2011 final fixed-seprate block_tax_regimes_updated

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2011 final fixed-seprate block_tax_regimes_updated

  1. 1. Income Subject to Separate Charge, Final Tax, and Fixed Tax Regimes of Income Tax (Taxpayer’s Facilitation Guide) Brochure – IR-IT-05 September 2011 Revenue Division helpline@fbr.gov.pkFederal Board of Revenue 0800-00-227, 051-111-227-227 Government of Pakistan www.fbr.gov.pk
  2. 2. Our Vision To be a modern, progressive, effective, autonomous andcredible organization for optimizing revenue by providing quality service and promoting compliance with tax and related laws Our Mission Enhance the capability of the tax system to collect due taxes through application of modern techniques, providing taxpayer assistance and by creating a motivated, satisfied, dedicated and professional workforce Our Values Integrity Professionalism Teamwork Courtesy Fairness Transparency Responsiveness For assistance and information on tax matters Please contact our help line center through Toll Free Telephone 0800-00-227 Telephone 051-111-227-227 or 051-111-227-228 Fax 051- 051-9205593 E-mail helpline@fbr.gov.pk orVisit our tax facilitation center (located in all major cities) or any tax office or Visit our website at www.fbr.gov.pk
  3. 3. Contents Page INTRODUCTIONIntroduction 1 Tax on income (income tax) is anIncome Subject to Separate Charge 2 Dividend 2 annual charge under the Income Tax Royalty of non-residents 3 Ordinance, 2001. Generally, the levy of Fee for technical services of non-residents 3 income tax is by consolidation of all Shipping income of non-residents 4 Air transport income of non-residents 5 chargeable income (global income).Income subject to final tax 6 However, in many countries, keeping in Import of goods 6 view the prevailing economic and social Profit on debt 7 conditions, a concept of levy of final tax Execution of contracts by non-residents 7 Insurance or re-insurance premiums 8 or fixed tax on certain income or received by non-residents transactions irrespective of the quantum Any other amounts (profit on debt) received 8 of income is in place. Under the Income by a non-resident Sale of goods 8 Tax Ordinance, 2001 a number of Execution of contracts 9 income and transactions are subject to Services of stitching, dying, printing, 9 separate charge, final tax and fixed tax. embroidery, washing, sizing and weaving Media services by non-residents 9 Export realization (goods) 9 This brochure explains the provisions of Export realization (indenting commission) 10 the Income Tax Ordinance, 2001 Indirect export realization 10 governing the levy of separate charge, Export of goods by industrial undertaking 10 located in Export Processing Zones final tax and fixed tax in a simple and Export of goods (others) 10 concise manner. Prizes and winnings 10 Commission or discount on petroleum 11 products Brokerage and commission 11 Goods transport vehicles 11 Definitions of various words and Natural Gas Consumption (CNG Stations) 11Separate block of income 12 terminologies used and shown in italic Retirement or termination benefits of an 12 bold are given at the appropriate place or employee at end of this brochure. Arrears of salary of an employee 12 Flying and submarine allowance of certain 13 employees This brochure is to assist the Property income 13 taxpayers and reflects the legal Business income of certain retailers 13 position at the time of printing. In Business income from services rendered 14 outside Pakistan case of any conflict the legal Business income from construction 14 provisions of the law shall always contracts executed out-side Pakistan prevail over the contents of this Business income of certain manufacturers 14 of cooking oil or vegetable ghee or both brochure. Business income of resident from shipping 14 business Comments and suggestions Capital gains from sale of securities 14 We welcome your comments about this brochure and your Capital gains from the sale of shares or 15 suggestions for future editions. assets by a private limited company to You can e-mail us at memberfate@fbr.gov.pk Private Equity and Venture Capital Fund orObligations of the person deriving income 16 You can write to us at the following address:subject to separate charge, separate, Facilitation and Taxpayer Educationincome subject to final tax and income Federal Board of Revenue,subject to fixed tax Constitution Avenue,Definitions 17 Islamabad 1Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  4. 4. Income subject to separate chargeIncome subject to separate Dividendcharge Taxation of dividend income is governed by Section 5, 8 and 150 of the Income Tax“Income Subject to Separate Charge” are Ordinance, 2001.those income, which do not form part of totalincome or taxable income and are subject to tax Dividend received from a company by a person,on the basis of gross income. Section 5, 6, 7 other than a company*, is subject to final tax at aand 8 of the Income Tax Ordinance, 2001 flat rate of 10% (except as stated below) of thegoverns the taxation of such income and these gross amount of the dividend.are: Dividend; Dividend received from: Royalty of non-resident;  A company which has purchased a power Fee for technical services of non-resident; project privatized by WAPDA; or and  A company set up for power generation; Shipping income of non-resident. Air transport income of non-resident. is subject to a reduced rate of tax of 7.5% instead of 10% [Clause (17) and (20) of Part-II of 2ndFollowing rules apply to income subject to Schedule].separate charge: * Dividend received by a company is excluded Tax imposed is a final tax; from the ambit of the income subject to Such income is not chargeable to tax under separate charge and is therefore chargeable to any head of income in computing the taxable tax as one of the component of ‗income from other income of the person; sources‘. No deduction is allowed for any expenditure Dividend received is subject to deduction of tax at incurred in deriving such income; source by the person making the payment of dividend, as explained in our brochure The amount of the such income is not “Collection and Deduction of Tax at Source”. reduced by – – Any deductible allowance; or As general rule, the tax deducted at source from – The set off of any loss; dividend is non-adjustable tax deducted at The final tax payable is not reduced by any source and the dividend subject to deduction of tax credit allowed (foreign tax credit or tax tax at source or the dividend which is exempt credits on donations, investments etc.); from deduction of tax at source, is chargeable to tax, if not otherwise exempt, as income subject The liability of the recipient of such income is to separate charge. discharged to the extent that – – In the case of shipping and air The only exception to the above general rule is transport income, the tax is paid in that in case of a company, the tax deducted at accordance with section 143 or section source from Dividend is an adjustable tax 144 of the Ordinance (explained deducted at source and the dividend subject to hereinafter); or deduction of tax or dividend which is exempt from – In any other case, the final tax payable deduction of tax at source, is chargeable to tax, if has been deducted at source (please see not otherwise exempt, as ‗income from other our brochure ―Collection and deduction sources‘. of Tax Source”); and If the recipient of such income has no other source of income than: – An statement under section 115 of the Ordinance is required to be furnished by such person in lieu of a return of income as required under section 114 (Please see our brochure ―Obligations to furnish tax declarations‖); and – An assessment is treated to have been made under section 120 of the Ordinance (Self Assessment). 2Brochure –005 Collection and Deduction of Tax at Source
