Income Tax Law - Pakistan

Trainer:
Fawad Hassan – ACA phavvad@gmail.com
0333-6036837
CFAP – 05
Advanced Taxation
[Tax Year 2020]
Income Tax

2
Syllabus
Grid Weighting Last 8 years’ Average
Income Tax 50-55 59
Sales Tax 30-35 28
Federal Excise Law 10-15 12
Professional values, ethics and attitude 5-10 1
Details 1. Income Tax Ordinance 2001
2. Income Tax Rules 2002
3. SROs/Notifications + Circulars
1. Sales Tax Act 1990
2. Sales Tax Rules 2006
3. Sales Tax Special Procedures Rules 2007
4. Sales Tax Special Procedure (Withholding Rules) 2007
5. SROs/Notifications + Circulars
6. Provincial Sales Tax Laws (Acts/Ordinances + Rules)
1. Federal Excise Act 2005

3
Target
1. To enable you to score at least a 50
2. Practical understanding of Laws of Taxation

4
Practice Material
1. ICAP practice kit for CFAP-5
2. ICAP past papers [latest 6 attempts – from December 2016 to June 2019]
Questions Answers
Dec 2017
June 2017
Dec 2016
June 2019
Dec 2018
June 2018
Dec 2017
June 2017
Dec 2016
June 2019
Dec 2018
June 2018

5
Important !!!
1. Which books to refer
2. Getting familiar with bare acts
3. Locating a topic in bare act – it is not a dictionary
4. Practice – reverse tracking

6
Revenue Collection
Exchequer
(FederalConsolidatedFund)
Inflows
Outflows
Income Tax
CVT
WWF
Sales Tax
FED
Custom Duty
DeficitLoans & Grants
Capital Receipts
Revenue
Receipts
Non Tax Receipts
Tax
Receipts
Other Taxes
FBR
Taxes
Indirect
Tax
Direct Tax
External Receipts
Internal
Receipts

7
Income Tax
6 Basic Questions
1. Tax Year
2. Type of Person
3. Residential Status
4. Tax Regime
5. Geographical Source of Income
6. Apportionment of Deductions

8
1. Tax Year [S-74]
Time Bracket
Normal Tax Year
(NTY)
End date is other
than 30th June
End date is 30th
June
Time period of
less than 12
months
Time period of 12 months
Transitional Tax
Year (TTY)
Special Tax Year (STY)
Denoted by Calendar Year
relevant to NTY in which
Year end falls
Denoted by Calendar
Year in which NTY ends
Denoted by Calendar
Year relevant to NTY in
which Year end falls
FBR has authority to
prescribe STY
TTY occurs because of
change in TY from NTY to
STY or vice versa
TTY is the period between TY end date of last tax year and commencement date of next TY
Industry Special Tax Year SRO Ref
Sugar Manufacturing 1st October - 30th September 134(R)/68,
July 31,1968
Rice Exporter 1st January - 31st December 367(I) /74,
January 14,1974
Insurance 1st January - 31st December 878 (I) /95,
August 30,1995

9
Change in Tax Year
NTY STY STY - 1 STY - 2STY NTY
Tax Payer will give an application in writing to Commissioner of Income Tax (CIT)
CIT is convinced that
compelling need
exists
Not Convinced
Give tax payer an opportunity
of being heard in person
Not Convinced
1) issue rejection orders
2) record reasons of rejection
in order
Tax Payer may file review application to FBR & decision of FBR shall be final
Grant Permission through an
order in writing

10
Tax Year Practice
Determine the tax year in respect of each accounting periods mentioned below:
a) 1.09.2015 to 31.08.2016
b) 01.04.2016 to 30.06.2016
c) 1.01.2016 to 31.12.2016
d) 1.04.2016 to 31.03.2017
e) 1.05.2016 to 30.04.2017
f) 1.07.2016 to 30.06.2017
STY
TTY
STY
STY
STY
NTY
TY 2017
TY 2016
TY 2017
TY 2017
TY 2017
TY 2017

