By

Mirza Munawar Hussain

LLB, FPA, FCIS, FCMA
President - PIPFA
Member National Council - ICMAP
 Success in Examinations
1. Planning
 Course Material
 Select the book which adequately covers the topic you are studying.
You may also select different books for different topics
 The key to selecting the right text book is consulting your teachers /
senior students. You may also refer the list of recommended reading
available on the website
 The All Essential Plan
 Panic makes you think less clearly, so avoid it by starting work early.
 Lecturers/tutors assume that you will decide for yourself what and
when to revise and may give little direction.
 A Good Plan Helps You:
 Identify if you are spending too much time on a topic
 Know what you have already done.
 Know what still needs to be done
 Prioritize things for effective studying.
 1. Planning
 Factors be Considered When Planning
 Study Sessions should be from one to three hours
 Have a definite break every hour
 Avoid late hours
 Revision for other papers at the same time
 Family commitments, relationships, friendships
 Contingencies such as illness
 How much sleep you need
 Plan recreation and relaxation into your time table 
 Monitoring Your Plan
 Check your plan regularly to see how well you are doing. You may
need to amend your plan, e.g. if something unexpected happens or
if some revision takes longer than expected.
 2. Preparation
 Where to Study
 Always in the same place
 Choose a warm, light, well ventilated room
 Away from other distractions
 Properly furnished
 Summarizing Key Points
 Don’t make long notes in the form of paragraphs, which you may find difficult to learn and retain
 Your notes should ideally be in the form of pointers which are easier to remember and quicker to
revise
 Underline important points
 Even if a paper involves mathematical calculation it is still very important that you study the theory
also to learn the concepts and logic behind the mathematical workings and formulae.
 Principles of Understanding
 Always aim for understanding
 Look for examples to illustrate the topic
 Promote understanding by rearranging material, questioning the ideas and looking for links with old
ideas
 Consider your topic from all possible angles
 2. Preparation
  Principles of Memorizing
 Never memorize something that you don’t understand
 Always try to link new material with what you have previously learnt
 Select the important items to remember
 Organize the material into a meaningful system
 The sequence of memorizing should be the same as the logical sequence of the material
 Long pieces should be memorized in shorter chunks
 Go over notes, reading etc. within 12 hours of writing, reading etc.
 Try to master each topic before leaving it but do not spend so much time that other areas
or subjects are ignored
 Over learn. Don’t stop when you have only just learnt something
  Start each session with a review of the previous session
  Mock Examinations
 At least 10-15 days before the end of the leave conduct real time mock examinations
 Self assessment
 Identify weak areas
 Work on weak areas
 Go through the examiner comments
 Actually attempt the questions and do not just go through the solutions
 3. Attempting the Paper
 Examination Techniques
 Controlling the anxiety is the key
 Arrive early at the exam to avoid panic. Be on your seat at least 10 minutes before the
examinations. This will reduce your anxiety and allow you to sort out issues which may
consume your time during the examinations.
 In the exam, spend the first 5 minutes glancing through the paper to make sure you
understand the instructions and to decide which questions to answer first.
 Read the question very carefully until you know exactly what is required
 Note any special requirements e.g. list, detail, advise, explain, report, etc.
 Budget your time for each question in proportion to the marks given. Stop working on it
when that time is up, return to it if you have time to spare.
 Spending too much time on favorite topic at the expense of others may cost you the exam
 Repetition of the same point using different descriptions does not fool the examiner &
only wastes time
 The first 50% of the marks of a particular question are the easiest to get; the next 25% are
harder; the last 25% are the hardest. If you run out of time: two half answers may get more
marks than one full one; jot down the main points to include while they are in your mind
and return later.
 Write clearly so the examiner can read your work. Number answers correctly.
 3. Attempting the Paper
 Questions…How to Answer Them
 Possibilities for organizing your information in an exam include:
 First plan your answer as to how you want to go ahead with your answer
 Give a clear opening paragraph, present information in a clear order, a final paragraph
drawing conclusions/summarizing. The opening paragraph should be linked with final
conclusions through one of the following ways:
 - step by step points where there is a sequence or stage
 - a main initial point to make an impact which you then develop
 - Putting different sides of an argument
 - Grouping theories/concepts through a theme
 Present your work well. Headings and a good layout make your work easier to read
 Tables and graphs need to be clear with correct labeling
 Use practical examples to illustrate the points made subject to the availability of time
and requirements of the question. It may not be practical to give examples where only
brief answers are required
 As far as possible give answers in pointers showing the main heading and then
describing it in appropriate details as per the requirements of the question. Just by
giving pointers you can at least secure some marks and convey your knowledge to the
examiner.
 3. Attempting the Paper
 Scenario Type Questions … How to Answer Them
 It has been noted that most students only give the conclusions in such
type of questions
 The most important aspect of giving such questions is to test if you
have understood the concepts
 Therefore the key to such questions is the reasoning and not the
conclusion
 The examiner is interested in the thought process that went into the
conclusion.
 You can conclude correctly without any reasoning, by sheer guessing
you have a fifty percent chance of getting it right. The examiner
knows this and therefore no marks are allowed for guessing the
conclusion – you must support it.
 If you have proper reasoning that forms the basis for your conclusions
you can at least get pass marks even if your conclusion does not
match with that of the examiner.
 3. Attempting the Paper
 How to Improve the Presentation of Your Scripts
 Marks that you will obtain for your answers depends on two factors:
 What you answered
 How you answered
 Start each new answer on a new page
 The arrangement should be pleasing to the eyes
 Write a fairly large and legible handwriting. But you should not try to change your style
just for the examinations. You will have to practice it before the examinations
 Write your headings boldly
 Use a dark ink and medium pointed nib
 Leave space between subsections of answers
 The subject matter should be broken up into small paragraphs
 Use Apt sub-headings as it attracts the attention to the main divisions of the chapter
 The sentences should be short and crisp
 Make cancellations and corrections neatly
 Insert new words or sentences legibly and in an orderly way
 Watch your spelling and punctuation as it helps quick reading & prevent
misunderstanding
 3. Attempting the Paper
 Most Commonly Made Mistakes
 Not resting adequately before the paper
 General instructions given on the answer scripts and sent with the
admit card are often ignored
 Questions are not read carefully
 Not planning before attempting the question
 Getting stuck over a single question
 Not clearly stating the assumptions used
 Not being quick enough
 Presentation and workings not clearly shown
 Students do not complete the paper more due to selective studies
and not because of the length of the paper
 Students tend to repeat points
 Irrelevant points are given
 3. Attempting the Paper
 Coping with Nerves
 Stress can be good - it can make you mentally alert. You will do better if you
see stress as positive and the exams as a chance to show what you can do, not
as a way of tripping you up.
 Work out what to do if you panic…. Take deep breaths
 Do good revision/preparation.
 Find out in advance as much as possible about the examination centre or the
exam room.
 Identify what to do in the first 5 minutes of the exam in what order and stick
to it.
 Make yourself comfortable for the exam (e.g., warm/cool clothes,
handkerchiefs, etc)
 Calm yourself beforehand (e.g., visualize a pleasant scene, distract yourself)
 Avoid being overtired (is it worth staying up late to cram in extras?).
 Avoid last minute revision. Trying to remember facts then may block out
'deep learning' (i.e. of concepts and principles).
 Examiner’s Comments
It was noted that the students suffer from lack of
practice and presentation skills. Moreover, a large
number of candidates fail to comprehend the exact
requirement of the question and do not know how to
approach the questions logically. (Summer-2006)
It was noted in majority of the scripts that students
lacked knowledge and practice on the subject.
Furthermore, effective presentation which is essential
for attempting an advanced stage paper was also
lacking in most of the scripts. (Winter-2006)
 Examiner’s Comments
Overall performance of the candidates was poor. It was
observed that instead of explaining what the law has
prescribed, the students formulated their answers
according to their general understanding of the subject.
For example, many students believed that since the liability
of shareholders of a private limited company is limited,
they shall not be required to contribute anything if the
company is unable to pay its tax liability. Further, many
students tried to stretch the answer by providing irrelevant
details and explanations. The students are once again
advised that marks are only awarded for the portion of
answer which is relevant and it is a waste of time to display
knowledge of other irrelevant areas. (Summer-2007)
 Examiner’s Comments
 The overall performance in this paper was again very poor. It was seen that
the students tried to answer according to the general understanding of the
subject, and not according to the specific requirements of the question and
the law. (Winter-2007)
 The performance in most cases was far below the level expected in a
professional examination. An analysis of this low performance reveals that it
was mainly attributed to lack of knowledge, inability to deal with practical
situations and the tendency to rush to a conclusion and thereby failing to
grasp the exact requirements of the question.
 Further, it has also been noticed that the tendency to write the word
‘assumed’ has increased manifold without any reason as factually very few of
the questions required an answer based on any assumption. Some of the
students make such assumptions which change the meaning of the question
altogether. Such assumptions make the question unduly complicated and
result in poor performance. The students are advised to make assumptions
only when it is necessary. They would also ensure that such assumptions do
not contradict the situation given in the question or its requirements.
(Summer-2008)
 Income Tax
Income
Any bonus or bonus shares declared, issued or paid by
a company with a view to increase its paid-up share
capital shall not be an income in the hands of the
shareholder.
Deductible Allowance
WWF
WPPF
Zakat paid under the Zakat and Ushr Ordinance, 1980.
 Zakat privately paid shall not be treated as deductible
allowance.
 Income Tax
Employment
‘Employment’ includes:
 A directorship or any other office involved in the
management of a company;
 A position which entitles its holder to a fixed or
ascertainable remuneration; or
 The holding or acting in any public office.
Gratuity & commutation of pension is exempt to an
employee to the extent provided in clause (13) of Part-I of
Second Schedule, but this exemption shall not be available
to any payment received from a company by a director of
such company who is not a regular employee of such
company.
 Income Tax
Kibor
‘KIBOR’ means Karachi Inter-Bank Offered Rate
prevalent on the first day of each quarter of the
financial year.