  5. 5. Income subject to separate chargeRoyalty of non-residents Fee for technical services of non-residentsTaxation of royalty income in the hands of non- Taxation of fee for technical services income inresidents is governed by Section 6, 8 and 152 of the hands of non-residents is governed bythe Income Tax Ordinance, 2001. Section 6, 8 and 152 of the Income Tax Ordinance, 2001.Royalty received by a non-resident person issubject to final tax at the rate of 15% of gross “Fee for technical services‖ received by a non-amount of royalty or applicable reduced rate of resident person is subject to final tax at the ratetax as per tax treaty with the country of such non- of 15% of the gross amount of fee for technicalresident. services or applicable reduced rate of tax as per tax treaty with the country of such non-resident .If the property or right giving rise to the royalty iseffectively connected with a permanent If the services giving rise to fee for technicalestablishment in Pakistan of the non-resident, services is rendered through a permanentthen such royalty is excluded from the ambit of establishment in Pakistan of the non-resident,the income subject to separate charge and is then such fee for technical services is excludedchargeable to tax under the head ‗income from from the ambit of the income subject tobusiness‘ as taxable income. separate charge and is chargeable to tax under the head ‗income from business‘ as taxableRoyalty received by a non-resident is subject to income.deduction of tax at source by the person makingthe payment of royalty, as explained in our Fee for technical services received by a non-brochure “Collection and Deduction of Tax at resident is subject to deduction of tax at sourceSource”. by the person making the payment of fee for technical services, as explained in our brochureAs a general rule, the tax deducted at source from “Collection and Deduction of Tax at Source”.royalty paid to non-resident is non-adjustabletax deducted at source and the royalty subject As a general rule, the tax deducted at source fromto deduction of tax at source or the royalty which fee for technical services paid to non-residentis exempt from deduction of tax at source is is non-adjustable tax deducted at source andchargeable to tax, if not otherwise exempt, as the fee for technical services subject toincome subject to separate charge. deduction of tax at source or the fee for technical services which is exempt from deduction of tax atThe only exception to the above general rule is source, is chargeable to tax, if not otherwisewhere the royalty is in respect of a property or exempt, as income subject to separate charge.right effectively connected with a permanentestablishment in Pakistan of the non-resident. The only exception to the above general rule isIn which case the tax deducted at source from where the fee for technical services is in respectsuch royalty in an adjustable tax deducted at of a property or right effectively connected with asource and such royalty subject to deduction of permanent establishment in Pakistan of thetax at source or such royalty exempt from non-resident, then the tax deducted at sourcededuction of tax at source is chargeable to tax, if from such fee for technical services is annot otherwise exempt, under the head ‗income adjustable tax deducted at source and such feefrom business‘ as taxable income. for technical services subject to deduction of tax at source or such fee for technical services exempt from deduction of tax at source is chargeable to tax, if not otherwise exempt, under the head ‗income from business‘ as taxable income. 3Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  6. 6. Income subject to separate chargeShipping income of non-residents payment of the final tax due on its shipping income subject to separate charge.Taxation of shipping income in the hands of non-residents is governed by Section 7, 8 and 143 of Port clearancethe Income Tax Ordinance, 2001. The Collector of Customs or other authorizedShipping income received by a non-resident is officer in this behalf is empowered to withhold portsubject to final tax at the rate of 8% of the gross clearance to a ship owned or chartered by a non-amount of the shipping income. resident person until:Obligations of the Master of a Ship:  The Collector or officer is satisfied that final tax due on the non-resident person‟s File a return – The master of a ship is shipping income subject to separate required to furnish to the Commissioner a charge has been paid; or return, in the form prescribed by Rule 37, of the non-resident person‟s shipping income  Arrangements for the payment of such tax subject to separate charge; have been made to the satisfaction of the Commissioner. Due time of furnishing of return – The return required to be furnished by the master The non-resident owner or charterer of a ship is of a ship is due before the departure of the not relived from its liability to pay the final tax due ship and in the manner as applicable to the on its shipping income subject to separate return of income, etc. However, electronic charge that is not paid by the master of a ship. transmission of the return by the master of a ship is mandatory.Processing of returnOn receipt of the return furnished by the masterof a ship, the Commissioner, after calling for suchparticulars, accounts or documents as he/she mayrequire, determines the amount of final tax dueon the non-resident person‟s shipping incomesubject to separate charge and, as soon aspossible, notifies the master of a ship, in writing,of the amount of final tax payable.Payment of the final taxThe master of a ship is liable for the amount offinal tax notified by the Commissioner and theprovisions of the Ordinance for payment andrecovery of such tax apply as if it was tax dueunder an assessment order.Extension of due time for furnishing the returnThe Commissioner is empowered to allow themaster of a ship to furnish the return within 30days of departure of the ship after being satisfiedthat: The master of a ship or non-resident owner or charterer of the ship is unable to furnish the required return before the departure of the ship; and The non-resident owner or charterer has made satisfactory arrangements for the 4Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  7. 7. Income subject to separate chargeAir transport income of non-residents charge is not paid within 3 months of the service of notice by the Commissioner on the ‗responsibleTaxation of air transport income in the hands of person‘, the Commissioner is empowered to notifynon-residents is governed by Section 7, 8 and to the authority responsible for granting air port144 of the Income Tax Ordinance, 2001. clearance of the final tax due from such responsible person and thereafter, such authorityAir transport income received by a non- can withheld air port clearance to any air craftresident is subject to final tax at the rate of 3% of owned or chartered by the ‗responsible person‘,the gross amount of the air transport income. unless the final tax due is paid.Obligations of the owner or charterer of anaircraft or an authorized agent thereof File a return – A non-resident owner or charterer of an aircraft or an agent authorized by such non-resident person for this purpose (both hereinafter referred to as ‗responsible person‖) is required to furnish to the Commissioner a return, in the from prescribed by Rule 38, of the non-resident person‟s air transport income subject to separate charge. Due time of furnishing of return – The return required to be furnished by the „responsible person‘ is due within forty-five days from the last day of each quarter of the financial year in respect of that quarter in the manner as applicable to the return of income, etc.. However, electronic transmission of the return of the non-resident person‟s air transport income subject to separate charge is mandatory.Processing of returnOn receipt of the return furnished by the‗responsible person‘, the Commissioner, aftercalling for such particulars, accounts ordocuments as he/she may require, determines theamount of final tax due on the non-residentperson‟s air transport income subject toseparate charge and notifies the ‗responsibleperson‘, in writing, of the amount of final taxpayable.Payment of the final taxThe ‗responsible person‘ is liable to pay theamount of final tax notified by the Commissionerwithin the time specified in the notice and theprovisions of the Ordinance for payment andrecovery of such tax apply as if it was tax dueunder an assessment order.Air port clearanceIf the final tax due on the non-resident person‟sair transport income subject to separate 5Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  8. 