Download 08-Losses & deductions(1)-merged

LOSSES, GROUP TAX/ RELIEF
& DEDUCTIONS
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
SET OFF – LOSSES
• Speculation losses cannot be adjusted against any other income
except speculation gain
• Capital losses cannot be adjusted against any other income
except capital gains
• Note that speculation losses and capital losses can only be
adjusted against respective gains but it is not vice versa i.e. loss of
any other source of income can be adjusted against speculation
gain and capital gain
SK TAX NOTES
• Section 56, 58, 59 – Set off of losses – Loss of any
income can be set off against any other income except
salary and property income however:
2
Loss/ Gain Property
Loss
IOS
Loss
Capital
Loss
Speculatio
n Loss
Normal
Loss
Unabsorbed
Depreciation
Salary
X
X
X
X
X
X
Property
Y
Y
X
X
Y
Y
IOS
Y
Y
X
X
Y
Y
Capital
Gains
Y
Y
Y
X
Y
Y
Spec Bus
Y
Y
X
Y
Y
Y
Normal
Bus
Y
Y
X
X
Y
Y
C/f
X
X
Y
Y
Y
Y
Limit C/f
X
X
6 yrs
6 yrs
6 yrs
No limit
C/f adjust
X
X
C.Gain
Sp.Gain
B.I
B.I
Amount
limit
X
X
X
X
X
50% of BI
SK TAX NOTES
SET OFF – LOSSES
3
Unabsorbed depreciation
Revenue
Expenses
Accounting profit
Add inadmissible expenses
Accounting depreciation
Less:
Admissible expenses
Other admissible exp
Tax depreciation
Taxable income/ (loss)
Break up of loss
Normal loss (other than depreciation)
Unabsorbed depreciation
1,000,000
(800,000)
200,000
100,000
(400,000)
(150,000)
(250,000)
(100,000)
(150,000)
SK TAX NOTES
•
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4
CARRY FORWARD OF LOSSES
Revenue
Expenses
Accounting profit
Add inadmissible expenses
Accounting depreciation
Less:
Admissible expenses
Tax depreciation
Taxable income/ (loss)
Break up of loss
Normal loss (other than depreciation)
Unabsorbed depreciation
1,000,000
(1,200,000)
(200,000)
100,000
(150,000)
(250,000)
SK TAX NOTES
•
•
•
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•
(100,000)
(150,000)
5
CARRY FORWARD OF LOSSES
Revenue
Expenses
Accounting profit
Add inadmissible expenses
Accounting depreciation
Less:
Admissible expenses
Tax depreciation
Taxable income/ (loss)
Break up of loss
Normal loss (other than depreciation)
Unabsorbed depreciation
1,000,000
(900,000)
100,000
100,000
(250,000)
(50,000)
SK TAX NOTES
•
•
•
•
•
•
•
•
•
•
•
•
(NIL)
(50,000)
6
CARRY FORWARD OF LOSSES
Revenue
Expenses
Accounting profit
Add inadmissible expenses
Accounting depreciation
Less:
Admissible expenses
Tax depreciation
Business income/ (loss)
Income from other source
Taxable income/ (loss)
Break up of loss
Normal loss (other than depreciation)
Unabsorbed depreciation
1,000,000
(1,200,000)
(200,000)
100,000
(150,000)
(250,000)
130,000
(120,000)
(NIL)
(120,000)
SK TAX NOTES
•
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Revenue
1,000,000
Expenses
(1,200,000)
Accounting profit
(200,000)
Add inadmissible expenses
Accounting depreciation
100,000
Less:
Admissible expenses
Tax depreciation
(150,000)
Business income/ (loss)
(250,000)
Break up of loss
Normal loss (other than depreciation) (100,000)
Unabsorbed depreciation
(150,000)
Income from other source
130,000
Adjust first against normal loss - normal loss will become zero
Then adjust remaining income against unabsorbed depreciation.
So Unabsorbed depreciation available for carry forward is Rs.120,000
SK TAX NOTES
CARRY FORWARD OF LOSSES
8
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•
•
Revenue
1,000,000
Expenses
(1,200,000)
Accounting profit
(200,000)
Add inadmissible expenses
Accounting depreciation
100,000
Less:
Admissible expenses
Tax depreciation
(150,000)
Business income/ (loss)
(250,000)
Income (loss) from other source
(130,000)
Taxable income/ (loss)
(380,000)
Break up of loss
Normal business loss (other than depreciation) (100,000)
Unabsorbed depreciation
(150,000)
Loss on IOS
(130,000)
SK TAX NOTES
CARRY FORWARD OF LOSSES
9
•
•
•
•
TY 2016
Business loss
Unabsorbed dep
IOS loss
(500,000)
(200,000)
(100,000)
• TY 2017
• Business Loss
• Unabsorbed Dep
(100,000)
(50,000)
•
•
•
•
•
•
•
TY 2018
Business income
Loss 2016
Loss 2017
Remaining C/F
Bus loss 2017
Unabsorbed Dep
SK TAX NOTES
CARRY FORWARD OF LOSSES
550,000
(500,000)
(50,000)
(50,000)
(250,000)
10
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•
•
TY 2016
Business loss
Unabsorbed dep
IOS loss
(500,000)
(200,000)
(100,000)
• TY 2017
• Business Loss
• Unabsorbed Dep
(100,000)
(50,000)
•
•
•
•
•
•
•
TY 2018
Business income
Income from other source
Remaining C/F
Business loss 2016
Bus loss 2017
Unabsorbed Dep
SK TAX NOTES
CARRY FORWARD OF LOSSES
200,000
550,000
(300,000)
(100,000)
(250,000)
11
• Section 57, 58, 59 – Carry forward of losses
• Only loss of “Income from business, speculation loss & capital loss”
can be carried forward for a period of six years from tax year in
which loss was first computed.
• However unabsorbed depreciation can be carried forward for an
indefinite period until fully set off.
• Section 59A Loss sustained by AOP can be set off and carry forward
by AOP and are not available to members of AOP for adjustment
against their income.
• Section 57A Assessed Loss (other than capital losses) for the year
other than brought forward and capital losses, of amalgamating
company or companies shall be set off against business profits and
gains of the amalgamated company, and vice versa, in the year of
amalgamation and where the loss is not adjusted against the profits
& gains for the tax year the unadjusted loss shall be carried forward
for adjustment upto a period of six tax years succeeding the year of
amalgamation.
SK TAX NOTES
CARRY FORWARD OF LOSSES
12
SK TAX NOTES
Adjustment of Carry forward losses
• Carry forward non-speculation business
losses can only be adjusted against nonspeculation business income
• Speculation losses can only be adjusted
against speculation gains
• Capital losses can only be adjusted against
capital gains
• Unabsorbed depreciation can be adjusted
against any other income business income
only
13
•Zakat paid under Zakat & Ushr
Ordinance
•WWF & WPPF (Federal +
Provincial
but
for
transprovincial entities only
Federal)
•Profit on debt for individual
•Children Education Expenses
SK TAX NOTES
Deductible allowances
14
FOREIGN TAX CREDIT &
FOREIGN LOSSES
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
•Topics already covered
•Foreign source income
•Foreign losses
SK TAX NOTES
Presentation Agenda
2
• 103. Foreign tax credit.— (1) Where a resident taxpayer derives
foreign source income chargeable to tax under this Ordinance in
respect of which the taxpayer has paid foreign income tax, the
taxpayer shall be allowed a tax credit of an amount equal to the
lesser of –
• (a) the foreign income tax paid; or
• (b) the Pakistan tax payable in respect of the income.
• (2) For the purposes of clause (b) of sub-section (1), the
Pakistan tax payable in respect of foreign source income derived
by a taxpayer in a tax year shall be computed by applying the
average rate of Pakistan income tax applicable to the taxpayer for
the year against the taxpayer’s net foreign-source income for the
year.
• (3) Where, in a tax year, a taxpayer has foreign income under
more than one head of income, this section shall apply
separately to each head of income.
SK TAX NOTES
Foreign Source Income – Section 103
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Example
Pakistan source Income
Foreign source income
Total income
Foreign income tax paid
Total tax liability (70,000+(800,000*15%)
Less: Foreign tax credit – lesser of:
Foreign income tax paid
30,000
PTP = 800,000 * 190,000 / 2,000,000=76,000
Lower = 30,000
Net tax payable
1,200,000
800,000
2,000,000
30,000
190,000
SK TAX NOTES
Foreign Source Income – Section 103
(30,000)
160,000
4
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Example
Pakistan source Income
Foreign source income A
Foreign source income B
Total income
Foreign income tax paid A
Foreign income tax paid B
Total tax liability (70,000+(800,000*15%)
Less: Foreign tax credit A – lesser of:
Foreign income tax paid 30,000
PTP = 600,000 * 190,000 / 2,000,000=57,000
Lower = 30,000
Foreign tax credit B – paid = 25,000
PTP = 200,000 * 190,000 / 2,000,000=19,000
Lower
Net tax payable
1,200,000
600,000
200,000
2,000,000
30,000
25,000
190,000
SK TAX NOTES
Foreign Source Income – Section 103
(30,000)
(19,000)
141,000
5
• (4) For the purposes of sub-section (3), income derived by a
taxpayer from carrying on a speculation business shall be
treated as a separate head of income.
• (5) The tax credit allowed under this section shall be applied
in accordance with sub-section (3) of section 4.
• (6) Any tax credit or part of a tax credit allowed under this
section for a tax year that is not credited under sub-section (3)
of section 4 shall not be refunded, carried back to the
preceding tax year, or carried forward to the following tax
year.
• (7) A credit shall be allowed under this section only if the
foreign income tax is paid within two years after the end of
the tax year in which the foreign income to which the tax
relates was derived by the resident taxpayer.