Minor Child
‘Minor Child’ means an individual who, at the end of a
tax year is under the age of eighteen (18) years. [2(33)]
For the purpose of section 90 (i.e., transfer of property)
‘Minor Child’ shall not include a married daughter.
[90(8)]
 Income Tax Rates
Individuals:
 Different tax rates for salaried and non-salaried taxpayers
 Marginal Tax Relief for salaried taxpayers only
Association of Persons:
 25% of taxable income
 Where turnover is 50M or above provisions of section 113
(i.e., minimum tax @ 1% of turnover ) shall also apply
Companies:
 Small companies – 25% of taxable income
 Any other companies – 35% of taxable income
 Provisions of section 113 (i.e., minimum tax @ 1% of
turnover ) shall also apply
 Schemes of Taxation
Normal Tax Regime (NTR)
 Income and tax liability are computed under normal
procedure by allowing admissible deductions, deductible
allowance, adjustment of losses, tax credits and tax rebates,
etc
Separate Taxation
 Certain incomes and transactions are not included in total
and taxable income; rather, are kept separate and charged to
tax at special rates
Final Tax Regime (FTR)
 Certain transactions are presumed as income and tax
deducted/collected at source is treated as full and final
discharge of tax liability in respect of income from such
transactions.
 Overriding Provisions
Section – 3
The provisions of the Income Tax Ordinance shall apply
notwithstanding anything provided in any other law for
the time being in force.
Section – 107
Where there is a contradiction between the provisions
of the Income Tax Ordinance and any ‘Tax Treaty’, the
provisions of the tax treaty shall apply.
 Income from Assets
General Rule
 Income arising from any asset is the income of the person
who is owner of the asset
Exception to the General Rule
 Where a persons transfers his asset under a revocable
transfer, or to his spouse (other than against consideration
or an agreement to live apart), a minor child, or to some
other person for their benefits, the income arising from such
asset shall be treated as income of the ‘transferor’ and not of
the ‘transferee’
Income from Sale of Land
 Taxable only if the person is in the business of buying and
selling of land
 Under all other cases not taxable under the Income Tax Law
 Taxation of Retailers (Ind. & AOPs)
 Retailers With Turnover Upto Rs. 5,000,000 [113A]
 A retailer whose total turnover for any tax year does not exceed Rs.
5,000,000 has two alternatives for determining his tax liability under
the Income Tax Ordinance. The alternatives available to him are:
 He may opt to pay tax computed on of his turnover during the tax year; and
 He may opt to pay income tax under the normal tax regime (NTR). Under this
case, the taxable income and the tax liability shall be computed as per normal
procedure.
 Retailers with Turnover Exceeding Rs. 5,000,000 [113B]
 A retailer falling under this category is required to pay income tax on
his turnover instead of taxable income. Tax liability of such taxpayer
shall be:
 Turnover upto Rs. 10 M - @ 0.5% of turnover
 Turnover exceeding Rs. 10 M – Rs. 50,000 Plus 0.75% of exceeding amount
 AOP with turnover of Rs. 50 M or above – Minimum tax @ 1% u/s 113
 Company as a Retailer – taxable under NTR
 Permanent Establishment
of Non-Resident
 The PE shall be treated as a distinct and separate entity from the non-resident of which it is a PE. Its profit
shall be computed on the basis of this principle.
 Deduction on account of expenses (including executive and administrative expenses) shall be allowed as per
normal procedure.
 A PE shall not be allowed a deduction for any amount paid or payable by it to its head office or to another PE
on account of the following expenses:
 Royalties, fees or other similar payments for the use of any tangible or intangible asset.
 Compensation for any services (including management services).
 Profit on debt on money lent to the PE, except in connection with a banking business.
 While determining the income, any amount which is received or receivable by a PE from its head office or
from another PE on account of the following incomes shall not be taken into account:
 Royalties, fees or other similar payments for the use of any tangible or intangible asset.
 Compensation for any services (including management services).
 Profit on debt on money lent by the PE except in connection with a banking business.
 Head office expenses shall be allowed as deduction equal to an amount which is computed as below:
 Total head office expenses of non-resident  Turnover of PE
 Total world wide turnover of non-resident
 Any excess amount allocated to PE shall not be allowed as deduction.
 A PE shall not be allowed a deduction on account of the following expenses paid or payable by the non-
resident;
 Any profit on debt to finance the operations of PE; or
 Any insurance premium in respect of the above stated debt.
 Thin Capitalization
 Thin capitalization is a situation wherein a company has a very lesser
amount of capital as compared to its debts. A foreign-controlled
resident company shall not be allowed a deduction for the profit on
debt paid by it on that part of the debt as exceeds the prescribed ratio.
The provisions in this regard are as below:
 The company has a foreign debt to foreign equity ratio in excess of
three to one at any time during the tax year.
 Profit on debt shall be allowed as deduction if the debt-equity ratio
remains up to three to one. As and when it exceeds this ratio, any
amount paid as profit on that part of the debt as exceeds three to one
ratio shall not be allowed.
 The above provisions do not apply to:
 (i) A financial institution;
 (ii) A banking company; or
 (iii) A branch of a foreign company operating in Pakistan.
 Thin Capitalization
 Foreign-Controlled Resident Company [106(2)]
 It means a resident company in which fifty percent (50%) or more underlying ownership of the company is held by a non-
resident person either alone or together with an associate or associates.
 Foreign Debt [106(2)]
 Foreign debt has been defined in relation to foreign-controlled resident company and it means the greatest amount of
the total of the following amounts:
 The balance of any debt owed by the company to a foreign controller or his non-resident associates, the profit on which is
either exempt from tax or is taxable at a rate which is lower than the corporate rate; and
 The balance of any debt owed by the company to a person other than specified in No. 1 above, if that other person is
owing a similar amount of debt to the foreign controller or his associates.
 Note: The greatest amount at any time in a tax year shall be taken as foreign-debt.
 Foreign Equity [106(2)]
 The amount of foreign equity of a foreign-controlled resident company shall be computed as below:
 Amounts representing share in the equity of the company of foreign-controller or his non-resident foreign associates:
 Paid up value of shares held XXX
 Share premium XXX
 Accumulated profit XXX
 Asset revaluation reserve XXX XXX
 Less:
 Debt obligation owed to the company by the foreign-controller and his non-resident associates XXX
 Share in accumulated losses XXX XXX
 Foreign equity XXX
 Note: All the above mentioned amounts should be taken at the balance appearing in the books at the
beginning of the tax year.
 Modarabas
 Income from Non-Trading Activities
 According to clause (100) of Part-I of the Second Schedule the income of a Modaraba from non-
trading activities shall be exempt from tax for any assessment year commencing on or after 01-07-
1999. In order to avail this exemption, it shall have to fulfill the following conditions:
 Minimum 90% of the total profit (after transfer to mandatory reserve) is distributed among the
certificate holders; and
 For the purpose of determining the distribution of 90% profits, the profits distributed through bonus
certificates or shares shall not be taken into account.
 Incomes from Trading Activities [Clause (18) of Part-II of Second Schedule]
 Currently, a Modaraba is taxable for such incomes, which are generated through trading activities. It
shall be taxable at the rate of twenty five percent (25%) of its total trading income excluding the
followings:
 Dividend incomes;
 Incomes to which section 153 applies (i.e., supply of goods, rendering of services or execution of
contracts).
 Incomes to which section 154 applies (i.e., exports).
 Non-application of Minimum Tax u/s 113 [Clause (11A)(xiii) of Part-IV of Second Schedule]
 The provisions of sections 113 regarding payment of minimum tax are not applicable to a Modaraba
registered under the Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980.
 Banking Companies
No depreciation allowance or deduction shall be admissible on
assets given on finance lease
Provisions for advances and off balance sheet items shall be
allowed up to a maximum of 1% of total advances; and
Provisions for advances and off-balance sheet items shall be
allowed at 5% of total advances for consumers and small and
medium enterprises (SMEs)
Provisioning in excess of 1% would be allowed to be carried over
to succeeding years
If provisioning is less than 1% of the advances, then actual
provisioning for the year shall be allowed
The amount of “bad debts” classified as “sub-standard” under
the Prudential Regulations issued by the State Bank of Pakistan
shall not be allowed as expense
 Banking Companies
 Capital Gain/Loss
 “capital gains on sale of shares of listed companies” shall be taxed at
the rate of ten per cent
 Where the shares of listed companies are disposed of within one year
of the date of acquisition, the gain shall be taxed at the normal rate
 Loss on sale of shares of listed companies, disposed of within one year
of the date of acquisition, shall be adjustable against business income
of the tax year. Where such loss is not fully set off against business
income during the tax year, it shall be carried forward to the following
tax year and set off against capital gain only. No loss shall be carried
forward for more than six years immediately succeeding the tax year
for which the loss was first computed.
 Dividend Income
 The income under the head “dividend” shall be taxed at the rate of ten
per cent
 Income from Business – Taxable @ 35%
 Banking Companies
Advance tax
 The banking company shall be required to pay advance tax for the
year under section 147 in twelve equal installments payable by
15th of every month. Other provisions of section 147 shall apply as
such.
 Provisions of withholding tax under this Ordinance shall not
apply to a banking company as a recipient of the amount on which
tax is deductible.
Minimum Tax
 The provisions of section 113 shall apply to banking companies as
they apply to any other resident company
Exemptions
 Exemptions and tax concessions under the Second Schedule to this
Ordinance shall not apply to income of a banking company
computed under Seventh Schedule
 Salary Income
Salary – Which Income:
 Employee / employer relation must exist between the recipient
and the payer
Definition:
 Salary, briefly, is any benefit to a person from his employer
Basis of Taxing Salary:
 Primarily salary is taxable on actual receipt basis
 Exceptions are:
 Salary received in arrears may be taxed on accrual basis at the option of
taxpayer
 Commissioner may opt to tax salary income of an employee of a private
company if he is opinion that payment of salary was deferred to avoid
tax
 Terminal benefits may, at the option of taxpayer, be taxed at the ART
based on immediately preceding three tax years
 Salary Income
Loan from Employer:
 Interest-free: Interest at BMR shall be salary income
 Interest-bearing: BMR less interest charged shall be salary
income
 Interest exceeding BMR: No benefit to employee
 BMR for tax year 2011 is 13% per annum
Loan Used in Acquiring Asset Generating Taxable Income:
 Interest-free or interest up to BMR: Interest at BMR shall be
allowed as deduction against such income
 Interest exceeding BMR: Actual interest charged to the
employee shall be allowed as deduction against such income
 Salary Income
 Conveyance :
 Conveyance allowance – Totally taxable
 Conveyance facility:
 For official use only – Nothing is salary
 For personal use only – 10% of cost is salary income
 For official and personal use – 5% of cost is salary income
 If vehicle is on lease – Instead of ‘cost’ the ‘FMV’ of the vehicle at the time of its
acquisition shall be used.