8. Income subject to final taxIncome subject to final tax Import of goods“Income subject to final tax” are those, which Taxation of income arising from import of goods,are subject to collection or deduction of tax at subject to final tax, is governed by section 148source as explained in our brochure “Collection and 169 of the Income Tax Ordinance, 2001.and Deduction of Tax at Source” and the tax socollected or deducted at source is treated as final As a general rule (see exceptions), the taxtax on the income arising from such transactions collected at source at the time of import of goodsis classified as income subject to final tax. The is non-adjustable tax deducted at source andtax collected or deducted on such transactions is the income arising from import of goods subject tocommonly known as non-adjustable tax collection of tax at source is chargeable to tax, ifcollected or deducted at source. The taxation of not otherwise exempt, as income subject to finalincome subject to final tax is governed by tax.Section 169 of the Income Tax Ordinance, 2001. The rates of final tax are as under:All transactions subject to collection or deductionof tax at source do not fall under income subject Nature of goods imported Rate of final taxto final tax. Different set of rules apply for eachnature of income, which are discussed in detail in Pulses 2% of the valuethis brochure. Fibers 1% of the value Yarns 1% of the valueWhere the tax collected or deducted at source is Fabrics 1% of the valuenot treated as final tax the income arising from Gold 1% of the valuesuch transactions is chargeable to tax under the Silver 1% of the valuerespective heads of income (Salary, Property, Mobile telephone sets 1% of the valueBusiness, Capital Gains or Other Sources) and Urea fertilizer 1% of the valueforms part of the taxable income. The tax Goods covered by the Zero 1%collected or deducted on such transactions is Rating Regime of the Salescommonly known as adjustable tax collected or Tax notified vide SRO thdeducted at source. 638(I)/2005 dated 27 June, 2005 as amended from timeFollowing rules apply to the income subject to to timefinal tax: Phosphatic fertilizer imported 1% in pursuance of Economic Such income is not chargeable to tax under Coordination Committee of any head of income in computing the taxable the cabinet‘s decision No. income; ECC-155/12/2004 dated the 9th December, 2004 No deduction is allowed for any expenditure Old and used automotive As per Customs incurred in deriving the income; vehicles of Asian makes SRO 577(I)/2005 meant for transport of persons dated June 06, The amount of the income is not reduced by – 2005. – Any deductible allowance; or All other goods 5% – The set off of any loss; The tax deducted or collected is not reduced “Value” means the value of goods as determined by any tax credit; under section 25 of the Customs Act, 1969, as if the goods were subject to ad valorem duty There is no refund of the non-adjustable tax increased by the Customs-Duty, Sales Tax and collected or deducted at source unless Federal Excise Duty, if any, payable in respect of such tax is in excess of the amount of final the import of the goods tax for which the taxpayer is chargeable; and Exceptions to the above general rule is in respect An assessment is treated to have been made of import of certain specified goods, in which case and the person is not required to furnish a the tax collected at source from import of such return of income in respect such income. goods is an adjustable tax collected at source and the income arising from import of such goodsTransactions, which are subject to collection or subject to collection of tax at source is chargeablededuction of tax at source and fall under the to tax, if not otherwise exempt, under the headincome subject to final tax, are discussed ‗income from business‘ as taxable income.below: 6Brochure –005 Collection and Deduction of Tax at Source
  9. 9. Income subject to final tax  An account, deposit or a certificate under theFollowing import of good are specified for this National Savings Scheme of Post Officepurpose: Savings Account; Raw material, including edible oil and  An account or deposit maintained with a packing material, imported by an industrial banking company or financial institution; undertaking for its own use;  any security issued by the Federal Plant, machinery, equipment and parts Government or a Provincial Government or a imported by an industrial undertaking for Local Government; and its own use;  Any bond, certificate, debenture, security or Fertilizer imported by manufacturer of instrument of any kind paid by Banking fertilizer; Company, Financial Institution, Company as defined in the Companies Ordinance, Motor vehicles in CBU (completely build up 1984, a Body Corporate formed by or under unit) condition imported by manufacturer of any law in force in Pakistan or a Finance motor vehicles; and Society Any goods imported by large import houses The rate of final tax is 10% of the amount of full filling the following conditions: profit on debt. (i) Has a paid up capital of more than Rs. 250 million; Profit on debt received by a non-resident (ii) Has imports exceeding Rs.500 million person is dealt with under ―Other payments to during the tax year; non-residents‖. (iii) Owns total assets exceeding Rs. 350 million at the close of the Tax Year; Exception to the above general rule is in respect (iv) Is a single object company; of profit on debt received by a company, in (v) Maintains computerized records of which case the tax deducted at source from profit imports and sales of goods; on debt is an adjustable tax collected at source (vi) Maintains a system for issuance of and the income arising from profit on debt 100% cash receipts on sales; subject to deduction of tax at source is chargeable (vii) Presents its accounts for tax audit every to tax, if not otherwise exempt, under the head year; ‗income from other sources‘ or ‗income from (viii) Is registered with Sales Tax business‘, as the case may be, as taxable Department; and income. (ix) Makes sales of industrial raw material to manufacturer registered for sales tax Execution of contracts by non-residents purposes; Taxation of income arising from execution ofProfit on debt contracts of certain specified contracts by non- resident, subject to final tax, is governed byTaxation of income arising from profit on debt, section 152 and 169 of the Income Taxsubject to final tax, is governed by section 150 Ordinance, 2001.and 169 of the Income Tax Ordinance, 2001. As a general rule (see exception), where the non-As a general rule (see exception), the tax resident opts in for final tax, the tax deducted atdeducted at source at the time of payment of source at the time of payment against execution ofprofit on debt is non-adjustable tax deducted specified contracts by non-resident is non-at source and the income arising from profit on adjustable tax deducted at source and thedebt subject to deduction of tax at source is income arising from execution of specifiedchargeable to tax, if not otherwise exempt, as contracts by non-resident subject to deductionincome subject to final tax. of tax at source is chargeable to tax, if not otherwise exempt, as income subject to finalProfit on debt (interest/yield/profit) received by a tax.resident person from the following debts(investments, etc.) falls under the ambit of final The rate of final tax is 6% of the gross amounttax: received (including advances). 7Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  10. 10. Income subject to final taxThe option for treating the tax deducted at source governed by section 152 and 169 of the Incomeas final tax has be made in writing within three Tax Ordinance, 2001.months from the commencement of the tax yearand once such option is exercised it can not be The tax deducted at source at the time of paymentrevoked for three years. of profit on debt, on debt instruments, Government securities including treasury bills andThe specified contracts referred to above are: Pakistan Investment Bonds where the investments are exclusively made through a A contract or sub-contract under a Special Rupee Convertible Account maintained construction, assembly or installation project with a Bank in Pakistan, to a non-resident not in Pakistan, including a contract for the having a permanent establishment in Pakistan, supply of supervisory activities in relation to is non-adjustable tax deducted at source and such project; the income arising from profit on debt received on such debts (investments) by non-resident Any other contract for construction or subject to deduction of tax at source is chargeable services rendered relating thereto; or to tax, if not otherwise exempt, as income subject to final tax. A contract for advertisement services rendered by T. V. Satellite Channels, The rate of final tax is 10% of the amount of