11
2. Type of Person
a) Tax Payer [S-2(66)]
b) Person [S-80]

12
a) Tax Payer [S-2(66)]
Any person or representative of person who;
i. Derives an amount chargeable to tax
ii. Is required to collect/deduct tax
iii. is required to furnish return of income
iv. is required to pay tax
under Income Tax Ordinance 2001

13
b) Person [S-80]
Following shall be treated as person;
i. Individual
ii. Company formed in Pakistan or elsewhere
iii. AOP formed in Pakistan or elsewhere
iv. Federal government
v. Foreign government
vi. Political subdivision of foreign government
vii. Public International Organization
Taxation of Persons
• Individual
• AOP
• Company

14
Company means following
i. Company as defined in Companies Ordinance 1984
ii. Body Corporate formed by or under any law in force in Pakistan
iii. Modaraba
iv. body incorporated by or under any law of country outside Pakistan relating to
incorporation of companies
v. cooperative society, finance society or any other society
vi. non-profit organization
vii. Trust
viii. foreign association declared by FBR to be a company
ix. Provincial Government
x. Local Government
xi. Small company as defined in Section -2

15
Association of Persons includes following
i. Firm (means relation between persons who have agreed to share profits of business
carried on by all or any one of them acting for all)
ii. Hindu Undivided Family
iii. Artificial Juridical Person
iv. Any body of persons formed under foreign law
And does not include “Company”

16
3. Residential Status
a) Resident Individual
b) Resident Company
c) Resident AOP

17
a) Resident Individual [S-82]
i. Not based on Nationality
ii. Based on Physical Presence in Pakistan
iii. Government servant posted abroad will be treated as resident, irrespective of his physical stay in Pakistan
iv. Counting of days shall be made in accordance with Rule-14 of Income Tax Rules, 2002
4 preceding Tax Years Current Tax Year
OR
Current Tax Year
365 days or more 120 days or more 183 days or more
Resident Resident

18
Rule-14 of Income Tax Rules, 2002
Days not to be counted Days to be counted
i. Day or part of day in Pakistan solely
by reason of being in transit between
two different places outside Pakistan
Part of a day shall be counted as a whole
day in following cases;
i. Day of arrival in Pakistan
ii. Day of departure from Pakistan
iii. Public Holiday
iv. Leave, including sick leave
v. Holiday spent in Pakistan before,
during or after activity in Pakistan
vi. Day when activity was interrupted
due to Strike, lockout, delay in
receipt of supplies

19
b) Resident Company [S-83]
i. Company incorporated in Pakistan
ii. Provincial Government
iii. Local Government
iv. Company incorporated outside Pakistan
Resident
No further condition required
Resident
if, Control and Management of
affairs situated wholly in
Pakistan at any time in a Tax
Year

20
b) Resident AOP [S-84]
Resident if, Control and Management of affairs situated wholly or partly in Pakistan at
any time in a Tax Year

21
Residential Status Practice
i. Mr. Raza is working as Director Operations in the Ministry of Tourism. On 15 July 2017 he was posted to Pakistan Embassy in
Italy for two years.
ii. Anderson LLC was incorporated as limited liability Company in UK. The control and management of its affairs was situated
wholly in Pakistan. However, with effect from 01 November 2017, the entire management and control was shifted to UK.
iii. On 01 February 2018, Mr. Sameel was sent to Pakistan by his UK based company to work on a special project. He left Pakistan
on 23 August 2018.
iv. BBL is a non-listed public company incorporated under the Companies Ordinance, 1984. All the shareholders of the company
are individuals. The control and management of affairs of the company during the year was outside Pakistan.
v. Mr. Salman a property dealer in USA came to Pakistan on 01 February 2017. During his stay upto 02 August 2017 in Pakistan,
he remained in Peshawar upto 30 June 2017 and thereafter till his departure from Pakistan, in Quetta. Assume that
Commissioner has granted him permission to use calendar year as special tax year.
vi. Peshawar LLC (PLLC) was incorporated as a limited liability company in UAE. PLLC has 5 directors out of which 2 are involved
in management, the rest of them were situated in UAE. The 2 directors control the affairs of the company from Pakistan.
Resident
Resident
Non
Resident
Resident
Resident
Resident
Federal Govt Employee
Control & Mngt in wholly in
Pak any time in TY
Stay less than 183 days
Company incorporated in
Pak
Total stay 183 days
Control & Mngt in wholly in
Pak any time in TY