SK TAX NOTES
Foreign Source Income – Section 103
6
• 104. Foreign losses.— (1) Deductible expenditures incurred by a
person in deriving foreign-source income chargeable to tax under a
head of income shall be deductible only against that income.
• (2) If the total deductible expenditures referred to in sub-section (1)
exceed the total foreign source income for a tax year chargeable to tax
under a head of income (hereinafter referred to as a “foreign loss”), the
foreign loss shall be carried forward to the following tax year and set off
against the foreign source income chargeable to tax under that head in
that year, and so on, but no foreign loss shall be carried forward to more
than six tax years immediately succeeding the tax year for which the loss
was computed.
• (3) Where a taxpayer has a foreign loss carried forward for more than
one tax year, the loss for the earliest year shall be set off first.
• (4) Section 67 shall apply for the purposes of this section on the basis
that —
• (a) income from carrying on a speculation business is a separate head
of income; and
• (b) foreign source income chargeable under a head of income
(including the head specified in clause (a) ) shall be a separate head of
income.
SK TAX NOTES
Foreign Losses – Section 104
7
PRINCIPLES OF TAXATION
OF INDIVIDUALS
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
(EXCLUDING SPECIAL INDUSTRIES (IF ANY), MINIMUM TAX, FINAL TAX
REGIME, ADVANCE TAX, RETURNS, ASSESSMENT, APPEALS, RECOVERY,
PENALTIES, NON-RESIDENTS, DOUBLE TAXATION TREATY,)
1
•Topics already covered
•Deceased Individuals
•Individual as member of AOP
•Authors
•Income splitting
•Succession of business
SK TAX NOTES
Presentation Agenda
2
• 87. Deceased individuals.— (1)
The legal
representative of a deceased individual shall be
liable for —
• (a) any tax that the individual would have become
liable for if the individual had not died; and
• (b) any tax payable in respect of the income of the
deceased’s estate.
• (2) The liability of a legal representative under this
section shall be limited to the extent to which the
deceased’s estate is capable of meeting the liability.
• (2A) The liability under this Ordinance shall be the
first charge on the deceased’s estate.
SK TAX NOTES
Deceased Individuals - 1
3
• (3) For the purpose of this Ordinance, —
• (a) any proceeding taken under this Ordinance against the
deceased before his or her death shall be treated as taken
against the legal representative and may be continued against
the legal representative from the stage at which the
proceeding stood on the date of the deceased’s death; and
• (b) any proceeding which could have been taken under this
Ordinance against the deceased if the deceased had survived
may be taken against the legal representative of the deceased.
• (4) In this section, “legal representative” means a person
who in law represents the estate of a deceased person, and
includes any person who intermeddles with the estate of the
deceased and where a party sues or is sued in representative
character the person on whom the estate devolves on the
death of the party so suing or sued.
SK TAX NOTES
Deceased Individuals
4
• 88. An individual as a member of an association of persons.— If,
for a tax year, an individual has taxable income and derives an
amount or amounts exempt from tax under sub-section (1) of
section 92, the amount of tax payable on the taxable income of the
individual shall be computed in accordance with the following
formula, namely: —
• (A/B) x C where —
• A is the amount of tax that would be assessed to the individual
for the year if the amount or amounts exempt from tax under subsection (1) of section 92 were chargeable to tax;
• B is the taxable income of the individual for the year if the
amount or amounts exempt from tax under sub-section (1) of
section 92 were chargeable to tax; and
• C is the individual’s actual taxable income for the year.
SK TAX NOTES
Individual as member of AOP
5
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Example
Taxable Income
Share from AOP
Total income
Tax liability
Tax payable = A /B * C
Tax payable = 190,000 / 2,000,000 * 1,200,000=
1,200,000
800,000
2,000,000
190,000
114,000
SK TAX NOTES
Individual as member of AOP
6
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Example
Taxable Income
Share from AOP
Total income
Tax liability
Tax credit for AOP share = A /B * C
Tax AOP share = 190,000 / 2,000,000 * 800,000=
Net tax payable
1,200,000
800,000
2,000,000
190,000
(76,000)
114,000
SK TAX NOTES
Individual as member of AOP
7
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Salary
700,000
Tax on salary (100,000=5%)
5,000
Employer pays salary 700,000-5,000
695,000
Deduct tax and pay to Govt.
5,000
If the employer agrees to pay Rs.700,000 net of tax i.e. tax will not be
deducted from employee payment the employer will bear the tax cost.
Normal salary
700,000
Tax paid by employer
5,000
Total salary
705,000
Tax liability 105,000 * 5%
5,250
Tax paid by employer
5,250,
Employee salary
705,250
105,250 * 5%
5,262.50 (paid by employer)
Employee salary
705,262.50
Tax
5,263.125 (paid by employer)
Employee salary
705,263.125
Tax
5,263
SK TAX NOTES
Tax on Tax for salaried individual
8
•Employee salary =
Salary
paid
to
employee + tax cost
borne by employer
•
SK TAX NOTES
Tax on Tax for salaried individual
9
• 89. Authors.— Where the time taken by an
author of a literary or artistic work to complete
the work exceeds twenty-four months, the
author may elect to treat any lump sum amount
received by the author in a tax year on account
of royalties in respect of the work as having been
received in that tax year and the preceding two
tax years in equal proportions.
• For example an author receives Rs.1,200,000 in
tax year 2020. now Rs.400,000 each will be
included in taxable income of TY 2018, 2019 &
2020.
SK TAX NOTES
Authors
10
• Fixed Tax Regime: Where rate of tax applies on gross
income and considered a separate head of income –
For example: Property income, capital gain on
immovable property.
• Final Tax Regime: Tax is deducted at source on the
income earned and such tax is considered as final tax
and no more tax is required to be paid.
• For example
• Dividend income = 10,000
• Tax deducted = 1,500 – final tax liability
• Examples: Dividend, Profit on Debt, Capital gain on
public company securities (shares, debentures etc.),
export, Prize bonds.
SK TAX NOTES
Fixed Tax Regime & FTR
11
• Salary income
• Capital Gains = Private company shares & personal assets
• Income from other sources = Sub-lease, income from lease of
building together with p& m etc.
• Income from property = NTR for all.
• Income from business: usually all are in NTR except few like
exports.
• Difference b/w NTR & FTR:
• No losses and tax credits (except tax deducted at source) is
allowed against FTR
SK TAX NOTES
Normal Tax Regime
12
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Basic salary
2,000,000
Other allowances
1,000,000
Dividend/ Profit on debt/ Prize bonds
These are FTR but examiner don’t identify you must remember. How info is
given:
Dividend income
100,000
Tax deducted on Dividend
15,000
Solution
Salary income
---Tax liability on salary
----Separate Heading FTR
Dividend
----Tax liability on Dividend
--Total tax liability = sal + div = --Tax credits (FTC, CH. 10, TDS)
SK TAX NOTES
Numerical solving with FTR
13
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Basic salary
2,000,000
Other allowances
1,000,000
Dividend/ Profit on debt/ Prize bonds
These are FTR but examiner don’t identify you must remember. How info is
given:
Dividend income (net of 15% tax)
85,000
Solution
Salary income
---Tax liability on salary
----Separate Heading FTR
Dividend 85,000 / .85 or 85%
100,000
Tax liability on Dividend
15,000
Total tax liability = sal + div = --Tax credits (FTC, CH. 10, TDS)
SK TAX NOTES
Numerical solving with FTR
14
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Pak source bus income
---Foreign source
--Dividend income
---Foreign tax credit:
Foreign tax paid or
Pakistan tax payable – do not include tax liability or taxable income of FTR
or fixed tax for the purpose of working out average rate of tax
• Similarly for CH. X tax credits = A/B * C
• A = tax liability – do not include FTR liability Fixed tax liability
• B = taxable income – do not include FTR or Fixed Tax Regime income
SK TAX NOTES
Numerical solving with FTR
15
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Example
Taxable Income
1,200,000
Foreign source income
800,000
Dividend
100,000
Total income (NTR)
2,000,000
Tax liability (NTR)
190,000
Tax liability FTR
15,000
Total tax liability
205,000
Foreign tax credit (assumed foreign tax paid is also 76,000)
Tax = 190,000 / 2,000,000 * 800,000=
(76,000)
Net tax payable
129,000
NTR
114,000
FTR
15,000
SK TAX NOTES
Individual with Foreign & FTR
16
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Example
Taxable Income
Dividend
Total income
Tax liability (NTR)
Tax liability FTR
Total tax liability
Donation paid
Tax = 190,000 / 2,000,000 * 200,000=
Net tax payable
NTR tax liability
FTR tax liability
2,000,000
100,000
2,100,000
190,000
15,000
205,000
200,000
(19,000)
186,000
171,000
15,000
SK TAX NOTES
Individual with Donation & FTR
17
Individual with Business & FTR
Example
Revenue
Expenses (including donation 200K to approved NPO)
Accounting profit
Dividend
Total
Inadmissible ded
Donation paid to approved NPO
Admissible ded
Tax dep
Dividend
Taxable Income (NTR –business)
Dividend
Tax liability (NTR)
Less; tax credit on donation (200K*190K/2m)
NTR tax liability
Tax liability FTR
Total tax liability
4,500,000
2,000,000
2,500,000
500,000
3,000,000
200,000
700,000
500,000
2,000,000
500,000
190,000
(19,000)
171,000
75,000
265,000
SK TAX NOTES
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18
PRINCIPLES OF TAXATION OF
AOP
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
(EXCLUDING SPECIAL INDUSTRIES (IF ANY), MINIMUM TAX, FINAL TAX
REGIME, ADVANCE TAX, RETURNS, ASSESSMENT, APPEALS, RECOVERY,
PENALTIES, NON-RESIDENTS, DOUBLE TAXATION TREATY,)
1
• 92. Principles of taxation of associations of persons.