profit on debt.Exception to the above general rule is where thenon-resident does not opt in for final tax, in Sale of goodswhich case the tax deducted at source frompayments received against execution of specified Taxation of income arising from sale of goodscontracts by non-resident is an adjustable tax received by a resident or a permanentdeducted at source and the income arising from establishment in Pakistan of non-resident,execution of specified contracts by non- subject to final tax, is governed by section 153resident subject to deduction of tax at source is and 169 of the Income Tax Ordinance, 2001.chargeable to tax, if not otherwise exempt, underthe head ‗income from other business‘, as taxable As a general rule (see exceptions), the taxincome. deducted at source at the time of payment against sale of goods to a resident or a permanentInsurance or re-insurance premiums received establishment in Pakistan of non-resident isby non-residents non-adjustable tax deducted at source and the income arising from sale of goods subject toTaxation of income arising from insurance or re- deduction of tax at source is chargeable to tax, ifinsurance premiums received by non-resident, not otherwise exempt, as income subject to finalsubject to final tax, is governed by section 152 tax.and 169 of the Income Tax Ordinance, 2001. The rate of final tax on the sale price, inclusive of Sales Tax, if any, is under:The tax deducted at source at the time of paymentof insurance or re-insurance premium to a non-  Sale of rice, cottonseed or edible oils 1.50%resident is non-adjustable tax deducted atsource and the income arising from insurance or  Sale of rice by Rice Exporters 1.00%re-insurance premium received by a non-resident Association of Pakistan to Utilitysubject to deduction of tax at source is chargeable Store Corporation, in accordanceto tax, if not otherwise exempt, as income with the agreement, signed withsubject to final tax. Ministry of Food, Agriculture and Livestock on May 5, 2008The rate of final tax is 5% of the gross premiumor a lower rate as per agreement for avoidance of  Sale of cigarette and pharmaceutical 1.00%double taxation. products by the distributors thereofAny other amounts (profit on debt) received bya non-resident  Sale of goods by Large Distribution 1.00% HouseTaxation of income arising from profit on debtreceived by non-resident, subject to final tax, is  Sale of any other goods 3.50% 8Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  11. 11. Income subject to final taxExceptions to the above general rule are in Services of stitching, dying, printing,respect: embroidery, washing, sizing and weaving Sale of any goods by a public company Taxation of income arising from services of listed on a stock exchange; stitching, dying, printing, embroidery, washing, Sale of manufactured goods by a company sizing and weaving by a resident or a permanent being manufacturer of such goods, other establishment in Pakistan of non-resident, than ginned cotton; and subject to final tax, is governed by section 153 and 169 of the Income Tax Ordinance, 2001. Sale of iron and steel products by the manufacturer thereof. The tax deducted at source at the time of payment against services of stitching, dying, printing,in which case the tax deducted at source from embroidery, washing, sizing and weaving to asale of such goods is an adjustable tax collected resident or a permanent establishment inat source and the income arising from sale of Pakistan of non-resident is non-adjustable taxsuch goods subject to deduction of tax at source deducted at source and the income arising fromis chargeable to tax, if not otherwise exempt, payments received against services of stitching,under the head ‗income from business‘ as taxable dying, printing, embroidery, washing, sizing andincome. weaving subject to deduction of tax at source is chargeable to tax, if not otherwise exempt, as“Manufacturer‖ means, a person who is engaged in income subject to final tax.production or manufacturing of goods, which includes-(i) any process in which an article singly or in combination with other articles, material, components, is either The rate of final tax is 0.50% of the gross amount converted into another distinct article or product is so for providing such services. changed, transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or Media services by non-residents(ii) a process of assembling, mixing, cutting or preparation of goods in any other manner. Taxation of income arising from media services by non-resident, subject to final tax, is governed byExecution of contracts section 153A and 169 of the Income Tax Ordinance, 2001.Taxation of income arising from execution ofcontracts by a resident or a permanent The tax deducted at source at the time of paymentestablishment in Pakistan of non-resident, against media services to a non-resident is non-subject to final tax, is governed by section 153 adjustable tax deducted at source and theand 169 of the Income Tax Ordinance, 2001. income arising from payments received against media services by non-resident subject toAs a general rule (see exception), the tax deduction of tax at source is chargeable to tax, ifdeducted at source at the time of payment against not otherwise exempt, as income subject to finalexecution of contracts to a resident or a tax.permanent establishment in Pakistan of non-resident is non-adjustable tax deducted at The rate of final tax is 10% of the gross amountsource and the income arising from payments for providing such services.received against execution of contracts subject todeduction of tax at source is chargeable to tax, if Export realization (goods)not otherwise exempt, as income subject to finaltax. Taxation of income arising from export of goods, subject to final tax, is governed by section 154The rate of final tax is 6% of the gross amount and 169 of the Income Tax Ordinance, 2001.received (including advances). The tax deducted at source at the time of exportException to the above general rule is, execution realization against export of goods is non-of contracts by a public company listed on a adjustable tax deducted at source and thestock exchange, in which case the tax deducted at income arising from export realizations againstsource from payments received against execution export of goods subject to deduction of tax atof contracts is an adjustable tax collected at source is chargeable to tax, if not otherwisesource and the income arising from payments exempt, as income subject to final tax.received against execution of contracts subject todeduction of tax at source is chargeable to tax, if The rate of final tax is 1% of the foreign exchangenot otherwise exempt, under the head ‗income proceeds of the goods exported.from business‘ as taxable income. 9Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  12. 12. Income subject to final taxExport realization (indenting commission) undertaking located in Export Processing Zones is non-adjustable tax deducted at source andTaxation of income arising from indenting the income arising from export realizations againstcommission, subject to final tax, is governed by export of goods by industrial undertakingsection 154 and 169 of the Income Tax located in Export Processing Zones subject toOrdinance, 2001. deduction of tax at source is chargeable to tax, if not otherwise exempt, as income subject to finalThe tax deducted at source at the time of export tax.realization against indenting commission is non-adjustable tax deducted at source and the The rate of final tax is 1% of the proceeds ofincome arising from export realizations against exports.indenting commission subject to deduction of taxat source is chargeable to tax, if not otherwise Export of goods (others)exempt, as income subject to final tax. Taxation of income arising from export of goodsThe rate of final tax is 5% of the foreign exchange (others – mainly export to Afghanistan), subject toproceeds of the indenting commission. final tax, is governed by section 154 and 169 of the Income Tax Ordinance, 2001.Indirect export realization The tax collected at the time of export of goods isTaxation of income arising from indirect export non-adjustable tax deducted at source and theof goods, subject to final tax, is governed by income arising from export of goods subject tosection 154 and 169 of the Income Tax collection of tax at source is chargeable to tax, ifOrdinance, 2001. not otherwise exempt, as income subject to finalThe tax deducted at