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4. Tax Regimes
Heads of Income
Salary Income
Property Income
Business Income
Capital Gains
Income from Other Sources
Total Income
- Deductible Allowances
Taxable Income
Rate from 1st Schedule
Tax Imposed/Chargeable
- Tax Credits
Tax Payable
- Withholding Tax/Adv Tax
Income Tax Demand/Refund
Normal Tax Reg.
Separate Taxation Tax Collected/deducted is final tax
Minimum Tax Reg
10
10
10
10
10
10%
50
(2)
(10)
1
40
4
(1)
3
Final Tax Regime
Losses
Exemptions
Final Tax
Final Tax
Presumptive Tax Regime

23
a) Pakistan Source Income [S-2(40) & 101]
b) Foreign Source Income [S-2(27) & 101(16)]
Resident Non Resident
Pakistan Source Income Taxable Taxable
Foreign Source Income Taxable Not Taxable
Section 11(5) & (6)

24
6. Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Deductions [S-67]
Any expenditure/deduction/allowance that relates with following shall be
apportioned on reasonable basis:
a) derivation of income under more than one head of income
b) derivation of taxable income and income under Final Tax Regime
c) derivation of income under any head of income and for any other purpose
Explanation on:
Expenditure/Deduction/Allowance

25
6. Apportionment of Deductions [S-67 & Rule 13]
Apportionment of Expenditures Deductions and Allowances [Rule-13]
Clearly Allocable to an Income Not clearly Allocable to an Income
deductible/chargeable
against that particular income
Apportion on basis of following formula:
Common Exp x Gross Receipts of a class of income/Gross Receipts of all classes of income
Class of Income may include following:
Salary Income
Income from Property
Income from Business (Speculative/Non Speculative)
Capital Gains
Other Sources
Separate Block of Income
Exempt Income
Income under FTR
Pakistan
Source
Income
Foreign
Source
Income

26
6. Apportionment of Deductions [Rule 13]
a) Gross receipts are net of Sales Tax & Federal Excise Duty
b) Nature and source of each class of income shall be considered for allocation
c) Above allocation shall be certified by CA or CMA, in case accounts are required to be audited. The certificate shall be
accepted by CIR only if variation in allocation from these rules is not more than 10%
d) In case accounts are not required to be audited then apportionment shall be accepted by CIR only if variation in allocation
from these rules is not more than 10%
e) In certain transactions where net gains, brokerage, commission or other income is taken, than Gross Profits shall be taken
as Gross Receipts

27
a) Total Income [S-10]
b) Taxable Income [S-9]
c) Heads of Income [S-11]
d) Tax on Taxable Income [S-4]

28
Tax Collected/Deducted is Final Tax
Advance Tax Tax at Source
Section 169
[S-148] Imports
[S-148A] Local Purchase of Cooking Oil &
Vegetable Ghee
[S-234A] CNG Stations
[S-151] Profit on debt
[S-152] Payments to Non Residents
[S-153] Payment of Goods, Services or Contracts
[S-154] Exports
[S-156] Prizes & Winnings
[S-156A] Petroleum Products
[S-233] Brokerage & Commission
[S-152A] Payment for Foreign Produced Commercials
[S-236A] Advance Tax at the time of sale by Auction
[S-236HA] Tax on Sale of Certain Petroleum Products
[S-236Q] Payment to Residents for use of Machinery &
Equipment
Others
Explanation on:
Deducted vs Deductible
Final / Minimum