• An association of persons shall be liable to tax
separately from the members of the association and
[where the association of persons has paid tax the]
amount received by a member of the association in the
capacity as member out of the income of the association
shall be exempt from tax [:]
• Provided that if at least one member of the association
of persons is a company, the share of such company or
companies shall be excluded for the purpose of
computing the total income of the association of persons
and the company or the companies shall be taxed
separately, at the rate applicable to the companies,
according to their share.
SK TAX NOTES
Principles of Taxation of AOP - 92
2
Section 168(2A)
• (A/B) x C
• Where —
SK TAX NOTES
• Claim of tax credit by company
• Where a company is a member of an association of persons which is taxed in accordance
with section 92 and an amount of tax has been collected from an association of persons
under Division II of this Part or Chapter XII or deducted from a payment made to the said
association under Division III of this Part or Chapter XII, the company shall be allowed a tax
credit, in respect of tax collected or deducted from the association of persons, according to
the following formula, namely:—
• A is the amount of share of profits before tax received by the company as a member from
the association of persons;
• B is the taxable income of the association of persons; and
• C is the amount of tax withheld in the name of the association of persons.
• (2B) No tax credit shall be allowed for any tax collected or deducted from an association of
persons in respect of an amount for which credit has been allowed under sub-section (2A)
to a company being a member of the association
3
Deductions not allowed-sec 21
• any profit on debt, brokerage, commission,
salary or other remuneration paid by an
association of persons to a member of the
association;
SK TAX NOTES
• Expenses not allowed to AOP:
4
MINIMUM TAX
ALTERNATE CORPORATE TAX
ADVANCE TAX
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
• MINIMUM TAX
• ALTERNATE CORPORATE TAX
• ADVANCE TAX U/S 147
SK TAX NOTES
Presentation Agenda
2
• Section 113 applies to NTR income of:
• Resident company & Non-Resident Company
• An individual having turnover of 100 million
rupees or above in tax year 2017 or subsequent
year
• Association of persons having turnover of Rs.100
million or above or above in tax year 2017 or
subsequent year
SK TAX NOTES
MINIMUM TAX – Applies to whom?
3
• Rate of turnover tax is 1.25% of gross turnover
• Minimum tax is applicable where no tax is paid or payable or the tax
paid or payable is less than minimum tax due to any of the following
reasons:
• Loss for the year;
• The setting off of a loss of an earlier year;
• Exemption from tax – Note Clause 11A of Part IV second schedule
to the Income Tax Ordinance provided exemptions to certain
categories of persons on whom even minimum tax is not
applicable
• Application of credits or rebates; or (except where specifically
allowed like section 100C or 65F etc.)
• Claiming of allowances or deductions including depreciation &
amortization.
SK TAX NOTES
MINIMUM TAX – Applies when?
4
MINIMUM TAX
example
Sales
Expenses
Net Loss
Tax working
Adjustment:
Accounting depreciation (cost of sales)
Admissible expenses
Tax depreciation
Tax loss
Tax liability
Normal tax liability
Minimum tax (turnover * 1.25%)
1,000,000
1,700,000
(700,000)
100,000
SK TAX NOTES
•
•
•
•
•
•
•
•
•
•
•
•
•
(200,000)
(800,000)
0
12,500
5
MINIMUM TAX
example
Sales
Expenses
Net profit
Adjustment:
Accounting depreciation (cost of sales)
Admissible expenses
Tax depreciation
Tax profit
Brought forward business loss
Net loss c/f
Tax liability
Normal tax liability
Minimum tax (turnover * 1.25%)
1,000,000
700,000
300,000
100,000
(200,000)
200,000
(500,000)
(300,000)
0
12,500
SK TAX NOTES
•
•
•
•
•
•
•
•
•
•
•
•
•
•
6
MINIMUM TAX
example
Sales
Expenses
Net Loss
Adjustment:
Accounting depreciation (cost of sales)
Admissible expenses
Tax depreciation
Tax profit
Tax liability
Normal tax liability (assume)
Tax credits (FTC, Donations etc.)
Normal tax liability
Minimum tax (turnover * 1.25%)
1,000,000
700,000
300,000
100,000
(200,000)
200,000
20,000
(22,000)
NIL
12,500
SK TAX NOTES
•
•
•
•
•
•
•
•
•
•
•
•
•
•
7
MINIMUM TAX
example
Sales
Expenses
Net Loss
Adjustment:
Accounting depreciation (cost of sales)
Admissible expenses
Tax depreciation
Tax profit
Tax liability
Normal tax liability (assume)
Minimum tax liability
Higher tax liability NTL
Tax credits (65B assumed)
1,000,000
700,000
300,000
100,000
(200,000)
200,000
20,000
15,000
20,000
SK TAX NOTES
•
•
•
•
•
•
•
•
•
•
•
•
•
•
8
(22,000)
MINIMUM TAX
example
Sales
Expenses
Net Loss
Adjustment:
Accounting depreciation (cost of sales)
Admissible expenses
Tax depreciation
Tax profit
Tax liability
Normal tax liability (assume)
Minimum tax liability
Higher tax liability MTL
Tax credits (65B assumed)
1,000,000
700,000
300,000
100,000
(200,000)
200,000
10,000
15,000
15,000
SK TAX NOTES
•
•
•
•
•
•
•
•
•
•
•
•
•
•
9
(22,000)
• This is the case where minimum tax exceeds normal
tax liability
• The excess amount of minimum tax paid is allowed
to be carried forward and adjusted against normal
tax liability for five tax years immediately
succeeding the tax year for which the amount was
paid.
• The adjustment in subsequent years is allowable to
the extent of normal liability exceeding minimum
tax of that year.
• After five years, if any minimum tax is still
unadjusted, the amount will lapse and no refund or
adjustment will be allowed.
SK TAX NOTES
MINIMUM TAX – Carry forward
10
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
TY 2018
NTL
100,000
MTL
150,000
Pay Rs. 150,000 – C/f for adj in next year Rs. 50,000
C/f up to 5 years i.e. 2019, 2020, 2021, 2022, 2023. adjustable only against NTL.
If there is any tax deducted at source then it can be adjusted however c/f MT
will be same i.e. Rs.50,000
TY 2019
NTL
200,000
MTL
180,000
Higher is NTL 200,000 – you can adjust brought forward Minimum tax –
available Rs. 50,000 but you can adjust only Rs. 20,000 and further c/f
remaining Rs. 30,000
TY 2020
NTL
200,000
MTL
220,000
Pay Rs. 220,000 can c/f Rs.30,000 of TY 2018 and Rs.20,000 of TY 2020
Rs. 30,000 available till TY 2023 and Rs. 20,000 till TY 2025.
SK TAX NOTES
MINIMUM TAX – Carry forward
11
MINIMUM TAX – Carry forward
TY 2018
NTL
100,000
MTL
150,000
Tax payable
150,000
Tax paid/ deducted
(170,000)
No payment of tax is required and excess Rs. 20,000 can be claimed as refund.
• Minimum tax exceeding NTL would still be available for c/f i.e. Rs.50,000 can be
carried forward for next 5 years.
SK TAX NOTES
•
•
•
•
•
•
12
• Turnover means:
• Gross sales or receipts from sale of
goods (NTR only) less sales tax, FED or
trade discount shown on invoices
• Gross fees from rendering of services
including commissions (NTR only)
• Gross receipts from contracts (NTR only)
• Company’s share from AOP
SK TAX NOTES
MINIMUM TAX – Turnover
13
• Explanation.—For the removal of doubt, it is clarified
that the definition of turnover covers receipts from all
business activities in line with expression “ turnover from
all sources” used in subsection (1) including but not
limited to receipts from sale of immoveable property
where such receipt is taxable under the head Income
from Business.
SK TAX NOTES
MINIMUM TAX – Turnover
14
• Section 113C – A new tax regime has been
introduced through insertion of section 113C
whereby tax payable by a company is to be
higher of Corporate Tax or Alternative Corporate
Tax. Overriding effect is given to section 113C
and the section has been made effective for tax
year 2014 and onwards.
• Accordingly for companies, tax liability will be
calculated as higher of:
• Corporate Tax
• Alternate corporate tax
•
SK TAX NOTES
ALTERNATE CORPORATE TAX - ACT
15
ACT – Corporate Tax
• Corporate tax is defined as:
• Higher of
• minimum tax
• i.e. Corporate tax = Higher of:
• tax on taxable profits (29%) or
• 1.25% of gross turnover (minimum tax under section
113)
SK TAX NOTES
• normal tax; and
16
ACT – Adjusted Accounting Income
•
•
•
•
•
•
•
•
Accounting income =
Accounting profit before tax (APBT)
SUBTRACT THE FOLLOWING FROM APBT
Share from associate under equity method of accounting
Exempt income
Any taxable income other than NTR income
Income subject to tax credit under section 65D, 65E and 100C
IN THE RESULT ADD Proportionate expenses related to above
income
SK TAX NOTES
• Alternate corporate tax is 17% of Accounting income
• Tax credit under section 64B (employment) and 65B (investment) is
allowed against ACT.
17
•
•
•
•
•
•
•
•
•
•
Sale
100,000
Expenses
(80,000)
Profit
20,000
Break into say exempt and taxable
Bifurcation
Taxable
Sale
70,000
Expenses (Direct)
(10,000)
Expenses common
(46,200)
Accounting profit
13,800
ACT Rate
17%
Exempt
30,000
(4,000)
(19,800)
6,200
Exempt
SK TAX NOTES
ACT – Adjusted Accounting Income
18
• The Alternate Corporate Tax paid in excess of Corporate tax for
the tax years is allowed to be carried forward and adjusted
against the normal tax payable calculated under Division II
(Part I, First Schedule).
• The unadjusted Alternate Corporate Tax is allowed to be
carried forward for ten years immediately succeeding the tax
year for which the excess was first computed.