source at the time of indirect tax.export realization against indirect export ofgoods is non-adjustable tax deducted at The rate of final tax is 1% of the gross value ofsource and the income arising from indirect goods exported.export realizations against indirect export ofgoods subject to deduction of tax at source is Prizes and winningschargeable to tax, if not otherwise exempt, asincome subject to final tax. Taxation of income arising from prizes and winnings, subject to final tax, is governed byIndirect export of goods means sale of goods: section 156 and 169 of the Income Tax To an exporter under an inland back-to-back Ordinance, 2001. letter of credit or any other arrangement as prescribed by the Board for this purpose; The tax deducted at source at the time of payment and of prizes and winnings is non-adjustable tax By an indirect exporter (defined under Sub- deducted at source and the income arising from Chapter 7 of Chapter XII of the Customs prizes and winnings subject to deduction of tax Rules, 2001) to a Direct Exporter and Export at source is chargeable to tax, if not otherwise House registered under the Duty and Tax exempt, as income subject to final tax. Remission for Export Rules, 2001 provided in sub-Chapter 7 of Chapter XII of the Customs Prizes and winnings covered under the income Rules, 2001. subject to final tax are:  Prize on a prize bond;The rate of final tax is 1% of the indirect export  Prize or winnings from a raffle, lottery, quiz orrealization. crossword puzzle;Export of goods by industrial undertaking  Prize offered by companies for promotion oflocated in Export Processing Zones sale; and  Fair market value of the prize or winnings if itTaxation of income arising from export of goods is not paid in cashby industrial undertaking located in Export The rates of final tax are as under:Processing Zones, subject to final tax, is governedby section 154 and 169 of the Income Tax  On prize on a Prize Bond and 10%Ordinance, 2001. winnings from Crossword PuzzleThe tax deducted at source at the time of exportrealization against export of goods by industrial  On all other prizes and winnings 20% 10Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  13. 13. Income subject to final taxCommission or discount on petroleum The rates of final tax are as under:products  Goods transport vehicles with Rs. 1,200Taxation of income arising from commission or laden weight of 8120 for eachdiscount on petroleum products received by petrol kilograms or more after a suchpump operators, subject to final tax, is governed period of ten years from the vehicleby section 156A and 169 of the Income Tax date of first registration of theOrdinance, 2001. vehicle in PakistanThe tax deducted at source at the time of payment  On all other goods transport Re. 1 perof commission or discount to petrol pump vehicles kg of theoperators is non-adjustable tax deducted at registeredsource and the income arising from commission ladenor discount on petroleum products received by weight forpetrol pump operators subject to deduction of tax each suchat source is chargeable to tax, if not otherwise vehicleexempt, as income subject to final tax. Natural Gas Consumption (CNG Stations)The rate of final tax is 10% of thecommission/discount allowed to petrol pump Taxation of income arising from sale ofoperators. compressed natural gas (CNG), subject to final tax, is governed by section 234A and 169 of theBrokerage and commission Income Tax Ordinance, 2001.Taxation of income arising from brokerage and The tax collected at source at the time of paymentcommission, subject to final tax, is governed by of natural gas consumption bill by CNG Stations issection 233 and 169 of the Income Tax non-adjustable tax collected at source and theOrdinance, 2001. income arising from sale of CNG subject to deduction of tax at source on consumption ofThe tax deducted at source at the time of payment natural gas is chargeable to tax, if not otherwiseof brokerage and commission is non-adjustable exempt, as income subject to final tax.tax deducted at source and the income arisingfrom brokerage and commission subject to The rate of final tax is 4% of the amount ofdeduction of tax at source is chargeable to tax, if natural gas bill.not otherwise exempt, as income subject to finaltax.The rates of final tax are as under: On commission of advertising 5% agents On all other brokerage and 10% commissionGoods transport vehiclesTaxation of income arising from plying and hiringof goods transport vehicles, subject to final tax, isgoverned by section 234 and 169 of the IncomeTax Ordinance, 2001.The tax collected at source at the time of paymentof motor vehicle tax (token tax) is non-adjustabletax deducted at source and the income arisingfrom plying and hiring of goods transport vehiclessubject to deduction of tax at source is chargeableto tax, if not otherwise exempt, as incomesubject to final tax. 11Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  14. 14. Separate block of income (fixed tax)Separate block of income Calculation of separate tax at the average rate of income tax of preceding three years:―Separate Block of Income‖ are those, which arechargeable to tax under the respective head of Taxable Incomeincome (salary, property, business, capital gains Income taxand other sources) as global taxable income but (Rupees) Payablefor the purposes of calculation of tax such income (Rupees)are excluded from the taxable income and tax Preceding Year 1 950,000 85,500thereon is calculated and charged at varying rates Preceding Year 2 900,000 67,500depending on the nature of each such income. Preceding Year 3 850,000 63,750 Total 2,700,000 216,750The tax payable on separate block of income is Average rate of income tax (Totalcommonly called fixed tax. income tax payable divided by Total taxable income) .080277Following natures of income are subject to a fixed RTB 5,000,000tax and treated as a separate block of income: Fixed tax on RTB (RTB multiply by average rate) 401,389Retirement or termination benefits of anemployee Calculation of income tax payable, if electing:Salary is chargeable to tax on the basis of actually (Rupees)received in a tax year. Accordingly the retirement Income tax on chargeable / total /or termination benefits received in lump sum, taxable income excluding RTB 90,000being covered under the definition of salary, are Fixed tax on RTB calculated at thealso chargeable to tax in the tax year in which average rate of income tax ofreceived. As a result the income tax payable preceding three years 401,389substantially increases, since the taxable income Total income tax liability 491,389falls in a higher tax slab. Arrears of salary of an employeeThe taxpayer has an option to notify theconcerned Commissioner by the due date for Salary is chargeable to tax on the basis of actuallyfurnishing the return that he/she has elected for received in a tax year. Accordingly the arrears ofthe retirement or termination benefits to be taxed salary received in lump sum are also chargeableas a separate block of income at the average to tax in the tax year in which received. As arate of income tax of the three preceding years result the income tax payable substantially(fixed tax) [Sub-section (6) and (8) of section 12 increases, since the taxable income falls in aof the Income Tax Ordinance, 2001]. higher tax slab.Following example will illustrate the effects and The taxpayer has an option to notify thecalculations: concerned Commissioner by the due date of furnishing the return, that he/she has elected forSalary for the year: the arrears of salary to be taxed as a separate Excluding retirement or block of income at the rates of income tax that termination benefits (RTB) Rs. 1,000,000 would have been applicable if such arrears were Retirement or termination received in the tax year in which the services benefits (RTB) received Rs. 5,000,000 were rendered (fixed tax) [Sub-section (7) and (8) of section 12 of the Income Tax Ordinance, 2001].Calculation of income tax, if not electing Following example will illustrate the effects and Excluding Including calculations: RTB RTB (Rupees) (Rupees) Salary for the year:Chargeable / total Excluding arrears Rs. 1,000,000/taxable income 1,000,000 6,000,000 Arrears (of last 2 years) Rs.Income tax rate 9% 19% 200,000 for each year Rs. 400,000Income tax on above 90,000 1,140,000 12Brochure –005 Collection and Deduction of Tax at Source