29
[S-148] Imports
FTR [S-169]
• Collector of Customs shall collect ADVANCE TAX on imports @ 1st Schedule, Part-II at the time and in the manner, custom duty is paid
• Above tax on Imports shall be :
Adjustable Tax in following cases:
i. Import of Raw Material, Plant & Machinery, Equipment &
Parts by Industrial Undertaking for its own use
ii. Import of Motor Vehicle in CBU condition by Manufacturer of
Motor Vehicles
iii. Imports by Large Import House
iv. Import of Foreign Produced Film for viewing and screening
Minimum Tax in following cases:
i. Plastic raw material imported by an industrial undertaking
falling under PCT heading 39.01 to 39.12
ii. Import of Edible Oil
iii. Import of Packing Material
iv. Import of ship by ship breaker
v. Any other imports not mentioned earlier
Final Tax in following cases:
• have paid-up capital of exceeding Rs.250 million;
• have imports exceeding Rs.500 million;
• own total assets exceeding Rs.350 million at the close of the TY;
• is single object company;
• maintain computerized records of imports and sale of goods;
• maintain a system for issuance of 100% cash receipts on sales;
• present accounts for tax audit every year;
• is registered under the Sales Tax Act, 1990 and
• make sales of industrial raw material of manufacturer registered under the Sales
Tax Act,1990

30
[S-148A] Local Purchase of Cooking Oil or Vegetable Ghee
• Purchase of locally produced edible oil by Manufacturer of Cooking Oil or Vegetable Ghee shall be charged to tax at following rate:
2% of Purchase of locally produced edible oil
• Above tax shall be final tax in respect of income accruing from locally produced edible oil
FTR [S-169]

31
[S-234A] CNG Station
Person preparing Gas consumption bill
Charge tax @ 1st Sched, Part-III, Div-VIB
CNG StationBill
FTR [S-169]
Above tax
+
Tax collected u/s 235 (Tax collected on Electricity Consumption)
Shall be Minimum Tax on income of CNG Station

32
[S-151] Profit on Debt
Payer of POD
Deduct tax @
1st Sched, Part-III, Div-IA
Gross POD X
- Zakat (X)
X
• Account
• Deposit
• Certificate
• Post Office Savings Account
• Account
• Deposit
• Security issued by FG/PG/LG
• Bond
• Debenture
• Certificate
• Security
• Instrument of any kind
of National Saving Scheme
with any Bank/Financial Institution
Issued by:
Banking Co
Financial Institution
Company as defined in Co. Ord. 1984
Body Corporate formed under any Law
To any Resident Person
To any Resident Person
other than Financial
Institution
Tax deduction shall not be made from Profit on Debt on Loan
Agreement between borrower and Banking Company OR Financial
Institution
Tax deducted under Section 151, shall be ADJUSTABLE against tax
liability calculated under Section 7B, which will be calculated @
1st Sched, Part-I, Div-IIIA on Gross Amount of Profit on Debt
Tax Liability under Section 7B, shall be Final Tax
Section 7B is not applicable on POD> PKR 36 million
Section 7B is not applicable on Company, therefore Profit on Debt
received by Company shall be taxed under Normal Tax Regime
and tax deducted under section 151 shall be adjustable
FTR [S-169]

33
Not Applicable
Company
Tax Imposed
NTR
Other CasesSection 7BCompany
Tax deducted at source
Section 151
Other Cases
Not Minimum Tax
Final Tax
Separate Taxation
POD > PKR 36 million
Minimum Tax

34
[S-152] Payments to Non Residents
Every person while making payment to Non Resident for
Contract of
[S-152(1A)]
Rendering of or
providing services
[S-152(2A(b))]
Insurance/
Reinsurance
Premium
[S-152(1AA)]
Advertisement
Services
rendered by TV
Satellite Channel
Construction
Assembly
Installation in
Pakistan
Supervisory
activity in
relation to
above
premium should not be
taxable income of PE of Non
Resident
Deduct tax @ 1st Sched, Part-III, Div-II
Minimum Tax
FTR [S-169]
Prescribed Person making payment to PE of Non Resident for