• However, such adjustment and carry forward shall not
prejudice or affect the entitlement of the taxpayer regarding
carry forward and adjustment of minimum tax referred to in
section 113 of Income Tax Ordinance, 2001. Tax credit under
section 64B & 65B is allowed against Alternate Corporate Tax.
• Where corporate tax or Alternate Corporate Tax is enhanced
or reduced as a result of any amendment, or as a result of any
order, the excess amount to be carried forward shall be
reduced or enhanced accordingly.
SK TAX NOTES
ACT –Carry forward
19
• The Commissioner is also empowered to
make adjustments and proceed to
compute accounting income as per
historical accounting pattern after
providing an opportunity of being heard.
• Tax credit under section 64B & 65B is
allowed against Alternate Corporate Tax.
• Alternate Corporate tax is not applicable
to insurance companies, oil & mineral
sector companies and banks.
SK TAX NOTES
ACT – Other Provisions
20
• SECTION 147 – ADVANCE TAX
• Every taxpayer is required to pay advance tax except in
the following cases:
• Dividend
• Royalty income of non-resident persons
• Fee for technical services of non-resident persons
• Income from salary
• FTR income
• Individual whose latest assessed taxable income
excluding above referred income is less than
Rs.1,000,000.
SK TAX NOTES
ADVANCE TAX UNDER SECTION 147-applies to whom
21
ADVANCE TAX UNDER SECTION 147-How to calculate & When to pay
•
•
•
•
A = turnover for the quarter
B = tax assessed for latest tax year
C = taxpayer’s turnover for the latest tax year
D = tax deducted during the quarter
• Individual to calculate advance tax using following formula
(A/4)-B, where
SK TAX NOTES
• SECTION 147 – ADVANCE TAX
• AOP & Company to calculate advance tax using following
formula (A*B/C)-D, where
• A = Tax assessed for latest tax year
• B = tax deducted during the quarter
• Advance tax to be paid in four quarter – Individual at 15th of
Sep, Dec, Mar & June while AOP & Companies at 25th of Sep,
Dec, Mar & 15th of June.
22
SUPER TAX
TAX ON RESERVES
WHT (FTR & NTR)
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
Applicable Section 149.
Already
discussed
during
Salary
Presentation.
SK TAX NOTES
SALARY
2
Sales of goods
MTR – Individual, AOP, company except:
Check rate card for
1. Company being a manufacturer
rates
2. Listed company
3. Clause 56C allows to opt for NTR subject to the condition that
tax liability under NTR is not less than 3.5% of gross amount of
sales for companies and 4% for others
Note: reduced rate are applicable for certain suppliers.
Services
MTR – Individual, AOP, Company
Rate card
Note: Where recipient of payment receive payment through agent
and agent retains service charges, the agent is treated to have been
paid service charges and recipient shall collect tax along with the
payment received.
Contracts
MTR – Individual, AOP, company except listed company
SK TAX NOTES
SUPPLIES, SERVICES & CONTRACTS
Rate card
3
• Where importer, who has paid tax under section 148, supplies such
imported goods in same condition, provisions of section 153(1)(a)
would not apply.
• On purchase of assets under lease & buy back arrangement,
153(1)(a) would not apply.
• Tax deducted by a person making payment to special purpose
vehicle on behalf of originator, the tax is credited to originator.
• Prescribed person means Federal Govt, Company, AOP/ individual
having turnover of 100 million or above, non-profit organization,
foreign contractor or consultant, consortium or joint venture.
• Turnover in case of sale of goods is inclusive of sales tax, FED or any
trade discount. This is different from turnover from sale of goods
defined in Section 113 relating to minimum tax.
• Exemption certificate to be issued within 15 days otherwise
exemption to be automatically issued.
SK TAX NOTES
SUPPLIES, SERVICES, CONTRACTS – OTHER PROVISIONS2
4
Export of Services including IT - 1
Section 154A; 1% FTR for following:
1.Exports of computer software or IT services or IT enabled services
in case tax credit under section 65F is not available;
2.Services or technical services rendered outside Pakistan or
exported from Pakistan;
3.Royalty, commission or fees derived by a resident company from a
foreign enterprise in consideration for the use outside Pakistan of
any patent, invention, model, design, secret process or formula or
similar property right, or information concerning industrial,
commercial or scientific knowledge, experience or skill made
available or provided to such enterprise;
4.Construction contracts executed outside Pakistan; and
5.Other services rendered outside Pakistan as notified by the Board5
from time to time;
Export of Services including IT - 2
Conditions
• Return has been filed
• Withholding tax statements for the
relevant tax year have been filed; and
• Sales tax returns under Federal or
provincial laws have been filed, if
required under law;
• No credit for foreign taxes paid shall be6
allowed.
Export of Services including IT - 3
• Exercising of option to go for NTR instead of FTR
A person can also opt out of FTR however option to opt out
of FTR shall be exercised every year at the time of filing of
return under section 114.
No entitlement to take credit
The Finance Act provides that where a taxpayer, while
explaining the nature and source of any amount,
investment, money, valuable article, expenditure referred to
in section 111, takes into account any income which is
subject to FTR under section 154A, then such person shall
not be entitled to take credit of a sum that can be reasonably7
be attributed to the business activity mentioned in subsection (1) of section 154A.
•Already Discussed
while studying
Income From
Property
SK TAX NOTES
Income From Property Section 155
8
• Section 161/ Statements – Failure to collect or deduct tax or pay
tax collected or deducted/ Statements
• In case of failure to collect or deduct tax or payment of tax collected
or deducted, the withholding agent is treated as assessee/ taxpayer
in default.
• Principal amount + additional tax can be collected from tax payer in
default.
• Tax payer in default can recover principal amount from the person
from whom tax was to be collected or deducted
• Where principal amount has been paid by the recipient of income,
the withholding agent is only liable to pay additional tax
• Quarterly and annual withholding statements are required to be
filed for all tax collected or deducted
• Annual statement of reconciliation between financial statements/
tax return and withholding statements has also been introduced.
SK TAX NOTES
Section 161 to 165
9
• Excess tax paid can be claimed as refund within 3 years of the later
of:
• The date on which the Commissioner has issued the assessment
order to the taxpayer for the tax year to which the refund
application relates or
• The date on which tax was paid
• Refund can be:
• Applied by Commissioner to reduce any other tax due from the
taxpayer
• Applied in reduction of any outstanding liability of taxpayer; and
• Refund the remainder to taxpayer.
• Commissioner to pass order within 60 days on receipt of refund
application
• Section 170A for auto refunds if verifiable at ITMS
• In case of delayed refund department to pay additional amount @
KIBOR plus 0.5% per annum (section 171) also treated as income
from other sources
SK TAX NOTES
Section 170, 171 Refund
10
Auto Refund
Section 170A namely ‘Electronic processing and electronic issuance
of Refunds by the Board’ which states that regardless of anything in
section 170 of this Ordinance, beginning in tax year 2021, the Board
may process and issue refunds to taxpayers who have filed income tax
returns without requiring a refund application to the extent of tax
credits verified by the Board's computerized system as may be
prescribed. The refund amount will be electronically remitted to the
taxpayer's notified bank account under this provision.
11
TAX CREDITS FOR
COMPANIES
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
• Charitable donations – Section 61 • Investment in shares & life insurance – Section 62 – not for
companies
• Tax credit on health insurance – section 62A – not for companies
• Pension scheme – Section 63 – not for companies
• Tax credit on employment generation – Section 64B
• Available to company as a manufacturer incorporated under CO 1984
• Company & manufacturing unit set up between July 2015 to June 30,
2019
• Set up date = date of trial or commercial production
• Credit equal to TWO (2) % of tax payable for every 50 employees
registered with EOBI or ESSI
• Maximum credit 10% of tax payable
• No splitting up, reconstitution or reconstruction of existing unit
• Subsequent discovery of wrong info – CIR to re-compute tax payable
of relevant year
SK TAX NOTES
TAX CREDITS – Sec 61 to 64D
2
• (1) Any person who is required to integrate with Board’s
computerized system for real time reporting of sale or receipt, shall
be entitled to tax credit in respect of the amount invested in
purchase of point of sale machine.
• (2) The amount of tax credit allowed under sub-section (1) for a tax
year in which point of sale machine is installed, integrated and
configured with the Board’s computerized system shall be lesser of
–
• (a) amount actually invested in purchase of point of sale
machine; or
• (b) rupees one hundred and fifty thousand per machine.
• (3) For the purpose of this section, the term point of sale machine
means a machine meant for processing and recording the sale
transactions for goods or services, either in cash or through credit
and debit cards or online payments in an internet enabled
environment.”
SK TAX NOTES
Tax Credit – Point of sale machine Section 64D
3
• Available to company set up in Pakistan before July 1, 2011
• invests in purchase and installation of P&M including corporate dairy
farming
• P&M to be installed between July 1, 2011-June 30, 2019
• Investments made through at least 75% new equity
• Tax credit allowed for a period 5 years from the date of setting up or
commencement of commercial production, whichever is later
• tax credit allowed against tax payable even against minimum & final tax
if separate accounts maintained for an expansion project or new
project as per formula A * B/C i.e. same as 65D
• Proportionate of new equity to total equity if accounts not maintained
separately
• Loans from banks/ NBFIs for working capital can be taken
• Where credit wrongly claimed or business discontinued within 5 years
after credit allowed, tax payable recomputed by CIR
SK TAX NOTES
Tax Credit – Section 65E
4
Section 65G
Tax credit for specified industrial undertakings Section 65G
• Allow 25% tax credit for eligible capital investments by
eligible taxpayers against tax payable including minimum
final taxes.
• Carry forward allowed up to two succeeding years.
• Eligible investment means investment made in purchase
installation of new machinery, buildings, equipment, hardware
software, except self-created software and used capital goods.
the
and
and
and
5
Section 65G cont..