  15. 15. Separate block of income (fixed tax)Calculation of income tax, if not electing Property income Excluding Including “Rent” received or receivable for a tax year, Arrears Arrears other than rent exempt from tax, is subject to a (Rupees) (Rupees) fixed tax as a separate block of income.Chargeable / total [Section 15 of the Income Tax Ordinance, 2001]/taxable income 1,000,000 1,400,000Income tax rate 9% 11% The rates of fixed tax on rent are as under:-Income tax on above 90,000 154,000 In case of an individual or association ofCalculation of fixed tax on arrears, at the rates of personsincome tax that would have been applicable if Gross amount of Rate of fixed taxsuch arrears were received in the tax year in rentwhich the services were rendered: Does not exceed Nil. Rs.150,000 Preceding Preceding Exceeds Rs.150,000 5 per cent of the gross year 1 year 2 but does not exceed amount of rent exceeding (Rupees) (Rupees) Rs.400,000 Rs.150,000Taxable income Exceeds Rs.400,000 Rs.12,500 plus 7.5 per Excluding arrears 700,000 600,000 but does not exceed cent of the gross amount Including arrears 900,000 800,000 Rs.1,000,000 of rent exceedingIncome tax payable Rs.400,000 Excluding arrears 42,000 27,000 Exceeds Rs.57,500 plus 10 per Including arrears 67,500 600,00 Rs.1,000,000 cent of the gross amountDifference in income of rent exceedingtax payable 25,500 33,000 Rs.1,000,000Total difference 58,500 In case of a companyCalculation of tax liability, if electing: Gross amount of Rate of fixed tax rent (Rupees) Does not exceed 5 percent of the grossIncome tax on chargeable /total / 90,000 Rs.400,000 amount of renttaxable income excluding arrears Exceeds Rs.400,000 Rs.20,000 plus 7.5 perFixed tax on arrears calculated at the 58,500 but does not exceed cent of the gross amountrates of income tax that would have Rs.1,000,000 of rent exceedingbeen applicable if such arrears were Rs.400,000received in the tax year in which the Exceeds Rs.65,500 plus 10 perservices were rendered Rs.1,000,000 cent of the gross amountTotal income tax liability 148,500 of rent exceeding Rs.1,000,000Flying and submarine allowance of certain Business income of certain retailersemployees A retailer being an individual or an association ―Flying allowance‖ of pilots, flight engineers, of persons having turnover not exceeding Rs. navigators of Pakistan Armed Forces, 5,000,000 for a tax year, can opt for payment of Pakistani Airlines or Civil Aviation Authority, fixed tax at the rate of 1% of the turnover as a Junior Commissioned Officers or other ranks separate block of income [Section 113A of the of Pakistan Armed Forces; and Income Tax Ordinance, 2001]. ―Submarine allowance‖ of the officers of the Similarly, a retailer being an individual or an Pakistan Navy; association of persons having turnover exceeding Rs. 5,000,000 for a tax year and whois subject to fixed tax as a separate block of is subject to special procedure for payment ofincome at the rate of 2.5% of such allowance. sales tax under chapter II of the Sales Tax Special nd Procedure Rules, 2007 can opt for payment of[Clause (1) of Part III of 2 Schedule to the fixed tax at the following rates of the turnover asIncome Tax Ordinance, 2001] a separate block of income – 13Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  16. 16. Separate block of income (fixed tax) Where the turnover Rs.25,000 plus 0.5% fixed tax at the rate of 2% of purchase price of exceeds of the turnover locally produced edible oil. Rs.5,000,000 but exceeding nd does not exceed Rs.5,000,000 [Clause (13C) of Part II of 2 Schedule to the Rs.10,000,000 Income Tax Ordinance, 2001] Where the turnover Rs.50,000 plus 0.75% Business income of resident from shipping exceeds Rs. of the turnover business Rs.10,000,000 exceeding Rs.10,000,000 Business income of a resident from business of shipping is subject fixed tax as under:[Section 113B of the Income Tax Ordinance,2001] • Amount equivalent to One US $ per gross registered tonnage per annum in respect ofA retailer opting for fixed tax is not entitled to ships and all floating crafts including tugs,claim any adjustment of adjustable tax collected dredgers, survey vessels and otheror deducted at source under any head during specialized craft purchased or bare-boatthe year. chartered and flying Pakistan flag; and―Retailer‖ means a person selling goods to • Amount equivalent to fifteen US cents pergeneral public for the purpose of consumption; ton of gross registered tonnage per chartered voyage but not exceeding one US $ per ton of“Turnover‖ for this purposes means, the gross gross registered tonnage per annum inreceipts, exclusive of Sales Tax and Federal respect of ships, vessels and all floating craftsExcise duty or any trade discounts shown on including tugs, dredgers, survey vessels andinvoices, or bills, derived from sale of goods other specialized craft not registered in(excluding any amount relating to income subject Pakistan and hired under any charter otherto final tax). than bare-boat charter.Business income from services rendered ―Equivalent amount‖ for the this purpose meansoutside Pakistan of certain person the rupee equivalent of a US dollar according to the exchange rate prevalent on the first day ofBusiness income from services rendered out-side December in the case of a company and the firstPakistan, the receipts of which are brought into day of September in other cases in the relevantPakistan in foreign exchange through normal tax year.banking channel is subject fixed tax at the rate of nd1% of the gross receipts. [Clause (21) of Part II of 2 Schedule to the Income Tax Ordinance, 2001] nd[Clause (3) of Part II of 2 Schedule to theIncome Tax Ordinance, 2001] Capital gains from sale of securitiesBusiness income from construction contracts Capital gains as reduced by capital losses, if any,executed out-side Pakistan arising from the disposal of the securities held for a period of less than a year [calculated from theBusiness income from execution of construction date of acquisition (whether on or before 30thcontracts out-side Pakistan, the income of which June 2010) to the date of disposal (on or after Julyis brought into Pakistan in foreign exchange 01, 2010)] is subject to fixed tax as under:through normal banking channel is subject fixedtax at the rate of 1% of the gross receipts. Tax Holding Period Year Less than six Six months or more nd[Clause (3A) of Part II of 2 Schedule to the months than six months butIncome Tax Ordinance, 2001] less one year 2011 10.00% 07.50%Business income of certain manufacturers of 2012 10.00% 08.00%cooking oil or vegetable ghee or both 2013 12.50% 08.50% 2014 15.00% 09.00%Business income of manufacturers of cooking oil 2015 17.50% 09.50%or vegetable ghee or both attributable topurchases of locally produced edible oil is subject 14Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  17. 17. Separate block of income (fixed tax)In case of a banking company and an insurancecompany the gain arising on disposal ofsecurities is chargeable to tax as separately th thprovided in the Seventh (7 ) and Fourth (4 )Schedule to the Income Tax Ordinance, 2001.―Securities‖ for the this purpose means share of apublic company, voucher of PakistanTelecommunication Corporation, ModarabaCertificate, an instrument of redeemable capitaland derivative products.[Section 37A of the Income Tax Ordinance, 2001]Capital gains from the sale of shares or assetsby a private limited company to Private Equityand Venture Capital FundCapital gains derived from sale of shares orassets by a private limited company to PrivateEquity and Venture Capital Fund is subject fixedtax at the rate of 10% of such gains. nd[Clause (5B) of Part II of 2 Schedule to theIncome Tax Ordinance, 2001] 15Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  18. 18. Obligations of the persons deriving income subject to separate charge, final tax and fixed taxObligations of the personsderiving income subject toseparate charge, final tax andfixed taxA person deriving income exclusively from thesources covered under separate charge, finaltax or fixed tax is required to submit: An annual statement in the prescribed format (commonly known as statement under section 115) along with; Certificates of the tax collected or deducted at source in the prescribed format obtained from the respective withholding agents; Copies of relevant tax deposit receipts (challans); and Where the final tax is of Rs. 35,000 or more in a tax year a Wealth Statement and a Re- conciliation Statement thereof.A person deriving both taxable income (globalincome) and income from the sources coveredunder separate charge, final tax or fixed tax isrequired to submit in addition the annual Return ofIncome in the prescribed format. 16Brochure –005 Collection and Deduction of Tax at Source