35
[S-153] Payments for Goods, Services, Contracts
Every Prescribed Person while making payment to Resident shall deduct tax @ 1st Sched, Part-III, Div-III for payment on account of following
Final Tax
Goods
[S-153(1)(a)]
Other CasesListed CompanyCompany
(being manufacturer)
OthersSports PersonListed Company
Other than for sale of goods or services
Contracts
[S-153(1)(c)]
Services
[S-153(1)(b)]
Minimum Tax
Adjustable Tax
Section 153(2): Exporter/Export House making payment to Resident
Person OR PE of Non Resident for services of stitching, dying, printing,
embroidery, washing, sizing and weaving shall
deduct tax @ 1st Sched, Part-III, Div-IV ResidentPENR
OthersElectronic & Print
media for
Advertisement
FTR [S-169]

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[S-154] Exports
Indirect ExporterIndirect ExporterExporter
Indenting Commission
Agent
Direct ExporterDirect ExporterFrom
Direct ExporterBankExport Processing
Zone Authority
Authorized Dealer in
Forex
Collector of Customs
Authorized Dealer in
Forex
By
Payment of GoodsRealization of Proceeds
Time of Export
Realization of Forex
Proceeds
Time of Export
Realization of Forex
ProceedsTime
[S-154(3B)][S-154(3)][S-154(3A)] [S-154(2)][S-154(3C)][S-154(1)]
Tax Collection
Rate 1st Sched, Part-III, Div-IV
Tax deducted/collected above shall be Final Tax, however, a person may opt not to be subject to final taxation. In case of availing such option, the above taxes shall be
treated as minimum tax
In Land Back-to-
back letter of credit
Firm contract Forex Pak Rupees (i.e.,
exports without
Form "E")
Sales made to Direct exporter through Export Proceeds Realizable in
Indirect Exporter Direct Exporter
Yes No
Export of Goods by Industrial Undertaking in Export Processing Zone Commission on
Exports
FTR [S-169]

37
[S-156] Prizes & Winnings
Every person paying following shall deduct/collect tax @ 1st Sched, Part-III, Div-VI
• Prize Bond
• Winning from raffle
• Lottery
• Prize on a quize
• Sale promotion prize by a company
• Cross word puzzle
Tax shall be deducted from gross amount, in case of cash prize OR
on fair market value, in case of prize in kind
Tax collected/deducted shall be Final Tax
FTR [S-169]

38
[S-156A] Petroleum Products
Every person selling petroleum products to petrol pump operator shall deduct tax on
discount or commission allowed to petrol pump operator
at the rate mentioned in 1st Sched, Part-III, Div-VIA
Tax deducted shall be Final Tax
FTR [S-169]

39
[S-233] Brokerage & Commission
Principal Agent
Brokerage /
Commission
Faderal Govt,
Provincial Govt,
Local Govt,
Company,
AOP formed under any Law
Deduct tax @
1st Sched, Part-IV, Div-II
Tax deducted shall be Minimum Tax
If agent has retained any commission or brokerage from amount remitted to principal, such amount shall be deemed to have been
paid by principal to the agent and tax thereon shall be collected by principal from agent.
FTR [S-169]
A x 15/85
A = Advertising services charges,
excluding commission, on which tax
was deducted u/s 153
Advertising
Agent

40
[S-152A] Payment for Foreign Produced Commercials
Any Person Non Resident Person
Foreign produced commercial for advertisement
On
Television or other media
Direct Payment
Through agent
or intermediary
Deduct tax
@ 20%
From Gross amount
FTR [Others]

41
[S-236A] Advance tax at time of sale by auction
SellerPurchaserPublic Auction Auction by Tender
Property attached/confiscated
OR
Awarding of any lease to any person
Including:
lease of the right to collect tolls
fees or other levies
Belonging/Not belonging to:
Government
Local Government
Any authority
Company
Foreign association declared to be a company [S-80(2)(b)(vi)]
Foreign contractor/consultant/consortium
Collector of Customs
Commissioner of Inland Revenue
Any any other authority
Collect tax
@
1st Sched, Part-IV, Div-VIII
On sale price
Final Tax
FTR [Others]