Eligible person means;
(a) green field industrial undertaking (Section 2(27A)) engaged in
• manufacturing or ship building and incorporated between the 30-062019 and 30-06-2024 but does not include
• Person formed by the splitting up or reconstitution of an
undertaking already in existence or by transfer of machinery,
plant or building from an undertaking established in Pakistan
prior to commencement of the new business and is part of an
expansion project;
(b) industrial undertaking set up by 30-06-2023 and engaged in the
manufacture of plant, machinery, equipment and items with dedicated
use (no multiple uses) for generation of renewable energy from sources
like solar and wind, for a period of five years beginning from the date
such industrial undertaking is set up.
6
SME 1
• SME is a person
• who is engaged in manufacturing and
• its business turnover in a tax year does not exceed two hundred and fifty
million rupees.
• In case annual business turnover of a SME exceeds two hundred and fifty
million rupees, it shall not qualify as SME in the tax year in which annual
turnover exceeds the limit or any subsequent tax year.
7
SME 2
• Fourteenth Schedule Rules
• Registration: SME to register with FBR on Iris web portal
or Small and Medium Enterprises Development Authority
on its SME registration portal (SMERP).
• Categories and tax rates: SME are categorized into two
types for determining their tax liability;
a. Where annual business turnover does not exceed Rupees 100 million, the rate of
tax is 7.5% of taxable income; and
b. Where annual turnover exceeds Rupees 100 million but does not exceed Rupees
250 million, the rate of tax is 15% of taxable income.
•
8
SME 3
Option for Final Tax Regime: SME may also opt to be taxed
under FTR with following categories:
• Category-1: Whose turnover is not more than 100 million
rupees may opt for 0.25% of gross turnover as FTR;
• Category-2: Whose turnover is more than 100 million
rupees but not more than 250 million rupees may opt for
0.50% of gross turnover as FTR.
• The above option may be exercised at the time of filing of
return and once exercised cannot be revoked for three years.
Further, provisions of section 177 and 214C shall not be
applicable for SME which opts for FTR.
9
SME 4
Audit: SME opting for normal tax regime may be selected for
audit under 214C if its tax payable is below the fixed tax to be
paid by SME under FTR.
Exports: The rate of tax on export will be the same as
provided under FTR above.
Minimum Tax under section 113 & 153 is not applicable.
All other provisions of the Ordinance shall apply mutatis
mutandis.
10
ANNUAL INCOME TAX RETURN &
WEALTH STATEMENTS
FILING REQUIREMENTS
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
•
•
•
•
•
•
•
Every company
Every other person whose income exceeds the amount not chargeable to tax
Approved Non-profit organization as defined in section 2(36)
Any person charged to tax in any of the two preceding tax years
Any person who claims carry forward of loss
Any person with FTR income
Owner of immovable property with land area of 250 500 sq yards or more or owns a
flat located in prescribed areas (Not applicable on widow, orphan below age of 25
years, disabled person and non-resident)
Owner of land are of 500 sq yards of more in a rating area (Not applicable on widow,
orphan below age of 25 years, disabled person and non-resident)
Owns a motor vehicle having engine capacity above 1000 CC (Not applicable on
widow, orphan below age of 25 years and disabled person)
NTN number holder
Holder of commercial or industrial electricity connections with annual bill exceeding
Rs.500,000
Resident person registered with Chamber of Commerce etc.
Person whose business income exceeds Rs.300,000 but does not exceed Rs.400,000
Every resident person required to file statements of foreign assets & liabilities u/s
116A
SK TAX NOTES
•
•
•
•
•
•
•
Return to be filed by???
2
• A person can furnish revised return subject to following
conditions:
• Accompanied by revised accounts or revised audited
accounts as the case may be (can be waived by CIR)
• Reasons for revision duly signed to be furnished
• Approval by CIR in writing
• not applicable if rev application filed within 60 days of
filing of tax return.
• If on application, revision not granted within 60 days,
approval deemed to have been allowed
• Approval deemed granted if taxable income is more or
loss is less than declared in section 120
• Taxable income declared is not less than income determined
under section 121, 122, 122A, 122C, 129, 132, 133 or 221.
SK TAX NOTES
Revision of Return
3
• If return revised and due amount of tax paid before receipt of
notice under section 177 or section 122, no penalty shall be
recovered from taxpayer
• If return revised and tax paid during the audit or before notice
under section 122(9), the default surcharge and twenty-five
per cent of the penalties leviable under the ordinance along
with the revised return:
• In case the taxpayer revises the return after the issuance of a
show cause notice under section 122(9), default surcharge and
fifty per cent of the leviable penalties under the ordinance
along with the revised return and thereafter, the show cause
notice shall stand abated.
SK TAX NOTES
Revision of Return
4
• Commissioner can require any person to furnish a return for a
period of less than twelve months where:
• Person has died
• Person has become bankrupt or gone into liquidation
• Person is about to leave Pakistan permanently
• Commissioner otherwise considers it appropriate
• Commissioner may require any person to furnish return who in
the Commissioner’s opinion was required to do so. The notice
is to be 30 days notice (longer or shorter). Notice may be
issued for one or more of last five completed tax years.
However if a person has not filed return for any of last five tax
years, CIR may require return for last ten years.
• Unlimited time available to CIR for person who failed to furnish
his return and has foreign income or owns foreign assets
SK TAX NOTES
Power of CIR to call for return
5
• Section 116 – Following are required to file wealth
statement & wealth reconciliation statement”
• Any person who is required by Commissioner to do so in
CIR opinion
• Every resident individual who is filing return
• Every individual member of AOP
• A person can revise wealth statement (CIR can declare it
void if revision proved not due to bona fide mistake) if he
finds any omission, wrong statement however wealth
statement cannot be revised:
• After receipt of notice of amendment in assessment
• after the expiry of five years from the due date of filing of
return of income for that tax year.
SK TAX NOTES
Wealth Statement
6
• Section 116A – Following are required to file
• Any person who is required by Commissioner to do
so in CIR opinion
• Having foreign income not less than ten thousand
USD
• Having foreign assts not less than 100,000 USD
• person can revise 116A statement if he finds any
omission, wrong statement
SK TAX NOTES
Foreign income & Asset Statement
7
Person
Date
Company with year ending between July to Dec
September 30
Company with year ending between Jan to June
December 31
AOP with FTR income
September 30
AOP with NTR income
September 30
Individual – salaried (annual income 500,000 or more)
September 30
Individual – Non-salaried (FTR)
September 30
Individual – Non-salaried (NTR)
September 30
Note: Wealth statement is to be filed with annual tax return as per above
dates by individuals (only for those who are required to file under section
116). For those who are not required to file wealth statement but have
been required by the Commissioner to do so, at the dates prescribed in
the notice.
SK TAX NOTES
Return Filing Dates
8
Wealth Reconciliation Statement
Increase in wealth = Net Income
Decrease in wealth = Net Loss
*****
*****
*****
SK TAX NOTES
Opening Wealth
Closing Wealth
Net Increase/ Decrease in wealth
9
ASSESSMENT, AUDIT &
RECOVERY
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
• Universal Self Assessment Scheme
• Records & Audit
• Best Judgment Assessment (121)
• Amendment of Assessment (122)
• Agreed Assessment 122D
• Revision by Commissioner & Chief
Commissioner (122A & 122B)
• Provisional Assessment
• Recovery
SK TAX NOTES
Presentation Agenda
2
• Section 120
• Universal self assessment scheme under section 120 –
return filed is deemed assessment order
• Commissioner has powers to conduct audit under section
177 when a taxpayer is selected by FBR under section
214C. An explanation has been added in section 120 and
section 214C providing that CIR is empowered to select a
person for audit in addition to powers vested with FBR
• In case of incomplete return, Commissioner may require
the taxpayer to remove deficiencies and if taxpayer does
not do so the return shall be treated as invalid.
• Notice of deficiencies can be issued within 180 days from
the end of the financial year in which return was
furnished.
SK TAX NOTES
Universal Self Assessment
3
• Section 214C - FBR has the power to select persons or classes of persons for audit
through computer ballot
• Section 174 – Prescribes records maintenance requirements for a period of six
years after the end of tax year to which they relate and Commissioner has power
to disallow or reduce taxpayer’s claim for a deduction if taxpayer is unable,
without reasonable cause, to provide documentary evidence
• Section 176 – Provides power to Commissioner to call information relevant to any
tax leviable from a person
• Section 177 – Audit, Provides power to Commissioner to call for records of a
person who has been selected for audit by FBR
• Commissioner may, after recording reasons in writing call for records or
documents including books of accounts of taxpayer
• Commissioner after examining the case shall issue audit report and thereafter he
can issue amended assessment order under section 122(1) or 122(4)
• Where a person has been selected for audit in a year, such person can again be
selected for audit in the next and following years
• FBR or Commissioner can appoint CA or ICMA firm to carry out audit under
section 177
SK TAX NOTES
Records & Audit
4
• Order under following circumstances:
• Failure of person to furnish statement required through a notice
under section 115(5) –
• Failure of person to furnish statement required through a notice
under section 114(4) –
• Failure of person to furnish a return under section 143 or 144 (nonresident ship owner/ aircraft owner)
• Failure to furnish wealth statement
• Produce records before Commissioner or Chartered Accountant firm
appointed for tax audit under section 177. Note that best judgment
assessment cannot be made where a person has furnished return
under section 114 unless the person is selected for audit under
section 177 and fails to provide records required to be maintained
under section 174.
• Notice under this section can only be issued within 5 years of the end
of the tax year or the income year to which it relates
SK TAX NOTES
Best Judgment Assessment (121)
5
• Tax return is original assessment order.
• Revised return by tax payer is deemed amended assessment order.