  19. 19. DefinitionsDefinitions extent to which the distribution is attributable to the accumulated profits of the company―Air transport income‖ – See Shipping and air immediately before its liquidation, whethertransport income. capitalized or not; (d) any distribution by a company to its―Association of persons‖ includes a firm, a shareholders on the reduction of its capital,Hindu undivided family, any artificial juridical to the extent to which the companyperson and any body of persons formed under a possesses accumulated profits, whetherforeign law, but does not include a company. such accumulated profits have been capitalized or not; or―Banking company‖ means a banking company (e) any payment, by a private company asas defined in the Banking Companies defined in the Companies Ordinance, 1984Ordinance, 1962 (LVII of 1962) and includes any or trust, of any sum (whether asbody corporate which transacts the business of representing a part of the assets of thebanking in Pakistan. company or trust, or otherwise) by way of advance or loan to a shareholder or any―Company‖ means – payment by any such company or trust on(a) a company as defined in the Companies behalf, or for the individual benefit, of any Ordinance, 1984 (XLVII of 1984); such shareholder, to the extent to which the(b) a body corporate formed by or under any company or trust, in either case, law in force in Pakistan; possesses accumulated profits;(c) a modaraba; (f) remittance of after tax profit of a branch of a(d) a body incorporated by or under the law of a foreign company operating in Pakistan. country outside Pakistan relating to but does not include - incorporation of companies; (i) a distribution made in accordance with sub-(e) a trust, a co-operative society or a finance clause (c) or (d) in respect of any share for society or any other society established or full cash consideration, or redemption of constituted by or under any law for the time debentures or debenture stock, where the being in force; holder of the share or debenture is not(f) a foreign association, whether incorporated entitled in the event of liquidation to or not, which the Board has, by general or participate in the surplus assets; special order, declared to be a company for (ii) any advance or loan made to a shareholder the purposes of this Ordinance; by a company in the ordinary course of its(g) a Provincial Government; business, where the lending of money is a(h) a Local Government in Pakistan; or substantial part of the business of the company;―Co-operative society‖ means a co-operative (iii) any dividend paid by a company which issociety registered under the Co-operative set off by the company against the whole orSocieties Act, 1925 (VII of 1925) or under any any part of any sum previously paid by it andother law for the time being in force in Pakistan treated as a dividend within the meaning offor the registration of co-operative societies. sub-clause (c) to the extent to which it is so set off; or―Dividend‖ includes - (iv) remittance of after tax profit by branch of(a) any distribution by a company of Petroleum Exploration and production (E&P) accumulated profits to its shareholders, foreign company, operating in Pakistan. whether capitalized or not, if such distribution entails the release by the ―Fee for technical services‖ means, any company to its shareholders of all or any consideration, whether periodical or lump sum, part of the assets including money of the for the rendering of any managerial, technical or company; consultancy services including the services of(b) any distribution by a company, to its technical or other personnel, but does not shareholders of debentures, debenture- include — stock or deposit certificate in any form, (a) consideration for services rendered in whether with or without profit, to the extent relation to a construction, assembly or like to which the company possesses project undertaken by the recipient; or accumulated profits whether capitalized or (b) consideration which would be income of the not; recipient chargeable under the head(c) any distribution made to the shareholders ―Salary‖. of a company on its liquidation, to the 17Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  20. 20. Definitions―Finance society‖ includes a co-operative (ii) Has imports exceeding Rs.500 million duringsociety which accepts money on deposit or the tax year;otherwise for the purposes of advancing loans or (iii) Owns total assets exceeding Rs. 350 millionmaking investments in the ordinary course of at the close of the Tax Year;business. (iv) Is a single object company; (v) Maintains computerized records of imports―Financial institution‖ means an institution as and sales of goods;defined under the Companies Ordinance, 1984, (vi) Maintains a system for issuance of 100%i.e. - Financial institution includes: cash receipts on sales;a. a company or an institution whether (vii) Presents its accounts for tax audit every established under any special enactment year; and operating within or outside Pakistan (viii) Is registered with Sales Tax Department; which transacts the business of banking or and any associated or ancillary business through (ix) Makes sales of industrial raw material to its branches; manufacturer registered for sales taxb. a modaraba, leasing company, investment purposes; bank, venture capital company, financing company, housing finance company, a non- ―Local Government‖ has the same meaning as banking finance company; and defined in the Punjab Local Governmentc. such other institution or companies Ordinance, 2001 (XIII of 2001), the Sindh Local authorized by law to undertake any similar Government Ordinance, 2001 (XXVII of 2001), business, as the Federal Government may, the NWFP Local Government Ordinance, 2001 by notification in the official Gazette, specify (XIV of 2001) and the Balochistan Local for the purpose. Government Ordinance, 2001 (XVIII of 2001).―Industrial undertaking‖ means – “Master of a ship‖ means the master of a shipa. an undertaking which is set up in Pakistan owned or chartered by a non-resident person and which employs, and touching any port in Pakistan (i) ten or more persons in Pakistan and involves the use of electrical energy or “Non-Resident” means an association of any other form of energy which is person, a company and an individual who are mechanically transmitted and is not not resident for that year. generated by human or animal energy; or ―Permanent establishment‖ means a fixed (ii) twenty or more persons in Pakistan and place of business through which the business is does not involve the use of electrical wholly or partly carried on, and includes – energy or any other form of energy (a) a place of management, branch, office, which is mechanically transmitted and is factory or workshop, premises for soliciting not generated by human or animal orders, warehouse, permanent sales energy; and exhibition or sales outlet, other than a liaison which is engaged in,- office except where the office engages in the (i) the manufacture of goods or materials negotiation of contracts (other than contracts or the subjection of goods or materials of purchase); to any process which substantially (b) a mine, oil or gas well, quarry or any other changes their original condition; place of extraction of natural resources; (ii) ship-building; (c) an agricultural, pastoral or forestry property; (iii) generation, conversion, transmission or (d) a building site, a construction, assembly or distribution of electrical energy, or the installation project or supervisory activities supply of hydraulic power; or connected with such site or project but only (iv) the working of any mine, oil-well or any where such site, project and its connected other source of mineral deposits; and supervisory activities continue for a period orb. any other industrial undertaking which the periods aggregating more than 96 days Central Board of Revenue may by within any 12 months period; notification in the official Gazette, specify;] (e) the furnishing of services, including consultancy services, by any person through―Large Distribution Houses‖ means, a company employees or other personnel engaged bywho – the person for such purpose;(i) Has a paid up capital of more than Rs. 250 (f) a person acting in Pakistan on behalf of the million; person (hereinafter referred to as the 18Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  21. 