HISTORY OF INCOME TAX IN PAKISTAN

THE INCOME TAX ORDINANCE 2001

HISTORY OF INCOME TAX IN PAKISTAN

In undivided India, Income Tax Act was introduced in 1860 on the pattern of United Kingdom Income Tax Act, but abolished in 1883, as a result of public oppression. On the recommendation of All India committee the Income Tax Act of 1922 was passed

HISTORY OF INCOME TAX IN PAKISTAN cont- - Pakistan came into existence on 14th August1947, and the Government of Pakistan adopted the Income Tax Act 1922. In 1960, the financial year was changed to commence on 1st July and to end on 30th June.

HISTORY OF INCOME TAX IN PAKISTAN cont- - In 1965, self-assessment scheme was introduced. In 1979, a new Income- Tax Ordinance was enforced. It became operative as from 1st July, 1979. Now Income-Tax Ordinance 2001 is replaced Income-Tax Ordinance. 1979.

THE INCOME TAX ORDINANCE 2001

The Income Tax Ordinance 2001 applies to the whole of Pakistan. Income- tax: is a tax on a person in respect of his income. The tax is levied for each financial year beginning on 1st July on the income of the preceding year.

THE INCOME TAX ORDINANCE 2001 cont - - The financial year (from 1st July to 30th June following) is called tax year. In each tax year, income tax is charged at the rates specified for the year.

Objects of Income Tax Ordinance

The aims and objects of Income Tax Ordinance, 2001 are as under:

1. To simplify the law. 2. To eliminate tax evasion. 3. To evolve an equitable tax system.

Objects of Income Tax Ordinance cont - - 4. To rationalize and strengthen the existing provisions and to introduce new ones whenever necessary. 5. To plug loop-holes, remove ambiguities.

Objects of Income Tax Ordinance cont - - 6. To introduce a system of assessment designed to create an atmosphere of mutual trust and confidence between the tax payer and the tax- officials.

Exempt Income
Under the Income- Tax Ordinance 2001 the following incomes are exempted from tax and are not to be included in the total income of the assessee up to the limit specified therein: 1. Agricultural income. 2. Salary of employees of foreign government. 3. Gratuity or commutation of pension

Exempt Income cont - - 4. Income from house property owned by widows 5. Income from poultry farming 6. Profit from bonds

SCOPE OF INCOME TAX LAW

The scope of Income Tax Law can be discussed from two different angles:

1. The territorial limits (extent) to which the income tax ordinance applies. 2. The components of income tax law in our country

SCOPE OF INCOME TAX LAW cont - - 1. Extent of Income Tax Ordinance, 2001 The Income Tax Ordinance, 2001, applies to the whole of Pakistan which includes: a. Provinces of Balochistan, North- West Frontier Province, Punjab and Sind.

Extent of Income Tax Ordinance, 2001 cont - - b. Federal Capital. c. Federally Administered Tribal Areas. d. States and territories as may be included in Pakistan, whether by accession or otherwise.

SCOPE OF INCOME TAX LAW cont - - 2. Components of Income Tax Law Following are the components of income tax law in Pakistan: a. Income tax ordinance, 2001 (as amended) b. Rules framed by Federal Board of Revenue (FBR)

Components of Income Tax Law cont - - c. Notification, circulars and orders d. Income Tax Case Law e. Finance Act or Ordinance.

Components of Income Tax Law cont - - a. Income Tax Ordinance, 2001 (as Amended): it is the basic component of income tax law in our country. On its basis, the whole taxation structure of the country is founded. The whole procedure of taxation including matters regarding payment of tax, collection of tax, penalties, assessment, refund, appeals etc. has been provided in this ordinance.

Components of Income Tax Law cont - - b. Income Tax Rules and FBR: The Federal Board of Revenue, which is the highest income tax executive authority in Pakistan, makes rules from time to time which are meant for the guidance of its officers as well as the tax payers. Like registration of firms, submission of returns, forms of appeals, etc.

Components of Income Tax Law cont - - c. Notification, Circulars and orders: The federal Government is authorized under section 53 of income tax ordinance, 2001, to exempt any class of income or the income of any class of persons, or reduce the rates of tax, or make any other modifications in respect of income tax.