• An assessment order can be amended as many times as the
Commissioner wants but within the later of the following:
• Five years from the end of the financial year in which the
Commissioner has issued or is treated as issued original
assessment order
• One year from the end of the financial year in which the
Commissioner has issued or is treated as issued amended
assessment order
SK TAX NOTES
Amendment of Assessment - 122
6
• Time Line
• For example TY 2015 July 01, 2014 to June 30, 2015.
• Return is submitted on December 31, 2015. The financial year after
submission of return (original assessment order) ends at June 30,
2016.
• Five years from June 30, 2016 – June 30, 2021.
• Or
• Say CIR issued first amended order on May 31 ,2019.
• Financial year end in which amended assessment order is issued ]
June 30. 2019. One year after that = June 30, 2020.
• Say CIR issued second amended order on April 30, 2021.
• Financial year end in which second amended order is issued= June
30, 2021 – one year after that = June 30, 2022
• Say CIR issued third amended order on June 15, 2022.
• Financial year in which 3rd amended order is issued – June 30,
2022. one year after that = June 30, 2023
SK TAX NOTES
Amendment of Assessment - 122
7
• Section 122(5) - Where the commissioner on basis of “definite
information” acquired from an audit or otherwise, is satisfied:
• Any income chargeable to tax has escaped assessment; or
• Total income has been under assessed, or assessed at too
low a rate, or has been the subject of excessive relief or
refund; or
• Any amount under a head of income has been
misclassified
• Note: Definite information is defined to include information on
sales or purchases of any goods made by the taxpayer, receipts
of taxpayer from services rendered or any other receipts that
may chargeable to tax under this Ordinance and on the
acquisition, possession or disposal of any money, asset, valuable
article or investment made or expenditure incurred by the
taxpayer.
SK TAX NOTES
Definite Information – 122(5)
8
• Section 122(5A) – where the Commissioner
considers that the assessment order is
erroneous in so far it is prejudicial to the
interest of revenue.
• Note: As per section 210, Commissioner has
power to delegate authority to any officer
of inland revenue subordinate to the
Commissioner however authority of
amendment under section 122(5A) cannot
be delegated to an officer below rank of
Additional Commissioner.
SK TAX NOTES
Erroneous & Prejudicial to Interest of Revenue – 122(5A)
9
• Section 122(9)
• Provided that order under this section shall be made within one
hundred and twenty days of issuance of show cause notice or
within such extended period as the Commissioner may, for
reasons to be recorded in writing, so however, such extended
period shall in no case exceed ninety days. This proviso shall be
applicable to a show cause notice issued on or after the first day
of July, 2021.
• Provided further that any period during which the proceedings
are adjourned on account of a stay order or Alternative Dispute
Resolution proceedings or agreed assessment proceedings under
section 122D or the time taken through adjournment by the
taxpayer not exceeding sixty days shall be excluded from the
computation of the period specified in the first proviso.
SK TAX NOTES
Show cause under 122(9)
10
• Section 122A Commissioner has suo moto powers under
this section to revise an assessment order however:
• the order shall not be prejudicial to the person to
whom the order relates
• Revised order cannot be passed if an appeal lies
before Commissioner (Appeals) or Tribunal and the
time within which such appeal may be made has not
expired or an appeal is pending before commissioner
(Appeals) or Tribunal
• Section 122B Chief Commissioner may on his own
motion or on application by taxpayer revise an order of
Commissioner in respect of exemption or lower rate
certificate.
SK TAX NOTES
Revision by CIR & Ch. Comm.
11
APPEALS, RECTIFICATION &
ADRC
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
• Appeal Forums/ Fora
• Commissioner Appeals
• Appellate Tribunal
• Rectification
• ADRC
SK TAX NOTES
Presentation Agenda
2
• Appeal against order of Commissioner can be filed before
Commissioner Inland Revenue (Appeals) within thirty days of
service of order
• Appeal against order of Commissioner Inland Revenue
(Appeals) can be filed before Appellate Tribunal Inland
Revenue within sixty days of service of order
• Reference to High Court within 90 days of Order of Tribunal
• Section 134 relating to appeal to Supreme Court has been
abolished however appeal to Supreme Court can be filed but
not subject of discussion here.
SK TAX NOTES
Appeal Forums/ Fora
• Note: Extra days can be allowed subject to justification of
sufficient cause for each day of delay
3
• Tax due with the return must be paid before filing of
appeal
• Commissioner (Appeal) is now specifically vested with
the powers to grant stay of demand for 30+30 days
• Extra grounds of appeal can be filed be taxpayer if
Commissioner (Appeals) is satisfied that omission of the
ground from the form of Appeal was not willful or
unreasonable
• Commissioner (Appeals) cannot accept any documents
from taxpayer which were not provided to taxation
officer unless Commissioner (Appeals) is satisfied that
the appellant was prevented by sufficient cause from
producing such material or evidence before the
Commissioner
SK TAX NOTES
Commissioner Appeals-Procedure in Appeal
4
• Circumstances giving rise to an appeal may include:
• (i) A best judgment assessment (ex-parte assessment) based on any
available information or material to the best of the Taxation Officer’s
/ Commissioner’s judgment.
• (ii) An amendment of assessment
• (iii) An order holding an individual personally liable to pay the
amount of tax, which was required to be collected or deducted by
him/her or having collected or deducted fails to pay the same as
required by the law
• (iv) An order declaring or treating a person as a representative of a
non-resident person
• (v) An order refusing to rectify the mistake, either in full or in part
• (vi) An order having the effect of enhancing the assessment or
reducing a refund or otherwise increasing the tax liability
SK TAX NOTES
Commissioner Appeals-When to file?
5
• Commissioner may make an order to confirm, modify or annul
the assessment order however cannot remand back an order
though he may cause further enquiries to be made as he may
deem fit
• Commissioner (Appeals) may authorize taxation officer to
issue amended assessment order and time limit under section
122(2) shall not apply i.e. the five year time limit where the
order changes assessment of AOP and as a result assessment
of member is also to be changed
• Order is to be passed within 120 days from the date of filing of
appeal or within an extended period of 60 days for reasons to
be recorded in writing by Commissioner (Appeals)
• For computation of period, time lapsed due to adjournment
requested by appellant, stay order, remand or ADR shall not
be taken into account.
SK TAX NOTES
Commissioner Appeals-Decision in Appeal
6
• ATIR consists of Chairperson and such judicial and accountant
members as are appointed by Federal Govt in accordance with
the needs of Tribunal
• Chairperson of Tribunal shall always be a judicial member
except in special circumstances
• Bench of Tribunal to consist of at least two members
containing equal number of judicial & accountant members
such that members of one class does not exceed the number
of members of the other class by more than one
• Chairperson can form single member benches
• In case of difference of opinion among bench members,
majority vote shall decide the case. If equal votes than further
member(s) can be added initially by Chairperson and if still
equal votes, additional member can be appointed by Federal
Govt.
SK TAX NOTES
Appointment of Appellate Tribunal
7
• Judicial member qualifications:
• has been a Judge of a High Court;
• is or has been a District Judge; or
• is an advocate of a High Court with a standing of not less than ten
years; or
• possesses such other qualification as may be prescribed under subsection (2) of this section.
• Accountant member qualifications:
• Is an officer of inland revenue equivalent in rank of Chief
commissioner; or
• A commissioner of inland revenue or commissioner of inland
revenue (appeals) having at least 3 years of experience as
commissioner or collector
• A person who has, for a period of not less than ten years practiced
professionally as a Chartered Accountant/ Cost && Management
Accountant
SK TAX NOTES
ATIR Members - Qualifications
8
• Appeal can be filed to Commissioner (Appeals) by taxpayer or
department
• Tribunal can stay recovery of demand for a period not exceeding
180 days however where recovery stayed by High Court, the stay
period by High Court shall be excluded from computation of 180
days.
• Tribunal shall decide appeal within six months of filing of appeal
• Tribunal can affirm, modify, or annul the assessment order or
remand the case back to Commissioner or Commissioner (Appeals).
• Where as a result of order of Tribunal in respect of AOP, Tribunal
may authorize Commissioner to amend assessment members of
such AOP
• Question of facts are to be decided by Tribunal and decision of
Tribunal is final on question of fact however question of law can be
referred to High Court.
SK TAX NOTES
ATIR – Appeals & their Disposal
9
Stay
• Previously automatic stay was
granted till decision of CIR(A) upon
payment of 25% of tax demand now
it is decreased to 10% of tax
demand.
• The Tribunal powers to grant stay
have been restricted to 180 days
following the date on which stay
order was made.
• Commissioner, Commissioner (Appeals) or
Appellate Tribunal may rectify a mistake
apparent from record on their own motion or on
request by taxpayer
• In case of request by taxpayer, no order is made
before expiration of financial year next following
the date on which the mistake was brought to
the notice, the mistake shall be treated as
rectified
• No rectification order can be made after five
years from the date of order sought to be
rectified.
SK TAX NOTES
Rectification - 221
11
ADRC
▪ FBR is empowered to decide whether ADRC may or may
not be constituted in cases of mixed question of law and
fact.
▪ Taxpayer to file initial proposal for dispute resolution,
from which taxpayer would not be entitled to retract.
▪ FBR is now required to constitute ADRC within 30 days
of receipt of application instead of 60 days.
▪ Time limit for decision reduced from 120 days to 60 days.
▪ Power of stay increased from one hundred twenty days in
aggregate to “till decision or dissolution of ADRC
committee whichever is earlier”.
▪ If first Committee fails FBR can form second Committee
but after second failure the matter will be referred back to
relevant Court of law.