 House Accommodation:
 House rent allowance – Totally taxable
 Rent-free accommodation:
 In big cities – Higher of FMR or 45% of MTS/basic salary shall be salary income
 In small towns – Higher of FMR or 30% of MTS/basic salary shall be salary income

 Any other Perquisites:

 Difference between the FMV of the perquisite and the amount actually paid by
the employee shall be included in salary income of employee
 Salary Income
Medical Facility:
Medical allowance with no other medical facility -
Exempt up to 10% of basic salary. Any excess amount
shall be taxable
Hospitalization or Reimbursement of Medical Expenses:
 Provided as per terms of employment – Exempt
 Provided without entitlement as per terms of employment –

Fully taxable
Medical allowance as well as Free medical facility:
 Medical allowance shall be taxable and facility shall be treated
as per general rule
 Salary Income
Employee Share Option Scheme:
Value of right/option in itself is not taxable
If option exercised – FMV of shares less price paid shall
be salary income
If option is renounced – disposal consideration less
price paid for the option, if any, shall be salary income
FMV of the shares at the time of acquisition or when
free right to transfer those shares is granted shall be the
cost of acquisition of such shares. This shall be used for
computing ‘capital gain’
 Income from Property
Rent Chargeable to Tax (RCT)
 RCT shall include the following amounts:
 Higher of the rent received/receivable or the fair market rent for the
period for which the property was actually rented out;
 Forfeited deposit received under a contract for the sale of land or a
building;
 Any obligation of the owner paid by the tenant;
 One-tenth
 (1/10th) of the advance not adjustable against rent.
 Property Income is taxable on actual receipt basis or on accrual
basis
 It is a separate block of income chargeable to tax at special rates
applicable to it only
 Certain persons are required to deduct tax at the time of making
payment for Rent. This amount shall be adjustable against final tax
 Income from Business
Incomes may fall under following categories:
 Local Supplies made out of:
 Own-Manufactured goods - NTR
 Locally purchased goods - FTR
 Imported goods - FTR
 Goods manufactured for exports and its scrap (maximum up to 20% of
such production) – May be treated as Export (circular 20/92)
 Exports made out of:
 Own-Manufactured goods - FTR
 Locally purchased goods - FTR
 Imported goods – Shall be excluded from exports, as tax u/s 148 shall be
final tax in respect of such goods.
 Duty Draw-Backs
 Shall not be considered as additional receipt. The exports already
included it and was subject to tax deduction u/s 154. (circular 14/93)
 Income from Business
Deductions – Admissible
 Any expense incurred wholly and exclusively for the business
 Depreciation and amortization
 Expense of death of animal being used for business other than
as stock-in-trade
 Amalgamation expenses by amalgamated company
 Financial charges
 Lease rentals by the lessee
Apportionment of Common deductions
 Common expenditures shall be apportioned among different
heads of income on some reasonable basis
 Income from Business
 Deductions Not Admissible [21]
 Any tax, cess or rate (including income tax) levied on the profits or gains of the
business.
 Any amount of tax deducted at source from an amount received by the person.
 Any payment made to any person without deducting tax at source (under
section 149 to 158 & 232), if applicable. A person is required to deduct tax at
source in respect of the following payments:
 Salary;
 Rent;
 Brokerage or commission;
 Profit on debt;
 Payment to non-resident;
 Payment for services; or
 Fee.
 Any payment on which tax at source was deducted but has not been paid.
 Any payment made by an association of persons to its partners or members on
account of profit on debt, brokerage, commission, salary or any other
remuneration.
 Income from Business
 Expenditure of a non-resident business on account of “Head Office Expenditure” which
exceeds the allowable limits. The allowable deduction on account of “head office
expenditure” is calculated as follows:
 Total Head Office Expenditure  Total Turnover in Pakistan
 Total World Turnover
 Any expenditure incurred on entertainment except those, which are incurred:
 Abroad in connection with the business;
 In Pakistan on entertainment of foreign or local customers and suppliers;
 At the meetings of members, agents, directors and employees;
 On refreshment of employees;
 At the opening of branches; and
 On entertainment of persons related directly to business. [Rule-10]
 Notes:
 ‘Entertainment’ means the provision of meals, refreshments and reasonable leisure
facilities in accordance with the tradition of business and subject to over all norms and
customs of business in Pakistan.
 The Board may prescribe the conditions for allowing an entertainment expense. The
violation of such conditions shall also render the expense as inadmissible.
 Income from Business
 Any expenditure under a single account head exceeding Rs. 50,000 in
aggregate shall be inadmissible if the payment is not made through a crossed
cheque or a bank draft. However, this provision shall not be applicable to:
 Utility bills.
 Postage.
 Single transactions not exceeding Rs. 10,000.
 Payments on account of freight charges.
 Any amount credited by direct transfer to an employee’s bank account for
reimbursement of expenses incurred on behalf of the taxpayer.
 Payments made to discharge any statutory obligation (such as duties, taxes,
octroi, export tax, fines, fee, cess, etc.).
 Note: Online transfer of payment from the business account of the
payer to the business account of the payee as well as payment through credit
card shall be treated as transactions through the banking channel, if such
transactions are verifiable from the bank statements of the respective payer
and the payee.
 Any payment on account of salary exceeding Rs. 15,000 per month if not made
through a crossed cheque or transfer to the employee’s bank account.
 Income from Business
 Any contribution to such provident fund, pension fund, gratuity fund,
superannuation fund or annuity fund which is not recognized or
approved under the income tax law.
 Any contribution to any provident or other fund, if the person has not
made effective arrangements for deduction of tax at source at the time
of payments out of such fund.
 Any donation to an unapproved institution.
 Any provision against the profits of the business, e.g., provision for
bad debts.
 Any appropriation of profit such as dividends, transfer to reserves or
capitalization in any way.
 Any expenditure in the nature of fine or penalty for the violation of
any law, rule or obligation.
 Any expenditure of a capital nature (e.g., purchase of assets).
 Any personal expenditure incurred by the person.
 Income from Business
Bad Debts:
 Actual allowed; provision for doubtful debts, inadmissible
Losses:
 Normal – admissible
 Abnormal – admissible (net-off any claim)
Non-payment of a liability:
 Income if not paid within three years.
 Expense if paid thereafter
Consumers’ Loan by HBFC/NBFCs:
 Provision equal to 3% of income from such loan shall be
deduction on account of bad debts
 If actual bad debts are more, those shall be carried forwarded
to next year for adjustment of provision for that year
 Income from Business
Assets:
 Depreciable asset – Normal depreciation (DBM)
 Eligible depreciable asset – Initial allowance plus normal
depreciation (DBM)
 Intangible – Amortization for lesser of useful life of the asset
of 10 years (SLM)
 Pre-commencement expenditure – Amortized @ 20% of cost
(SLM)
Acquisition of an Asset:
 A person shall be treated as having acquired an asset at any
of the following times:
 When he begins to own an asset;
 When he is granted any right to own an asset; or
 When a personal asset is applied for business use.
 Income from Business
 Disposal of An Asset
 Disposal of an asset means to pass over an asset to some other person. In its
general meanings it denotes the change in ownership of an asset. Under the
Income Tax Ordinance, 2001 a disposal may take place when an asset is: [75(1)]
 Sold;
 Exchanged;
 Transferred;
 Distributed;
 Cancelled;
 Redeemed;
 Relinquished (to abandon, give up or renounce some right or thing);
 Destroyed;
 Lost;
 Expired;
 Surrendered;
 Transmitted by succession or under a will;
 In case of a business asset, applied to personal use; or [75(3)]
 In case of a business asset, discarded or ceased to be used in business. [75(3A)]
 Income from Business
Asset from Foreign Currency
 Where an asset is acquired with a loan in foreign currency
and exchange rate fluctuation increases or decreases the
liability of the person in Pak rupees, then any increase or
decrease in the liability, before full and final repayment of
the loan shall also be added to or deducted from the cost of
the asset.
Asset Acquired From Any Subsidy, Etc.
 The amount of any grant, subsidy, rebate, commission or any
other assistance received or receivable in respect of
acquisition of an asset shall not be included in the cost of
such asset. However, where the amount of grant, etc., is
chargeable to tax under the Income Tax Ordinance, 2001
then such amount shall also be included in the cost of the
asset.
 Income from Business
 Consideration of a Leased Asset
 The residual value received by a leasing company on maturity of a lease
agreement shall be taken as consideration for disposal of such asset.
 However, it should be noted that the residual value plus total amount received
by the leasing company towards the cost of the asset (i.e. the principal part of
the lease rentals realized by to the leasing company) should not be less than
the original cost of the asset to the leasing company.