Components of Income Tax Law cont - - d. Income tax case law: When a dispute arises, the aggrieved party presents its case to a court of law, which decides the case and provides correct interpretation of the law. Such decisions of the court are known as income tax case law.

Components of Income Tax Law cont - - e. Finance Acts or Ordinances: In order to meet the budgetary requirements and other social and economic needs of the country an annual law known as finance act or ordinance is promulgated every year. It usually prescribes the maximum income which is not liable to tax.

IMPORTANT DEFINITIONS
1. INCOME any amount chargeable to tax under the income tax ordinance, 2001; any amount subject to collection or deduction of tax at the time of import of goods;

IMPORTANT DEFINITIONS cont - - 2. TOTAL INCOME The total income of a person for a tax year shall be the sum of the persons income under each of the heads of income for the year. Following are the heads specified in the law for this purpose: a. salary b. income from property

TOTAL INCOME cont- - c. income from business d. capital gains e. Income from other sources

IMPORTANT DEFINITIONS cont - - 3. TAX Tax means any tax imposed under the income tax law, it also includes any penalty, fee or other charge or any sum or amount payable under the income tax ordinance, 2001.

IMPORTANT DEFINITIONS cont - - 4. TAXABLE INCOME The taxable income of a person for a tax year shall be the total income of the person for the year as reduced by any deductible allowances.

IMPORTANT DEFINITIONS cont - - 5. TAX YEAR The concept of tax year has been introduced in our income tax law through income tax ordinance; 2001.Tax year is a period of time for which tax is to be calculated regarding a person.

IMPORTANT DEFINITIONS cont - - 6. ASSESSMENT Assessment is a process whereby the data of a person, e.g. income, expenses, tax payments etc. which help in calculating his final tax liability is checked either by the person himself or by the tax department.

IMPORTANT DEFINITIONS cont - - 7. COMMISSIONER Commissioner means a person appointed by central board of revenue as commissioner of income tax according to the rules and orders of federal government. 8. CAPITAL ASSET Capital asset means property of any kind held by a person. It is immaterial whether the property is connected with his business or not.

IMPORTANT DEFINITIONS cont - - 9. AGRICULTURAL INCOME The agricultural income means income: Derived from land. Land is situated in Pakistan; and Land is used for agricultural purposes.

9. AGRICULTURAL INCOME cont - - Thus, any income derived as rent, revenue, or from sale of any produce which is grown on a Pakistani land is agricultural income.

Exemption: Income derived from forests of spontaneous growth is not agricultural income, because no human efforts are involved.

IMPORTANT DEFINITIONS cont - - 10. PUBLIC COMPANY A company in which at least fifty percent of the shares are held by the federal government or provincial government.

IMPORTANT DEFINITIONS cont - - 11. RESIDENT INDIVIDUAL An individual will be a resident of Pakistan in any tax year if he fulfils any one of the following two conditions: He is in Pakistan for a period or periods amounting, in all, to 183 days or more. He is an employee or official of the federal government or a provincial government posted abroad in the tax year.

IMPORTANT DEFINITIONS cont - - 12. APPELLATE TRIBUNAL In case of any dispute between the taxpayers and tax department an appeal can be made to Appellate Tribunal. This is the highest judicial authority in the matters of tax. The decision of the Tribunal on point of facts is final. However, in case of point of law the matter may be referred to High Court.

IMPORTANT DEFINITIONS cont - - 13. PRINCIPAL OFFICER Principal Officer is used with reference to a company or association of persons. It includes: a director, a manager, secretary, agent, accountant or any similar officer, and

13. PRINCIPAL OFFICER

cont - - Any person connected with the management or administration of the company or association of persons upon whom the commissioner has served a notice of treating him as the principal officer thereof.

IMPORTANT DEFINITIONS cont - - 14. CASUAL INCOME It includes; voluntary gifts, sum acquired by winning a bet, birthday presents, prize on prize bonds, lottery prize, raffle prize, crossword puzzle prize.