42
[S-236HA] Tax on Sale of Certain Petroleum ProductsFTR [Others]
Every person selling petroleum products to petrol pump operator or distributor (where commission or discount is not allowed)
shall collect advance tax on
Ex-depot sale price of such products
at the rate mentioned in 1st Sched, Part-IV, Div-XVA

43
[S-236Q] Payment to Resident for use of Machinery & Equipment
Prescribed Person
Making payment to Resident Person
For use/right to use
Industrial/commercial/scientific equipment
On account of RENT of machinery
Deduct tax on Gross Amount
1st Sched, Part-IV, Div-XXIII
Final Tax
Prescribed Person has same meaning
as defined in Section 153(7)
Machinery leased by:
- Leasing Co.
- Investment bank
- Modaraba
- Scheduled bank
- Development finance Inst.
Agriculture Machinery
This section not applicable on following:
FTR [Others]

44
Separate Taxation
Separate Taxation Separate Block of Income
Section 8 [S-5] Tax on Dividends
[S-5AA] Tax on Investment in Sukuks
[S-6] Tax on certain payments to Non Residents
[S-7] Tax on shipping and air transport income
of a non-resident person
[S-7A] Tax on shipping of Resident Person
[S-7B] Tax on Profit on Debt
• To be discussed in
relevant Head of Income

45
Dividend [S-2(19)]
FTR [S-8]
Company Shareholder
Deduct tax on gross amount @ 1st Sched, Part-III, Div-I
Cash Dividend
[S-150]
Dividend in specie
[S-236S]
Tax deducted will be Adjustable
Pay tax on gross amount @ 1st Sched, Part-I, Div-III
Tax Imposed will be Final Tax
[S-5]
Shareholder shall pay Final Tax after adjustment of tax
deducted at source

46
Return on Sukuk
Special Purpose Vehicle
OR
Company
Sukuk Holder
Deduct tax on gross amount @ 1st Sched, Part-III, Div-IB
Return on Sukuk
[S-150A]
Pay tax on gross amount @ 1st Sched, Part-I, Div-IIIB
[S-5AA]
Receiver of return shall pay Final Tax after adjustment
of tax deducted at source
3rd Pak Int Sukuk CoFTR [S-8]

47
Special Purpose Vehicle
Wapda
Wapda
First
Sukuk
Company
Ltd
Sukuk
Holder
Sukuk Certificate
Funds for Purchase of Turbines Funds
Title to Turbines
Lease Turbines
Lease Rental Return to Sukuk Holder
Pay Exercise Price
Get Title of Turbines
Redeem Sukuk
Return Sukuk
Purchase
Turbines

48
Payments to Non Residents
Payment to Non Resident
for Pakistan Source
Royalty , Fee For Offshore Digital Services OR FFTS Non-Resident
Deduct tax on gross amount @ 1st Sched, Part-I, Div-IV
Payment to Non Resident
[S-152(1)]
Pay tax on gross amount @ 1st Sched, Part-I, Div-IV
[S-6]
This section shall not apply on following:
1. Royalty: where property or right giving rise to royalty is effectively
connected with PE of Non Resident. Such royalty shall be treated as
business income of PE of Non Resident.
2. FFTS & FFODS: where services giving rise to fee are rendered through
PE of Non Resident. Such fee shall be treated as business income of PE
of Non Resident.
3. Royalty or FFTS exempt from tax.
FTR [S-8]