 Consideration of Assets Sold in Bulk

 Where different assets are disposed off through a single transaction and the
consideration of each asset is not determined / specified separately, the total
consideration received shall be apportioned amongst all assets so disposed off.
This apportionment shall be on the basis of fair market value of assets at the
time of the transaction. In other words the disposal consideration shall be
computed with the help of the following formula:
 Total Consideration Received  FMV of an asset
 FMV of all assets
 Income from Business
 Non-recognition of Gain or Loss on Disposal of an Asset [79]
 Normally, the gain or loss on disposal of an asset is taken into account. However, under
the following cases no gain or loss shall be taken to arise, if the person acquiring the asset
is a resident person:
 Where disposal is between spouses under an agreement to live apart;
 Where disposal is by reason of the transmission of the asset to an executor or beneficiary on the
death of a person;
 Where disposal is by reason of a gift of the asset;
 Where disposal is by a company to its members on its liquidation;
 Where disposal is by an association of persons to its members on its dissolution. However, under
this case the assets should be distributed in accordance with the interest of members in the capital
of AOP.
 Notes:
 If the person acquiring the asset is a non-resident person, the gain or loss on disposal of assets shall
be computed as per normal procedure.
 Under all the above cases it shall be treated that:
 The person is acquiring the asset of the same character as the person disposing of the asset; and
 The person is acquiring the asset at a cost that is equal to the cost of the asset at the time of
disposal to the person disposing it of.
 Where the disposal is by reason of the compulsory acquisition of the asset under any law.
In order to avail this benefit the consideration received on disposal shall be reinvested
(within one year of the disposal) in an asset of similar kind.
 Income from Business
Exceptions Regarding Cost & Disposal Consideration
 Passenger transport vehicle not plying for hire:
 The cost of such vehicle shall be lesser of the actual cost of the vehicle
or Rs. 1,500,000. In other words the maximum cost for depreciation
purpose shall be Rs. 1,500,000 if the vehicle is purchased at a price
higher than this amount.
 For gain or loss on disposal of a passenger transport vehicle not plying
for hire the ‘Consideration Received on Disposal’ shall be computed
according to the following formula
 A  B
 C
 A = Amount received on disposal of vehicle
 B = Cost determined for depreciation purpose (i.e., lesser of actual cost
of the vehicle or Rs. 1,500,000)
 C = Actual cost of acquiring the vehicle.
 Assets given on lease by leasing company, etc:
 Income from Business
Disposal of immovable property:
 Any consideration received on disposal of an immovable
property shall be treated as cost of the property if the
consideration exceeds the original cost of the asset. Under
such a case the total amount allowed as deduction on account
of depreciation allowance (accumulated depreciation) on such
asset shall become the gain on disposal of the asset.
Export of depreciable asset:
 The cost of the asset shall be treated as the consideration
received on disposal of an asset if:
 It is a depreciable asset;

 It has been used in Pakistan by the person; and

 It is exported or transferred by the person out of Pakistan

 Capital Gains
Capital Asset [2(10) & 37(5)]
 Capital asset means property of any kind held by a person
excluding the following assets:
 Any stock-in-trade, consumable stores or raw materials;
 Any depreciable assets;
 Any intangible asset on which amortization is allowed u/s 24;
 Any immovable property; and
 Any movable property held for personal use by the person or his family
member dependent upon him. However, the following assets shall be
treated as capital assets:
 A painting, sculpture, drawing or other work of art;
 Jewelry;
 A rare manuscript, folio or book;
 A postage stamp or first day cover;
 A coin or medallion; or
 An antique.
 Capital Gains
Tax on Capital Gains [Clause (5B)]
 Capital gain is included in taxable income and taxed under
NTR
 Where a capital asset is disposed of after one year of its
acquisition then the gain for income tax purposes shall be
taken as 3/4th (i.e., 75%) of the actual gain on disposal.
Remaining 1/4th (i.e., 25%) of the gain shall be treated as
exempt.
 Disposal within one year of acquisition – total capital gain in
taxable
 Tax @ 10% of the capital gain shall be charged if the gain is
from the sale of shares or assets by a private limited
company to Private Equity and Venture Capital Fund
 Capital Gains
Capital Gain on Disposal of Securities [37A]
 From 1st day of July, 2010 capital assets have been split into
two categories for taxation purposes. A new category termed
as ‘securities’ has been introduced. ‘Security’ means the
following capital assets:
 Share of a public company;
 Voucher of Pakistan Telecommunication Corporation;
 Modarba certificate;
 An instrument of redeemable capital:
 Participation Term Certificates (PTCs);
 Term Finance Certificates (TFCs);
 Musharika Certificates; and
 Any other security (other than shares) not based on interest; and
 Derivative products (e.g., treasury bonds).
 Capital Gains
 Taxation of Gain of Securities – for Tax Year 2011
 From 01-07-2010 any capital gain arising from disposal of ‘securities’ held
for a period of less than a year shall be treated as a separate block of
income and charged to tax depending upon the holding period of security
 Less than 6 months – 10%
 More than 6 months but less than 12 months – 7.5%
 More than a year – 0%

 Loss on Disposal of Security

 Any loss sustained by a person on disposal of ‘securities’ shall be treated
separately from any other loss sustained by him. This loss shall be dealt
with as below:
 Any loss sustained on disposal of a ‘security’ in a tax year shall be set-off
only against any gain of the person from any other ‘security’ disposed
off during that tax year; and
 Loss on disposal of a ‘security’ shall not be carried forward to the
subsequent tax year.
 Income from Other Sources
Incomes Covered:
All incomes except the following shall be taxable under
this head:
 Incomes which are covered under any other head of income
 Incomes covered under separate taxation

 Incomes covered under FTR

 Incomes exempt from tax

Deductions:
All expenses incurred for the purpose of earning this
income shall be allowed as deduction
 Dividend
Received by a Company:
Taxable as a separate block of income @ 10% of the
gross amount of dividend
Received by Any Other Person
Taxable under FTR

Obligation of Company Paying Dividend:

Tax shall be deducted at the time of making payment
for the dividend u/s 150
 Tax Credits
Foreign Tax Credit
 Salary income
 Any other income
Donations to Approved Institutions/Funds
 Specified under clause (61) of Part-I of Second Schedule
 Others
 Maximum limit of 20% or 30% not applicable in case of donations
to Agha Khan Hospital and Medical College
Investment in Shares
 Lesser of cost, 10% of taxable income or Rs. 300,000
Contribution to Approved Pension Fund
 Lesser of contribution, 20% of taxable income or Rs. 500,000
Mark-up on Loans for Houses
 Lesser of profit of debt, 50% of taxable income or Rs. 750,000
 Tax Credits
Tax Credit To Manufacturer Registered Under Sales
Tax Act
 A manufacturer shall be entitled to a tax credit of two and a
half per cent (2½ %) of tax payable for a tax year if the
following conditions are satisfied:
 The manufacturer is registered under the Sales Tax Act, 1990;
 Ninety per cent (90%) of the sales of the manufacturer are to the
persons who are registered under the Sales Tax, 1990;
 In order to claim the tax credit the person shall provide complete
details of the persons to whom sales were made;
 The person should be taxable under normal tax regime. Tax credit
shall not be allowed to a person whose income is covered under
final tax or minimum tax; and
 Carry forward of any amount shall not be allowed where full credit
may not be allowed against the tax liability for the tax year.
 Tax Credits
 Tax Credit For Investment In Plant And Machinery [65B]
 A tax credit equal to 10% of the amount invested by a company in purchase of
plant and machinery shall be allowed against the tax payable by it. Other
provisions in this regard are:
 The plant and machinery is purchased by the company for the purposes of Balancing,
Modernization and Replacement (BMR) of the plant and machinery already installed.
 The plant and machinery is for an industrial undertaking set up in Pakistan and is
owned by the company making the investment.
 The plant and machinery should be purchased between 01-07-2010 and
30-06-2015.
 Amount of tax credit shall be deducted from the tax payment in the tax year in which
plant or machinery is purchased and installed.
 Where there is no tax payable for the year in which plant or machinery is installed or
tax payable for that year is less than the amount of tax credit, the unadjusted tax credit
shall be carried forward and deducted against tax payable for following tax years.
 The amount of unadjusted tax credit may be carried forward maximum up to two (2)
tax years.
 The Commissioner may re-compute the tax payable for the relevant tax years if
subsequently it is found by the CIR that any of the above-referred conditions was not
fulfilled. Under this case it shall be deemed that tax credit was wrongly allowed.
 Tax Credits
Tax Credit For Enlistment [65C]
 A tax credit @ 5% of tax payable shall be allowed to a
company for the tax year in which it is enlisted in any
registered stock exchange in Pakistan.