12
DEFINITIONS +
INPUT & OUTPUT
CALCULATIONS
SK TAX NOTES
Sharif ud din Khilji
Chief Executive
Khilji & Co. Chartered Accountants
1
• Section 2(3) - Associates – Identified for self study – Similar
definition to ITO 2001
• Section 2(5AB) – Cottage Industry means a manufacturing
concern, which fulfils each of following conditions,
namely:−
• (a) does not have an industrial gas or electricity
connection;
• (b) is located in a residential area;
• (c) does not have a total labour force of more than ten
workers; and
• (d) annual turnover from all supplies does not exceed ten
million rupees
• Note: Supplies by Cottage industry are exempt from sales
tax under serial 3 of Table II of Sixth Schedule to STA 1990.
SK TAX NOTES
Definitions I
2
• Section 2(14) – Input tax – in relation to a registered
person means:
• Sales tax levied under STA 1990 on supply of goods to
the person i.e. sales tax on purchases
• Sales tax levied on import of goods by the person
• In relation to goods or services acquired by the person,
tax levied under FED Act 2005 in sales tax mode as a
duty of excise on the manufacture or production of the
goods, or the rendering or providing of services
• Provincial sales tax levied on services rendered or
provided to the person; and
• Levied under the STA 1990 as adapted in State of Azad
Jammu and Kashmir on supply of goods received by the
person.
SK TAX NOTES
Definitions II
3
• Section 2(20) – Output tax – in relation to a
registered person means;
• Tax levied under this act on a supply of goods
made by the person i.e. sale of goods
• Tax levied under FED Act 2005 in sales tax
mode as a duty of excise on the manufacture
or production of the goods, or the rendering
or providing of the services by the person
• Provincial sales tax levied on services
rendered or provided by the person
SK TAX NOTES
Definitions IV
4
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Say Farmer supplier cotton Price
100
17 out put tax
(farmer does not charge sales tax but here mentioned as example only)
Ginning purchase
100
17 input tax
Ginning expense/ cost
80
Ginning profit
20
Total
200
34 out put
Spinning unit purchase
200
34 input
Cost
80
Profit
20
Total sale price
300
51 output
Composite unit purchase
300
51 input
Cost
160
Profit
40
Total sale price
500
85 output
Consumer price
585
SK TAX NOTES
Definitions VI
5
Definitions VIII
• Section 2(46) – Value of supply – Generally it’s open market price for all supplies,
specifically consider the following points:
• In case of supply on installment basis to consumer – if due to mark up or
surcharge the value of supply is higher than open market price then supply is
taken at open market price
• In case of trade discounts – discounted price is value of supply provided that:
• In case of imported goods, (excluding those as specified in third schedule) value
determined under Customs Act plus custom duty and central excise duty – In
exam you may be provided with the value determined under Customs Act, do
remember to add custom duty and central excise duty in the value of supply for
calculation of sales tax
• Fed Govt is authorized to fix minimum value of goods and lots of notifications are
available. In exams if a value of supply is given and information is provided about
minimum value than do remember to take into account the minimum value fixed
by Fed Govt.
• For Free samples – market value is the value of supply
SK TAX NOTES
• Tax invoice show discounted price and related tax
• Discount allowed is in conformity with normal business practices.
6
Definitions VIII
•
•
•
•
•
•
•
•
•
•
•
200 tables * 100
Purchases:
Wood
=
Paint
Electricity
Nails
Labor
Rent
Other overheads
Total cost
Profit
=
20,000
10
10
10*200*17%
10
10
10*200*17%
10
10
10 (assume provincial sales tax) 16%
70 * 200
14,000
6,000
output
3,400
input
pay
340
500
340
320
1,500
1,900
SK TAX NOTES
• Supplier of Tables – assume chargeable to sales tax @ 17%
7
• Section 3(1) – Sales tax levied @ 17% on the value of
taxable supplies/ imports.
• Fed Govt empowered to levy higher or lower rate
under section 3(2)(b).
• 3% further tax to be charged on supply to unregistered
person except for some exemptions provided through
SRO 648 dated July 9, 2013 i.e. Electricity, gas, POL
products, Sale by retailers to End consumers, supply to
end consumers directly, third schedule items, fifth sch.
etc.
• Section 6 – In case of change of rate of tax the
applicable rate on supply is the rate applicable at the
“time of supply”.
SK TAX NOTES
Charge of tax II
8
Definitions VIII
•
•
•
•
•
•
•
•
•
•
•
•
200 tables * 100
=
20,000 output 3,400
Purchases:
Wood
=
10
Paint
10
10*200*17%
340
Electricity
10
500
Nails
10
10*200*17%
340
Labor
10
Rent
10
Other overheads
10 (assume provincial sales tax) 16%
320
Total cost
70 * 200
14,000 input
1,500
Profit
6,000
pay
1,900
Further info: out of 200 tables 150 were sold to unregistered person, however out
of 150 tables 50 tables were sold to end consumers.
• Further tax 100 * 100 * 3%
300
• Total sales tax liability
2,200
SK TAX NOTES
• Supplier of Tables – assume chargeable to sales tax @ 17%
9
• Section 4 – Zero Rating – The following goods are
charged to tax @ zero percent:
• Goods exported
• Goods specified in fifth schedule
• Supply of stores and provisions for
consumption aboard a conveyance proceeding
to a destination outside Pakistan
• Such other goods notified by Fed Govt.
• Note Zero rated goods are not exempt supplies
rather taxable supplies charged at rate of zero
percent tax.
SK TAX NOTES
Charge of tax III
10
• Tables sold local10,000*17%
17,000
• Say input tax 12,000
• Output 17000-12000= 5000 pay to Govt.
• Export/ Fifth Schedule items/ Goods supplied
at a ship proceeding to a destination outside
PK
• 10,000 * 0%
0
• Output = 0 input = say 12,000 = all input
becomes refund
• Sixth Schedule items supplied 10,000 exempt
from tax. No input tax is allowed so no
refund.
SK TAX NOTES
Charge of tax III
11
• Registered person to have sales tax invoice issued in his name for supply of
goods received
• Registered person to have treasury challan issued in his name for goods
purchased in auction
• Registered person to have bill of entry issued in his name for import of goods
• Say sales
10,000 * 10 = 100,000 * 17%
17,000
• Purchases
8,000 * 10 = 80,000
• Out of 8,000 Purchases of Rs.1,000 units were from unregistered person.
• Further 1,000 units purchased in auction but treasury challan is not available.
• Further 1,000 units were imported but bill of entry was issued in the name of
another person.
• All remaining goods purchased from registered person.
• Input tax = 5,000 * 10 = 50,000 *17% = 8,500
• Electricity bill paid includes sales tax of Rs.500
• Total input tax = 9,000
• Net output tax/ tax payable = 17,000 -9,000 = 8,000
SK TAX NOTES
INPUT TAX I
12
• Where input tax not claimed in respect of a supply, it can be claimed
in any of immediately succeeding six tax periods e.g.
• Say info about July 2020
• Output tax = 10,000 * 10 = 100,000 * 17% =
17,000
• Purchases all from reg person 5,000 * 10 = 50,000
• Say Purchases made in April 2020 100 @ Rs. 10 but inadvertently no
input tax was claimed in the tax return of April 2020.
• Say Purchases made in Dec 2019 100 @ Rs. 10 but inadvertently no
input tax was claimed in the tax return of April 2020.
• Total output
17,000
• Input current month 50,000*17%
8,500
• Input April 2020
170
• Input Dec 2019 Not claimable
• Tax payable
8,330
SK TAX NOTES
INPUT TAX I
13
• Input tax on goods used for any purpose other than for taxable supplies
made or to be made is not allowed as adjustment against output tax
• Say info about July 2020
• Output tax = 10,000 * 10 = 100,000 * 17% = 17,000
• Purchases all from reg person 5,000 * 10 = 50,000
• Out of 5,000 units 1,000 units were used for personal purposes.
• Say Purchases made in April 2020 100 @ Rs. 10 but inadvertently no input tax
was claimed in the tax return of April 2020.
• Say Purchases made in Dec 2019 100 @ Rs. 10 but inadvertently no input tax
was claimed in the tax return of April 2020.
• Total output
17,000
• Input current month 40,000*17%
6,800
• Input April 2020
170
• Input Dec 2019 Not claimable
• Tax payable
10,030
SK TAX NOTES
INPUT TAX I
14
INPUT TAX III
• Apportionment of input tax among taxable and non-taxable supplies – Rule
24 & 25 of Sales Tax Rules 2006. As per rules input tax relating wholly to
taxable supplies is adjustable in full however input tax relating to both
taxable and exempt supplies is to be apportioned as per following formula:
• Allowable Input tax credit=
• Example = Total sales of furniture = Rs.300,000 out of which 100,000 is
export of table, Rs.50,000 is exempt being chairs and Rs. 150,000 is taxable
supply @ 17% being tables.
• Output
150,000*17%= 25,500
• Total 180,000 Purchases wood - Rs. 100,000 directly relate to local taxable
supplies and Rs. 80,000 electricity are used for making taxable supplies,
zero rated supplies and exempt supplies.
• Input
100,000*17% =
17,000
• Input apportioned
80,000*17%* 150,000/300,000
6,800
• Net output tax = 25,500 – 17,000 -6,800 =
1,700 payable
• Input related to zero rated supply 80K*17%*100K/300K= 4,533 refundable
• Input related to exempt supply 80K*17%*50K/300K= 2,267 not claimable
SK TAX NOTES
• (Value of taxable supplies/ value of taxable + exempt supplies)* Total input tax
15
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Supplier of Tables – assume chargeable to sales tax @ 17% & chairs assume
exempt. 50% tables export.
200 tables * 100 – 50% local sale 50% export =
20,000 output 1,700
Chairs 200 * 100
20,000
Purchases:
Wood
=
10
Paint (all relate to tables) 20
20*100*17%*50%
170
Electricity
10
800*10,000/40,000
200
Nails only for chairs
10
10*100*17%
Labor
20
Total cost
70 * 200
14,000 input
370
Profit
6,000
pay
1,330
Related to Zero rated
Paint
20*100*17%*50%
refund 170
Electricity
800*10,000/40,000
refund 200
Further info: out of 200 tables 150 were sold to unregistered person, however out
of 150 tables 50 tables were sold to end consumers.