49
[S-2(54)] Royalty
Royalty means any amount Paid Payable Periodical or lumpsum as consideration for following
(vi)
(vii)
supply of any assistance ancillary and subsidiary to any property or right mentioned above
disposal of any right or property mentioned above
(v) Use or right to use Industrial/commercial/scientific equipment
(iv) Supply of Technical/industrial/commercial/scientific Knowledge/skill
(iii)
receive or right to receive
visual image or sound
transmitted by
Satellite/Cable
Optic Fiber
Similar technology
in connection with
Television
Radio
Internet broadcasting
(ii) Use or right to use
copyright or a literary, artistic or scientific work including
films or video tapes for use in connection with television or
tapes in connection with radio broadcasting
but shall not include consideration for
sale, distribution or exhibition of
cinematograph films
(i) Use or right to use Patent
Invention
Design
Model
Secret formula
Process
Trade mark
Other like property/right
Business Income

50
[S-2(23)] FFTS
means any consideration, whether periodical or lump sum, for rendering :
(b) consideration chargeable under head "Salary"
(a) consideration for services in connection with construction, assembly or like project
It does not include following
Including services of technical or other personnel
Managerial
Technical
Consultancy Services
Provision of
Service vs Know-how
Business Income
FFTS

51
[S-2(22B)] Fee for Offshore Digital Services
means any consideration for providing following services by Non-Resident
• online advertising including
• digital advertising space,
• designing, creating, hosting or maintenance of websites,
• digital or cyber space for websites,
• advertising, e-mails, online computing, blogs, online content and online data,
• providing any facility or service for uploading, storing or distribution of digital content including
• digital text, digital audio or digital video, online collection or processing of data related to users in
Pakistan,
• any facility for online sale of goods or services or any other online facility

52
[S-7] Tax on Shipping & Air Transport Business of Non-Resident
Non-Resident owns a ship or aircraft
Tax shall be imposed @ 1st Sched, Part-I, Div-V
On Gross Amount
Passengers, live stock, mail, goods
embarked
In Pakistan Outside Pakistan
Amount
Received/Receivable
In Pakistan P P
Outside Pakistan P O
FTR [S-8]

53
[S-7A] Tax on Shipping of Resident Person
Resident doing shipping business
Ships flying Pakistan Flag
@ 1 US $ per Gross Registered Tonnage
Pay Tonnage Tax
Ships not registered in Pakistan
Pay Tonnage Tax
0.15 US $ per Gross Registered Tonnage
For each voyage to Pakistan
Subject to maximum of 1 US $ per
Gross Registered Tonnage
Exchange rate on following dates shall be applicable:
i. In case of Company, 1st December of relevant Tax Year
ii. In other cases, 1st September of relevant Tax Year
Tax paid under this section shall be Final Tax
This section shall not be applicable after 30.06.2020
FTR [S-8]
Tug Boat Dredger Survey Vessel
Bareboat Charter

54
Minimum Tax
Section 113
Section 113C
Section 148
Section 151
Section 152
Section 153
Section 154
Section 233
Section 234A
Section 236C
Other Important Minimum Tax Provisions
[Already discussed under section 169]

55
[S-113] Minimum Tax on Income of Certain PersonsMinimum Tax
Company
Resident Turnover 10 million or above
In TY 2017 or after
Tax payable is less than
[%age given in column (3) of Table in 1st Sched, P-I, Div-IX] x [Turnover]
Due to:
(i) Loss of the year
(ii) Set off of loss of earlier year
(iii) Exemption from tax
(iv) Tax Credits OR Rebates
(v) Allowances/Deductions (including Depreciation & Amortization)
IndividualAOP
Specific Conditions
General Conditions
 Turnover shall be treated as income
 Pay tax on basis of turnover @ 1st Sched, Part-I, Div-IX
 The excess tax paid due to minimum tax, shall be carried forward for adjustment against tax
liability upto 5 subsequent tax years
Tax Payable shall not
include:
(i) Final Tax
(ii) Tax Payable u/s 4B
Turnover means:
Gross Sales
Gross Fees
Gross Fees
Share of profit
from AOP
Excluding
Sales Tax
FED
Trade Discount
Deemed income on which
Final Tax has been paid
Including
Commission
Turnover means:
Gross Sales
Gross Fees
(Services)
Gross Fees
(Contracts)
Share of
Company in AOP
in above
amounts