21. Definitions ―agent‖), other than an agent of independent (b) any amount received by the owner of a status acting in the ordinary course of building from a tenant which is not business as such, if the agent – adjustable against the rent payable by the (i) has and habitually exercises an tenant (Goodwill, Pugree, Deposit, etc.). authority to conclude contracts on behalf of the other person; Resident (ii) has no such authority, but habitually (a) An association of persons is resident for a maintains a stock-in-trade or other tax year if the control and management of its merchandise from which the agent affairs is situated wholly or partly in Pakistan regularly delivers goods or merchandise at any time in the year. on behalf of the other person; or (b) A company is resident for a tax year if –(g) any substantial equipment installed, or other (i) it is incorporated or formed by or under asset or property capable of activity giving any law in force in Pakistan; rise to income. (ii) the control and management of the affairs of the company is situated wholly“Person” in Pakistan at any time in the year; or(a) An individual; (iii) it is a Provincial Government or local(b) a company or association of persons Government in Pakistan. incorporated, formed, organized or (c) An individual is resident for a tax year if established in Pakistan or elsewhere; he/she:(c) the Federal Government, a foreign (i) is present in Pakistan for a period of, or government, a political subdivision of a periods amounting in aggregate to, 183 foreign government, or public international days or more in the tax year; organization. (ii) is an employee or official of the Federal Government or a Provincial Government―Profit on a debt‖ whether payable or posted abroad in the tax year.receivable, means –(a) any profit, yield, interest, discount, premium ―Royalty‖ means any amount paid or payable, or other amount, owing under a debt, other however described or computed, whether than a return of capital; or periodical or a lump sum, as consideration for —(b) any service fee or other charge in respect of (a) the use of, or right to use any patent, a debt, including any fee or charge incurred invention, design or model, secret formula or in respect of a credit facility which has not process, trademark or other like property or been utilized. right; (b) the use of, or right to use any copyright of a―Public company‖ means – literary, artistic or scientific work, including(a) a company in which not less than 50% of the films or video tapes for use in connection shares are held by the Federal Government with television or tapes in connection with or Provincial Government; radio broadcasting, but shall not include(b) a company in which not less than 50% of consideration for the sale, distribution or the shares are held by a foreign exhibition of cinematograph films; government, or a foreign company owned by (c) the receipt of, or right to receive, any visual a foreign government; images or sounds, or both, transmitted by(c) a company whose shares were traded on a satellite, cable, optic fibre or similar registered stock exchange in Pakistan at technology in connection with television, any time in the tax year and which remained radio or internet broadcasting; listed on that exchange at the end of that (d) the supply of any technical, industrial, year; or commercial or scientific knowledge,(d) a unit trust whose units are widely available experience or skill; to the public and any other trust as defined (e) the use of or right to use any industrial, in the Trust Act, 1882. commercial or scientific equipment; (f) the supply of any assistance that is ancillary―Rent‖ means any amount received or and subsidiary to, and is furnished as areceivable by the owner of land or a building as means of enabling the application orconsideration for the use or occupation of, or the enjoyment of, any such property or right asright to use or occupy, the land or building, and mentioned in sub clauses (a) through (e);includes: and(a) any forfeited deposit paid under a contract (g) the disposal of any property or right referred for the sale of land or a building; and to in sub clauses (a) through (e); 19Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  22. 22. Definitions that head, which are chargeable to tax, as―Shipping and air transport income‖ means reduced by the deductions, if any, admissiblecarrying on the business of operating ships or under the Income Tax Ordinance, 2001.aircraft as the owner or charterer thereof inrespect of – ―Trust‖ means an obligation annexed to the• The gross amount received or receivable ownership of property and arising out of the (whether in or out of Pakistan) for the carriage confidence reposed in and accepted by the of passengers, livestock, mail or goods owner, or declared and accepted by the owner embarked in Pakistan; and for the benefit of another, or of another and the• The gross amount received or receivable in owner, and includes a unit trust. Pakistan for the carriage of passengers, livestock, mail or goods embarked outside Pakistan.Tax Year th• A period of twelve months ending on 30 day of June i.e. the financial year and is denoted by the calendar year in which the said date falls. For example, tax year 2011 corresponds to the financial year from July 01, 2010 to June 30, 2011 and the financial year from July 01, 2011 to June 30, 2012 corresponds to tax year 2012; and• Includes a special year or a transitional year that the person is permitted to use under section 74 of the Income Tax Ordinance, 2001.“Taxable Income” means total incomereduced by deductible allowances on account of: Expenditure on personal medical services (applies to individuals only); Zakat paid under the Zakat and Ushr Ordinance, 1980 (Zakat paid on a debt, the profit of which is chargeable to tax under the head ―Income from Other Sources‖ is not deductible from total income. Such Zakat is an admissible deduction against profit on debt); Workers Welfare Fund paid under the Workers Welfare Fund Ordinance, 1971 (applies to certain specified industrial establishments); and Worker‘s Participation Fund paid under the Companies Profit (Worker‘s Participation) Act, 1968 (applies to companies only).“Total Income” is the aggregate of incomeunder the following heads of income: Salary; Income from property; Income from business; Capital gains; and Income from other sources [including those not covered under any of the above heads of income].Income under a specific head of income for a taxyear is the total of the amounts derived under 20Brochure –IR-IT-05 Income subject to Separate Charge, Final Tax and Fixed Tax
  23. 23. Facilitation and Taxpayer Education Material available on our website www.fbr.gov.pkIncome Tax: Income Tax Ordinance, 2001; Income Tax Rules, 2002; Income Tax Notifications (SRO‘s issued by the Federal Government); Income Tax Circulars (Clarifications issued by the Federal Board of Revenue); Income Tax Forms (Registration form, return forms, withholding tax statements, tax deposit form); Computer Software (Withholding tax statements); Avoidance of Double Tax Treaties with other countries; Publications and brochuresSales Tax Sales Tax Act, 1990; Sales Tax Rules, 2006; Sales Tax Special Procedure Rules, 2007; Sales Tax Special Procedure (Withholding) Rules, 2007 Sales Tax Notifications (SRO‘s issued by the Federal Government); Sales Tax General Orders; Sales Tax Circulars/Rulings (Clarifications issued by the Federal Board of Revenue); Sales Tax Forms (Registration form, return forms, tax deposit form); Computer Software (Refund claim); Publications and brochuresFederal Excise Duty Federal Excise Act, 2005; Federal Excise Rules, 2005; Federal Excise Notifications (SRO‘s issued by the Federal Government); Federal Excise General Orders; Federal Excise Circulars/Rulings (Clarifications issued by the Federal Board of Revenue); Federal Excise Forms (Return forms); Publications and brochuresOn line information services: Registration (Income Tax, Sales Tax and Federal Excise Duty); Registration Application Status (Income Tax and Sales Tax); Registered Taxpayers Verification (Income Tax and Sales Tax); Active taxpayers list; FATE ―Facilitation and Tax Education ― Is the Key to Voluntary Compliance And Voluntary Compliance Is the Key to ―Better Revenues‖

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