• Further tax 100 * 100 * 3%
300
• Total sales tax liability
2,950
SK TAX NOTES
•
16
•
•
•
•
Output
Input tax (110)
Pay
C/f
100
(90)
10
20
• Output
• Input tax 70 + 20
• Pay
100
(90)
10
SK TAX NOTES
INPUT TAX IV
17
•
•
•
•
Output
Input tax (100 normal + 10 FA)
Pay
C/f
normal)
100
(90+10)
10 (out of
•
•
•
•
Output
Input tax 95 + 10 =105
Pay
C/f
100
(90)
10
15
SK TAX NOTES
INPUT TAX IV
18
• Input tax credit to be calculated and allowed in respect of
goods acquired before registration – See notes under
section 59
• Debit & Credit Notes: Rule 19 to 23 - Dr/ Cr notes are
issued
• on cancellation or return of supply – Rule 20
• Where supply by registered person and supply is
cancelled or returned buyer shall issue debit note in
duplicate. Buyer to retain duplicate copy and send original
to supplier.
• In case of cancellation of supply made to, or return of
goods by, an unregistered person, the supplier shall issue
a credit note.
• Buyer and supplier to make adjustment in input & output
tax respectively.
SK TAX NOTES
INPUT TAX VI
19
INPUT TAX VI
•
•
•
•
Sale of goods March
Debtor
Sales/ Revenue
Sales tax payable
issue sales tax invoice
117 Dr.
100 Cr.
17 Cr.
•
•
•
•
Sales Return May
Sales/ Revenue
Sales tax payable
Debtor
issue credit note
100 Dr.
17 Dr.
117 Cr.
SK TAX NOTES
• Dr. Cr. Note
20
INPUT TAX VI
•
•
•
•
Sale of goods March
Debtor
Sales/ Revenue
Sales tax payable
issue sales tax invoice
117 Dr.
100 Cr.
17 Cr.
• Sales value changes as a result of Govt order increase by
Rs. 50
May
issue debit note
• Debtor
58.5 Dr.
• Sales/ Revenue
50 Cr.
• Sales tax payable
8.5 Cr.
SK TAX NOTES
• Dr. Cr. Note
21
INPUT TAX VI
• Dr. Cr. Note
receive
•
•
•
•
issue debit note
117 Dr.
100 Cr.
17 Cr.
Purchase return
May
Creditor
Purchase
Sales tax input (R/A))
sales
100 Dr.
17 Dr.
117 Cr.
tax
SK TAX NOTES
• Purchase of goods March
invoice
• Purchase
• Sales tax input (R/A)
• Creditor
22
• Increase in debtor
• Increase in creditor
issue debit note
issue credit note
• Decrease in debtor
• Decrease in creditor
issue credit note
issue debit note
•
•
•
•
Reasons:
Sales return
Purchases return
Increase or decrease in value of supply
SK TAX NOTES
INPUT TAX VI
23
INPUT TAX VI
March return
Output
Input tax
Pay
10,000
(6,000)
4,000
• May – Sale return on which output tax of Rs.2,000 was
paid.
• Output
18,000
• Input
(11,000)
• Sales return credit note
(2,000)
• Pay to Govt
5,000
SK TAX NOTES
•
•
•
•
24
INPUT TAX VI
March return
Output
Input tax
Pay
10,000
(6,000)
4,000
• May – purchase return on which input tax of Rs.2,000
was claimed.
• Output
18,000
• Purchase return debit note 2,000
• Input
(11,000)
• Pay to Govt
9,000
SK TAX NOTES
•
•
•
•
25
• Rule 23 – Where goods are returned by buyer on the
ground that he same are unfit for consumption and are
required to be destroyed by the supplier, the goods shall
be destroyed after obtaining permission from the
Collector of Sales tax having jurisdiction, and under the
supervision of officer of sales tax not below the rank of an
Assistant Collector and input tax in respect of such goods
shall not be admissible.
• change in value or amount of supply – Rule 21
• In case of increase in value or amount of supply due to
any valid reason, supplier to issue debit note in duplicate
• In case of decrease in value or amount of supply due to
any valid reason, supplier to issue credit note in duplicate
SK TAX NOTES
INPUT TAX VII
26
• Original copy sent to recipient and duplicate retained for
record.
• In case of decrease in value of supply, the buyer shall also issue
corresponding debit note.
• Buyer and seller to make adjustment in input & output tax
respectively.
• Under withholding agent rules, certain persons are required to
withhold sales tax and pay to the Fed Govt. Where a purchaser
is a withholding agent under the said rules, the purchaser will
pay the sales tax withheld along with his output tax and the
seller will claim the tax so withheld along with his input tax.
(See detailed table on withholding agents in other notes)
• Minimum value addition tax on imports is adjustable as credit
against output tax however is not available for refund
SK TAX NOTES
INPUT TAX VIII
27
• Section 8A – Where a registered person receiving a
taxable supply from another registered person is
• in the knowledge or
• has reasonable grounds to suspect
• that
• some or all of the tax payable in respect of that
supply or
• any previous or
• subsequent supply of the goods supplied
• would go unpaid, such person as well as the person
making the taxable supply shall be jointly and severally
liable for payment of such unpaid amount of tax.
• Burden of proof is on tax department
SK TAX NOTES
Joint & severe liability – section 8A
28
• Section 11(1) – Applicable on a person:
• Who is required to file a return but fails to file a
return for a tax period by the due date
• Who pays an amount which, from some
miscalculations is less than the amount of tax
actually payable
• In above circumstances Officer of Inland Revenue
(OIR) to issue show cause, make assessment of tax,
default surcharge and penalty and issue order if
found guilty
• However if the defaulter, files the return along with
default surcharge and penalty, show cause notice
and order of assessment shall abate.
SK TAX NOTES
Assessment of Tax – Section 11(1)
29
• Section 11(2) – applicable on a person:
• Who has not paid tax due on supplies or
• Has made short payment or
• Has claimed input tax credit or refund which is not
admissible
• And these acts have been done for reasons other than
those mentioned in section 11(1) i.e. reasons are other
than miscalculation.
• In above circumstances Officer of Inland Revenue (OIR)
to issue show cause, make assessment of tax, default
surcharge and penalty and issue order if found guilty
• However if the defaulter, files the return along with
default surcharge and penalty, show cause notice and
order of assessment shall abate.
SK TAX NOTES
Assessment of Tax – Section 11(2)
30
• Section 11(3) – applicable where due to
“collusion” or “a deliberate act”:
• Tax or charge has not been levied
• Tax or charge has been short levied
• Tax or charge has been erroneously refunded
• In above circumstances Officer of Inland
Revenue (OIR) to issue show cause for
payment of tax, default surcharge and
penalty and issue order if found guilty
SK TAX NOTES
Assessment of Tax – Section 11(3)
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• Section 11(4) – applicable where due to
“inadvertence” “error” or “misconstruction”:
• Tax or charge has not been levied
• Tax or charge has been short levied
• Tax or charge has been erroneously
refunded
• In above circumstances Officer of Inland
Revenue (OIR) to issue show cause for
payment of tax, default surcharge and
penalty and issue order if found guilty
SK TAX NOTES
Assessment of Tax – Section 11(4)
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• 11(1) – less paid due to miscalculation
• 11(2) – less paid due to reason other than
miscalculation
• 11(3) – less levied due to collusion or
deliberate act
• 11(4) – less levied due to error, inadvertence
or misconstruction
SK TAX NOTES
Summary
33
• A show cause notice under any of the above four
sub-sections shall be given within five years of
end of the financial year in which the relevant date
falls.
• Relevant date means:
• Time of payment of tax or charge and
• In a case where tax or charge has been
erroneously refunded, the date of its refund.
• Order shall be made within 120 days of issuance
of show cause notice. Further period of 90 days
is allowed on basis of reasons recorded in
writing.
SK TAX NOTES
Assessment of Tax – Section 11 (general)
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• Section 11A - Where Amount of tax paid is
less than the amount reflected in the return
than short amount can be recovered
without notice.
• For example, tax liability as per return
submitted is Rs.10,000 and person makes
payment of Rs.1,000, remaining 9,000 can
be recovered without notice.
• Section 11B – appeal effect order now
introduced by Finance Act 2018 like section
124 of ITO 2001.
SK TAX NOTES
Recovery without notice (11A)
35
• (1) Now extension can be filed
• (2) An application under sub-section (1) shall be made by the due date
for furnishing the return in terms of section 2(9) for the period to which
the application relates.
• (3) If CIR satisfied – Reasons –
• (a) absence from Pakistan;
• (b) sickness or other misadventure; or
• (c) any other reasonable cause, the Commissioner may allow
• (4) Maximum extension of fifteen days unless there are exceptional
circumstances justifying a longer extension of time:
• Provided Chief Commissioner may on an application made by the
registered person for extension or further extension, as the case may be,
grant extension or further extension for a period not exceeding fifteen
days, unless there are exceptional circumstances justifying a longer
extension of time. (
• 5) Default surcharge and penalty still applicable despite extension
SK TAX NOTES
Return Extension
36
• Selection under section 72B – Parametric balloting
• Section 32A – CA or ICMA firms or Special Audit
Panels are authorized to do sales tax audit when
appointed so by FBR.
• Same appellate authorities as income tax. Some
differences:
• Commissioner Appeals authorized to set aside
orders
• Commissioner appeals to pass order within 120
days or further 60 days after reasons recorded in
writing
• Others relating to ATIR, High Court, ADRC almost
same – Please study section 45A t0 47A.
SK TAX NOTES
Audit & Appeal
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