Priority Of Tax Credits [4(3)]

 Where a person is entitled to more than one tax credit, the
tax credit shall be allowed in the following order:
 First of all foreign tax credit; then
 Tax credit for investment, donations, etc., allowable u/s 61-64; and
then
 Tax already deposited by or on behalf of the taxpayer.
 Withholding Tax
Imports u/s 148
 Final discharge except under certain specified cases
Salary u/s 149
 Adjustable against final tax liability
Dividend u/s 150
 Final discharge except in case of a company receiving it
Profit on debt u/s 151
 Final discharge except received on Government securities, where it
is adjustable
Non-Residents u/s 152
 FTR if deducted against Royalty, Fee for technical services,
construction, services or advertisement contracts, insurance or re-
insurance premium
 NTR in case of all other payments to non-residents
 Withholding Tax
Goods u/s 153
If on “Supplies” then under FTR
On own manufactured goods – NTR
Services u/s 153
For companies – NTR
For AOPs – Minimum tax on such income
For Individuals – Minimum tax on such income
Contracts u/s 153
Covered under FTR
 Withholding Tax
Exports u/s 154
FTR
Rent u/s 155
Adjustable
Prizes u/s 156
FTR
 Sales Tax
Cottage Industry
 ‘Cottage industry’ means a manufacturer who fulfills any of the
following conditions:
 Whose annual turnover from taxable supplies during last twelve
(12) months does not exceed Rs. 5,000,000; or
 Whose annual utility bills (i.e., electricity, gas and telephone)
during last twelve (12) months do not exceed Rs. 700,000.
Goods
 ‘Goods’ means every kind of movable property excluding the
following:
 Actionable claims;
 Money;
 Stocks;
 Shares; and
 Securities.
 Sales Tax
 Input Tax
 In relation to a registered person, the ‘input tax’ means:
 The tax levied under Sales Tax Act, 1990 on the supply of goods to the person;
 The tax levied under Sales Tax Act, 1990 on import of goods by the person;
 In relation to goods or service acquired by the person, excise duty levied under
Federal Excise Act, 2005 in sale tax mode on the manufacture or production of goods,
or rendering or providing of services;
 The Provincial Sales Tax levied on services rendered or provided to the person; and
 The tax levied under Sales Tax Act, 1990 of Pakistan as adapted in the State of Azad
Jammu and Kashmir on the supply of goods received by that person;
 Output Tax
 In relation to a registered person ‘output tax’ means the following taxes and
duties payable by that person:
 Tax levied under the Sales Tax Act, 1990 on supply of goods made by that person;
 Excise duty levied under the Federal Excise Act, 2005 in sales tax mode on
manufacture or production of goods or the rendering or providing of the services by
the persons; and
 The Provincial Sales Tax levied on services rendered or provided by the person.
 Sales Tax
 Retail Price
 It means a price fixed by the manufacturer, inclusive of all duties,
charges and taxes (other than sales tax) at which any particular brand
or variety of any article should be sold to the general consumer.
 Where more than one such price is fixed for the same brand or variety,
the highest of such prices shall be taken as retail price.
 Supply
 ‘Supply’ means sale or other transfer of the right to dispose of goods as
owner. It also includes the following:
 Sale or transfer under a hire purchase agreement;
 Putting to private, business or non-business use of the goods
acquired, produced or manufactured in the course of taxable
activity for purposes other than those of making a taxable supply;
 Auction or disposal of goods to satisfy a debt owed by a person; and
 Possession of taxable goods held immediately before a person
ceases to be a registered person.
 Sales Tax
Time Of Supply
 ‘Time of supply’ is defined separately for supply of goods and
rendering of services.
 Supply of Goods
 ‘Time of supply’, in relation to a supply of goods (other than under
hire purchase agreement) means the time at which the goods are
delivered or made available to the recipient of the supply.
 Supply under Hire Purchase Agreement
 Where goods are supplied under hire purchase agreement, time of
supply means the time at which agreement is entered into.
 Rendering of Services
 ‘Time of supply’, in relation to services, means the time at which the
services are rendered or provided.
 Sales Tax
 Value Of Supply
 It means the consideration in money including all Federal and Provincial
duties and taxes which a supplier receives form the recipient against taxable
supplies. While determining the value of supply the amount of sales tax is not
included.
 Value of Supply Where Trade Discount is Allowed
 Where a trade discount is allowed the value of supply will be the discounted price
(prior to the amount of sales tax). In this case the following conditions shall be
fulfilled:
 The discount allowed is in conformity with the normal business practice; and
 The tax invoice shows the discounted price and the related tax.
 Open Market Price as Value of Supply
 Open market price will be taken as value of the supply in the following cases:
 Where the consideration of supply is in kind or partly in kind and partly in money;
 Where the supplies are made to an associated person against no consideration or for a
consideration, which is lower than the open market price; and
 Where for any special nature of a transaction it is difficult to ascertain the value of a
supply.
 Sales Tax

