SCOPE OF TAX

Name: Aimen Batool

Basics of Tax Laws

Equality Certainty Convenience of Economy of

payment collection
Principles of levy of Tax

The Benefit Principle The Ability-to-Pay Principle The Equal-Distribution

Principle
Kinds of Taxes

Proportional/Flat rate Regressive Tax Progressive Tax

Different Tax Laws of Pakistan
Direct Tax – Income Tax

Salary Income from Income from Capital Gains Income from

property business other sources

Direct Tax – Capital Value Tax : Sale of immovable property and motor vehicles
Different Tax Laws of Pakistan
Indirect Tax

Custom duty Federal Excise Duty Sales Tax

Tax on Taxable income – Sec 4

Subject to this Ordinance, income tax shall be imposed for each tax year, at the rate or rates specified in 6 [Division I
7 [ ] or II] of Part I of the First Schedule, as the case may be, on every person who has taxable income for the year.

Tax Year Person Taxable Rates of taxes Levy of tax

income
Tax Year (Sec 74)
A tax year refers to the 12-month period that a tax return covers.
• There are three kinds of tax years as stipulated in Section 74 of the Income Tax Ordinance, 2001:
 Normal tax year
Normal tax year is a period of twelve months ending on the 30th day of June and is denoted by the
calendar year in which the said date falls.

 Special tax year

Where a person’s income year is different from the normal tax year, or where, by an order, a person
has been allowed by the Commissioner to use a twelve months’ period different from normal tax year,
such income year or such period shall be that person’s special tax year and shall be denoted by the
calendar year relevant to normal tax year in which the closing date of the special tax year falls.
 Transitional tax year
Where the tax year of a person changes as a result of an order by the Commissioner of Income tax
either from the normal tax year to special tax year or vice versa, the period between the end of the
last tax year prior to change and the date on which the changed tax year commences shall be treated
as a ‘transitional tax year’.
Example:
The normal tax year of ABC Limited was the period from 01 July 2020 to 30 June 2021. On an
application by ABC Limited, Commissioner granted approval to adopt special tax year of 30
September each year. The period from 01 July 2021 to 30 September 2021 will be treated as
transitional tax year.
 Special tax year
Taxable Income
Income [Sec 2(29)]
Definition (Inclusive):
Income includes;
• Any amount chargeable to tax under the Income Tax Ordinance, 2001 (e.g.
income from salary)
• Any amount subject to collection or deduction of tax under final tax regime (e.g. on
exports);
• Any amount treated as income under any provision of the Ordinance (e.g.
dividends, royalty, profit on debt etc.), and
• Any loss of income
Taxable Income - Heads of income (Sec 11)

For the purposes of the imposition of tax and the computation of total income, all incomes shall be classified
under the following heads, namely:
1. Salary;
2. Income from property;
3. Income from business;
4. Capital gains; and
5. Income from other sources
Income of a person under any head of income shall be computed as follows:
Computation of Taxable Income – Total income (Sec
10 )
The total income of a person for a tax year shall be the sum of the
 Person’s income under all heads of income for that tax year; and
 Person’s income exempt from tax for that tax year under any of the provisions of Income Tax Ordinance,
2001. (Refer Second schedule)

Taxable Income (Sec 9):

The taxable income of a person for a tax year shall be the total income other than exempt income of the
person for the year reduced (but not below zero) by the sum of any deductible allowances of the person for
that tax year.
Deductible Allowances (Sec 60, 60A, 60B, & 60D)

-- Zakat (Sec 60)

-- Worker’s welfare fund (Sec 60A)

-- Worker’s participation fund (Sec 60B)

-- Deductible allowance for education expenses (Sec 60D)

PERSON [Sec 2(42) read with Sec 80]
Tax is chargeable on the taxable income of a PERSON.

Definition: Person
 an individual;
 a company or association of persons incorporated, formed, organised or established in
Pakistan or elsewhere;
 the Federal Government, a foreign government, a political subdivision of a foreign
government, or public international organisation.

Definition: Association of Persons

“Association of persons” includes a firm, a Hindu undivided family, any artificial juridical person
and anybody of persons formed under a foreign law, but does not include a company;
“Firm” means the relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.

Definition: Company
Refer the Ordinance and example from the book page 51
TAX PAYER
Taxpayer means any person who
 derives an amount chargeable to tax under the Income Tax Ordinance, 2001;
 may be a representative of a person who derives an amount chargeable to tax;
 is required to deduct or collect tax under the Ordinance; or
 is required to furnish a return of income or pay tax under the Ordinance
RESIDENTIAL STATUS
Resident taxpayer [Sec 2(53)]
It means a taxpayer who is a resident person. It can be resident individual, association of
person, or company.

Resident and non-resident persons (Sec 81)

Method for determination of Residential Status of a person:

 A person shall be a resident in Pakistan for a tax year if the person is:
i. a resident individual, resident company or resident association of persons for the
year; or
ii. the Federal Government.
 A person shall be non-resident person for a tax year if the person is not a resident person
for that year.
Note: residential and non-residential status of any person is to be determined in
respect of each tax year