of Persons
• Banking Company
• Board
• Bonus Shares
• Business
• Business Bank account
• Capital Asset
• Charitable Purpose
 INCOMES OF MUTUAL
FUNDS
Income of any mutual fund, investment company, collective investment scheme, a REIT scheme or

private Equity and Venture Capital Fund or National Investment (Unit) Trust of Pakistan from any

instrument of redeemable capital are exempt if at least ninety per cent (90%) of their income of that

ear (whether realized or unrealized) is distributed among Unit or certificate holders. However, capital

gain on stock and shares of public company, Pakistan Telecommunication Corporation vouchers,

Modaraba certificates, or any instrument of redeemable capital and derivative products held for less

than twelve (12) months shall not be exempt under this clause.
 INCOME OF CERTAIN
FUNDS
Any income of the following funds and institutions shall
be exempt from tax:
1. Any provident fund to which the Provident Fund Act,
1925 applies.
2. Any recognized provident fund, approved
superannuation fund or approved gratuity fund.
3. Any benevolent fund or group insurance scheme
approved by Board.
4. Any 'Service Fund’.
5. Employees Old Age Benefit Institution.
6. Any Unit, Station or Regimental Institute.
7. Any recognized Regimental Thrift and Savings Fund
8. A Pension Fund approved by SECP under the
Voluntary Pension System Rules, 2005
9. Any profit, gain or benefit derived by a Pension Fund
Manager from a Pension Fund approved under the
Rules on redemption of seed capital invested in
Pension Fund.
10. International Irrigation Management Institute.
11. Punjab Pension Fund established under the Punjab
Pension Fund Act, 2007 and the trust established
thereunder.
12. Sindh Province Pension Fund established under the
Sindh Province Pension Fund Ordinance, 2002.
13. Punjab General Provident Investment Fund established
under the Punjab General Provident Investment Fund
Act, 2009 and the trust established thereunder.
14. KPK Retirement Benefits and Death Compensation
Fund.
15. KPK General Provident Investment Fund16. KPK
Pension Fund.
 INCOME OF CERTAIN
INSTITUTIONS
1. Any income from Welfare Fund created under rule-26 Ordinance.
of the Emigration Rules, 1979 (made under section 16 4. Any wholly owned subsidiary of Islamic Development
of the Emigration Ordinance, 1979 (X Vill of 1979), Bank, if it is set up in Pakistan and is engaged in
except the income generated by the aforesaid Fund owning and leasing of tankers. Clause (107)
through commercial activities. Clause (65A)) 5. Any income of Islamic Development Bank from its
2. Any income derived by the following institutions operations in Pakistan in connection with its social and
foundations, societies, boards, Trusts and funds shall economic development activities. [Clause (107A)]
be exempt from tax. 6. Any income of Federal Government Employees
3. Any income derived by the following institutions, Housing Authority and Naya Pakistan Housing and
foundations, societies, boards, trusts and funds shall be Development Authority for the tax years 2020 to 2024.
exempt from lax. This exemption is subject to the
provisions of section 100C.of the Income Tax