Value in Case of Supply on Installment Basis

 Where a taxable supply is made to a consumer from general
public on installment basis and the price includes a mark-up
or surcharge, then the value of supply shall be the open
market price (excluding the amount of tax on such supply).
Value of Supply for Imported Goods
 Where the goods are imported the value determined under
section 25 of the Customs Act, 1969 will be the value of the
supply. The amount of customs duties and Federal excise
duty levied thereon will also be included in the value of the
supply.
 Sales Tax
Zero Rated Supply
 It means a supply, which is charged to tax at the rate of zero
percent under section 4 of the Sales Tax Act, 1990.
 According to section 4, the following goods shall be charged
to tax at the rate of zero percent:
 Goods exported out of Pakistan;
 Goods specified in the Fifth Schedule;
 Supply of stores and provisions for consumption aboard a
conveyance proceeding to a destination outside Pakistan;
 Such other goods as the Federal Government may notify; and
 Such other goods as may be specified by the Board through a
general order as are supplied to registered persons engaged in
manufacture and supply of zero-rated goods.
 Sales Tax
Sales Tax
 The Sales Tax is charged, levied and paid at the rate of
seventeen per cent (17%) of the value of taxable supplies made
by a registered person and of the value of goods imported into
Pakistan. The sales tax, being an indirect tax, is ultimately
shifted towards the ultimate consumers of the goods. Tax in
respect of imported goods is paid at the time of clearance of
goods from the Customs authorities. Tax for the taxable goods
supplied in Pakistan is paid at the time of filing of return.
Under this case tax for a tax period is computed as under:
 Output tax XXX
 Less: Input tax (adjustable against output tax) XXX
 Tax payable / (Refundable) for the tax period XXX
 Sales Tax
 Tax On Supplies Specified In Third Schedule
 Taxable supplies specified in the Third Schedule shall be liable to tax @ 17% of the
retail price.
 Tax By Importers
 The ‘Value Addition Tax’ shall be levied and collected at import stage on import of
goods @ 2% of the value of goods in addition to tax chargeable u/s 3 of the Sales Tax
Act (i.e., 17%) or a notification issued for this purpose.
 If the goods are imported by a manufacture for in-house consumption then value
addition tax shall not be charged. [R – 58B(1)]
 Value addition tax paid on imports shall be treated as input tax and adjustable
against output tax and be carried forward as specified in the Sales Tax Act.
[R-58B(2)]
 Any excess amount of input tax over output tax, which is attributable to value
addition tax, shall in no case be refunded to the registered person.
 Where the person is also dealing in goods other than imported goods, he shall be
entitled to file refund claim of excess carried forward input tax for a period as per
section 10 and the rules, after deducting the amount attributable to the tax paid at
import stage. Such deducted amount may be carried forward to subsequent tax
period. [R-58C]
 Sales Tax
Conditions for Claiming Credit of Input Tax
 A registered person can deduct input tax from output tax
only if:
 He holds a tax invoice in respect of taxable supplies made in
Pakistan,
 He holds a goods declaration duly cleared by the Customs, in case
of imported goods, or
 He holds a treasury challan showing payment of sales tax, in respect
of goods purchased in auction. The challan shall bear the name and
registration number of the person. [7(2)]
 Note: All above referred documents (i.e., tax invoice, goods
declaration or treasury challan) should bear the name and Sale Tax
registration number of the person claiming the credit of input tax.
Sales Tax
 Restriction of Credit of Input Tax
 A registered person is not entitled to deduct or reclaim the input tax if it is
paid in respect of the following goods: [8(1)]
 The goods, which are not used for manufacture or production of taxable
goods or for making taxable supplies;
 The goods in respect of which extra tax [u/s 3(5)] is applicable. Only
extra tax will not be allowed as input tax;
 The goods in respect of which sales tax has not been deposited in the
government treasury by the respective supplier;
 The goods which are exempt from tax;
 Input tax paid on fake invoices;
 Purchases made by such registered person, who has not furnished the
details as required by Board through a notification issued under section
26(5);
 Supply of specified goods to non-registered person; and
 Any other goods, which are specified for this purpose by the Federal
Government.
 Sales Tax
 Adjustable Input Tax [8B]
 In relation to a tax period, a registered person shall not be allowed to adjust or
refund input tax in excess of ninety per cent (90%) of the output tax for that
tax period. In other words at least ten per cent (10%) of the output tax for a tax
period must be paid by a registered person.
 Tax charged on the acquisition of fixed assets shall be adjustable against the
output tax in twelve (12) equal monthly installments. [8B(1)]
 The Board may, by notification, exclude any person or class of persons from
the purview of the above discussed provisions. [8B(1)]
 The inadmissible input tax (i.e., over and above 90% of output tax) may be
allowed as adjustment or refund subject to the following conditions: [8B(2)]
 In Case of Companies: Upon furnishing a statement along with annual audited
accounts, duly certified by the auditors, showing value additions less than 90% of the
output tax; or
 In Case of Other Registered Persons: If conditions and restrictions as may be notified
by the Board are satisfied.
 The adjustment or refund of input tax as discussed in point No. 4, if any, shall
be made on yearly basis in the second month following the end of the financial
year of the registered person. [8B(3)]
 Sales Tax
Apportionment of Input Tax
 Rules-24 and 25 of the Sales Tax Rules, 2006 deal with the
apportionment of input tax. The provisions of these Rules
are summarized below.
 These rules are applicable to such registered persons who make
taxable and exempt supplies simultaneously.
 Input tax paid on raw materials relating wholly to the taxable
supplies shall be admissible.
 Input tax paid on raw materials relating wholly to the exempt
supplies shall not be admissible.
 Input tax incurred for making both exempt and taxable supplies
shall be apportioned and admissible amount shall be calculated as
below:
 Residual Input Tax  Value of Taxable Supplies
 Value of Taxable + Exempt Supplies
 Sales Tax
Debit Credit Notes
 A registered person may issue a debit or credit note and
adjust the resultant modification in the tax amount against
the output tax if the following conditions are fulfilled:
 The person has issued a tax invoice against the supply of goods
made by him; and
 The modification is necessary due to any of the following reasons:
 Cancellation of supply;

 Return of goods;

 Change in the nature of supply;

 Change in the value of supply; or

 Any other event requiring modification in the amount of tax on

invoice and in the return

 Assessment of Tax
 Under the following circumstances an authorized officer of Inland
Revenue shall make an order for assessment of tax, including
imposition of penalty and default surcharge:
 Where a person who is required to file a return has failed to file it by the due
date;
 Where a person, due to some miscalculations, pays a lesser amount than actually
payable;
 Where a person has not paid the tax due on supplies made by him; and
 Where a person has claimed a credit or refund of an input tax which was not
admissible under the Sales Tax Act, 1990.
 The officer of Inland Revenue shall give a show-cause notice (within
five (5) years) and provide an opportunity of being heard to a person
before making an order for assessment of tax, etc. Where a person
files the return after due date and pays the amount of tax payable
along with the default surcharge and penalty, the show-cause notice
and the order of assessment shall abate.
 Sales Tax
Sale Of Taxable Activity, Etc.
Transfer to Non-Registered Person [49(1)]
 If the taxable activity is terminated or transferred to a non-
registered person, the stock of taxable goods shall be deemed
as supply and the tax on such goods shall be recovered from
the registered person.
 Where the tax could not be recovered from the transferor, it
shall constitute a first charge on the assets of the business
and shall be recovered from the transferee.
Transfer to Another Registered Person [49(2)]
 If the taxable activity is sold or transferred to another
registered person as an ongoing concern, the tax chargeable
on stocks of goods shall be paid by the transferee.
 Sales Tax
Inadmissible Transactions [73]
 Payment of the amount of invoice of a transaction (other
than utility bills) as shown in the sales tax invoice should be
made through crossed cheque, bank draft, pay order or any
other banking instrument if it exceeds Rs. 50,000. Otherwise,
such transaction shall not be admissible for the purposes of
input tax credit, adjustment or deduction, or refund,
repayment or draw back or zero rating of tax under the Sales
Tax Act.
 In order to render a transaction (exceeding Rs. 50,000) as
admissible the following conditions should be fulfilled:
 The payment of tax is made through a banking channel/instrument.
 The banking instrument should be in favour of the supplier.
 It should be drawn from the business bank account of the buyer
to the business bank account of the supplier.
 Sales Tax
 Tax Paid on Stocks Acquired Before Registration [59]
 Where a person has purchased from a registered person or has
imported certain goods before his registration under the Sales Tax
Act, 1990, the sales tax paid by him on such purchases or imports shall
be deemed as input tax if the following conditions are fulfilled:
 In Case of a Purchase From a Registered Person
 The goods were purchased within thirty (30) days before the date of compulsory
registration or the date of application for registration.
 The person holds a proper tax invoice issued by the seller.
 The goods are verifiable as unsold or un-consumed stocks on the date of
compulsory registration or the date of application for registration.
 In Case of an Import of Goods
 The goods were imported within ninety (90) days before the date of compulsory
registration or the date of application for registration.
 The person holds a “bill of entry” in respect of such import.
 The goods are verifiable as unsold or un-consumed stocks on the date of
compulsory registration or on the date of application
Provincial Sales Tax Ordinances
Scope of Tax
 The sales tax on services is payable @ 17% of the value of
taxable services rendered or provided in a province.
Applicability of Provisions of Sales Tax Act, 1990
 The sales tax on services under the Provincial Sales Tax
Ordinances is levied and collected under the Sales Tax Act,
1990. The provisions of the Act and Rules, etc., made under
the Act shall apply in respect of the following matters:
 Manner, time and mode of payment;
 Registration and de-registration;
 Keeping of records and audit;
 Enforcement and adjudication;
 Penalties and prosecution; and
 All other allied and ancillary matters.
 Registration
Persons Liable To Be Registered [Rule-4]
 The following persons are required to get themselves registered
under the Sales Tax Act, 1990:
 A manufacturer not being a cottage industry;
 A retailer whose value of supplies exceeds rupees five (5) million in any
period during the last twelve months;
 An importer;
 A wholesaler, dealer and distributor;
 A person who is required under any law (whether Federal or Provincial)
to be registered for the purpose of any duty or tax collected or paid as if
it were a levy of sales tax to be collected under the Sales Tax Act; and
 Examples of such laws are Federal Excise Act, 2005 and Provincial Sales
Tax Ordinances.
 A commercial exporter who intends to obtain sales tax refund against
his zero-rated supplied.
 Registration
 De-Registration [21 & Rule-11]
 Under the following circumstances the CRO or other authorized
officer may, on an application made by a registered person to CRO,
cancel the registration from such date as may be determined by him:
 If a registered person ceases to carry on his business.
 If the supplies made by a registered person become exempt from the sales tax.
 If the turnover of a registered person during the last twelve months remains
below the following limits.
 In case of a manufacturer or a producer, taxable turnover of five (5) million
rupees; and
 In case of a retailer, total turnover of five (5) million rupees.
 Where an exporter had got registration for the purpose of claiming refunds on
the basis of zero-rating export, he may like to de-register upon ceasing to be an
exporter.
 The CRO may of its own (without application from the registered person) cancel
the registration if a registered person fails to file his tax return for a consecutive
period of six (6) months. However, before such cancellation he will have to give
an opportunity of being heard to the registered person.
 Federal Excise Duty
Dutiable Goods [2(8b)]
‘Dutiable goods’ means all excisable goods specified in the
First Schedule except those which are exempt u/s 16 of the
Federal Excise Act, 2005.
Dutiable Supply [2(8c)]
‘Dutiable Supply’ means a supply of dutiable goods made
by a manufacturer. Supply of exempt goods shall not be
dutiable supply.
Dutiable Services [2(8d)]
‘Dutiable services’ means all excisable services specified in
the First Schedule except those which are exempt u/s 16 of
the Federal Excise Act, 2005.
 FED
 Franchise [2(12A)]
 ‘Franchise’ means an authority given by a franchiser under which the
franchisee is contractually or otherwise granted any right to produce,
manufacture, sell or trade in or do any other business activity in respect of
goods or to provide service or to undertake any process identified with
franchiser against a fee or consideration including royalty or technical fee,
whether or not a trade mark, service mark, trade name, logo, brand name or
any such representation or symbol, as the case may be, is involved.
 Goods [2(13)]
 ‘Goods’ means the goods leviable to excise duty under the Federal Excise Act,
2005 or as specified in the First Schedule and includes the goods manufactured
or produced in non-tariff area and brought into the tariff area for use or
consumption.
 Non-tariff area means Azad Jammu and Kashmir, Northern Areas and such
other territories or areas to which the Federal Excise Act, 2005 does not apply.
[2(17)]
 Tariff area means the areas other than the non-tariff area. [2(24)]
 FED
Manufacture [2(16)]
 General Meanings
 It means and includes any process incidental or ancillary to the
completion of a manufactured product and any process of re-
manufacture, remaking, reconditioning or repair and the process of
packing or re-packing such product.
 Meanings in Relation to Tobacco
 ‘Manufacture’ includes the preparation of:
 Cigarettes,
 Cigars,
 Cheroots (cigars with both end open),
 Biris,
 Cigarette, pipe or hookah tobacco,
 Chewing tobacco, or
 Snuff (powdered tobacco taken into the nose by snuffing).
 FED
 Scope of FED
 The federal excise duty is levied and collected on excisable goods and services
of the following categories: [3(1)]
 The goods which are produced or manufactured in Pakistan.
 The goods which are imported into Pakistan.
 The goods which are produced or manufactured in the non-tariff areas and are
brought to the tariff areas. (These goods are notified by the Federal Government in
the official Gazette)
 The services provided in Pakistan including the services originated outside but
rendered in Pakistan.
 The excise duty is levied and collected at the rate of 15% ad Valorem. However,
the goods and services specified in the First Schedule to the Federal Excise Act
shall be charged to duty at such rates as are specified against each goods and
service.
 Excise Duty on Imported Goods [3(2)]
 Where any excisable goods are imported into Pakistan, the excise duty in respect of
such goods shall be levied and collected in the same manner and at the same time as if
it were a customs duty payable under the Customs Act, 1969. Under this case all the
provisions of that Act shall apply.
 FED
Basis of the Duty [3(1) & (3)]
The duty may be charged on any of the following basis:
Percentage to the value of the goods or services (ad
valorem);
Percentage to the retail price of the goods or services;
Production capacity of the plant, machinery,
installations, etc.; or
Fixed duty.
 FED
 Value For The Purposes Of Duty [12]
 The Federal excise duty is generally levied on the value of the goods or services.
Under such a case, the determination of the value of goods or services is very
important. Legal provisions in this regard are discussed below:
 Value of Goods [12(1), (3), (4) & (5)]
 Where any goods are liable to duty under the Federal Excise Act at a rate dependent
on their value, duty shall be assessed and paid on the basis of value as determined
under section 2(46) of Sales Tax Act, 1990, excluding the amount of duty payable on
these goods.
 Where the excise duty is chargeable on the goods at the import stage, the value for
excise duty shall be the value as determined under section 25 of the Customs Act,
1969 for customs duty or increased by the amount of customs duty payable in
respect of such goods. [12 (3)]
 Where the excise duty on any goods is chargeable on the basis of “Retail Price”, the
value of such goods shall be the retail price fixed by the manufacturer at which a
particular brand or variety of such goods should be sold to the general body of
consumers. This price shall include all duties, charges and taxes other than the sales
tax. Where more than one retail price is fixed for the same brand or variety, the
highest of such price shall be taken for charging the excise duty. [12(4)]
 FED- Value of Goods
 Where the duty is chargeable on the basis of ‘retail price’, the retail price shall be legibly,
prominently and indelibly indicated on each good, packet, container, package, cover or
label of such goods. The Board has the authority to direct otherwise. [12(4)]
 The Board is empowered to specify any goods or class of goods on which duty, in case of
local production, is payable on retail price. In case of import of such goods the duty shall
be charge in the like manner as is payable in case of goods locally produced. [Proviso to
12(4)]
 The Board may fix the minimum price of any goods or class of goods for the purpose of
levying and collecting the excise duty. Where the price at which goods or class of goods
is sold is higher than the price fixed by the Board, the duty shall be charged and levied at
such higher price. However, the Board may also direct otherwise. [12(5)]
 Value of Services [12(2)]
 The value of services, in a case where excise duty is chargeable on the charges for the
services, shall be the total amount of charges for the services, including the ancillary
facilities or utilities, if any.
 Where any such services are provided free of charge or at a concessional rate, the duty
shall be charged on the amount which would have been charged if the services, etc., had
not been provided free of charge or at a concessional rate.
Question & Answer Session
I thank you