56
[S-113C] Alternative Corporate TaxMinimum Tax
Company
Tax Payable under NTR
Minimum Tax
Higher
Corporate Tax
In case of Section 113, C/f upto
5 subsequent Tax Years
Alternate Corporate Tax
Higher
Tax Payable
C/f upto
Accounting Profit before Tax
(excluding share from associate under Equity Method of accounting)
Less:
Exempt Income
Income taxable @ other than 29%
Income subject to Tax Credit u/s 65D, 65E, 100C
Proportionate Expenses relating to above income
Accounting Income
@ 17% = Alternate Corporate Tax
Less:
Tax Credit u/s 64B
Tax Credit u/s 65B
Tax Payable
100
(11)
(11)
(11)
3
70
11.90
(1)
(1)
9.90
Other than:
i. Insurance Co.[4th Sched]
ii. Petroleum & Mineral deposit exploration[5th Sched]
iii. Banking Co.[7th Sched]

57
Alternate Corporate Tax Practice-I
Tax under NTR
Minimum Tax u/s 113
10,000,000
14,000,000
20,000,000
Company
Tax Payable under NTR
10,000,000
Minimum Tax
14,000,000
Higher
Corporate Tax
14,000,000
4,000,000 C/f upto
20,000,000
Higher
Tax Payable
20,000,000
6,000,000C/f upto

58
Alternate Corporate Tax Practice-II
Total Revenue
Total Expense
Accounting Profit before tax
Taxable Income under NTR
Total Revenue comprise of
following:
i. Exempt
ii. Taxable
200,000,000
50,000,000
150,000,000
25,000,000
70,000,000
130,000,000
Accounting Profit before Tax
(excluding share from associate under Equity Method of
accounting)
Less:
Exempt Income
Income other than under NTR
Income subject to Tax Credit u/s 65D, 65E, 100C
Proportionate Expenses relating to above income
Accounting Income
@ 17% = Alternate Corporate Tax
Less:
Tax Credit u/s 64B
Tax Credit u/s 65B
Tax Payable
150,000,000
(70,000,000)
0
0
17,500,000
97,500,000
16,575,000
(0)
(0)
16,575,000
Proportionate Expenses
50 x 70 / 200
Company
NTR tax @ 30%
7,500,000
Minimum Tax
2,500,000
Higher
Corporate Tax
7,500,000
Nothing C/f upto
5 subsequent Tax
Years
Alternate
Corporate Tax
16,575,000
Higher
Tax Payable
16,575,000
9,075,000 C/f upto
10 subsequent Tax
Years

Income from Salary
Employee Employment Employer
Means any individual engaged in employment Means any person who engages and
remunerates an employee
Includes:
i. Directorship or any other office
involved in management of company
OR
ii. a position entitling the holder to a
fixed or ascertainable remuneration
OR
iii. holding or acting in any public office
3 Important Questions:
2. Basis of Taxation
3. Residential Status recently changed
Heads of Income
59
Deciding a
Salary case

Income from Salary
1. Geographical Source of Income [S-101(1), (11) & (16)]
Heads of Income
Employment Exercised
In Pakistan Outside Pakistan
Payment of Salary made
In Pakistan PSI FSI
Outside Pakistan PSI FSI
By or on behalf of FG/PG/LG in Pakistan
PSI wherever employment is exercised
Salary
60
Pension/Annuity
Resident
FSI
PSI
PENRBorn by
Paid by

Income from Salary
Heads of Income Salary
61
Cash BasisAccrual
[S-110]
Salary received in current tax year in respect of services rendered in
previous Tax Year is taxable on accrual basis.
Conditions:
(i) Salary is received from a private company
(ii) Commissioner of Income Tax is satisfied that the payment of salary
was deferred
[S-12(7)]
Arrears of salary received in tax year caused higher taxation, then tax payer
by notice in writing to commissioner tax salary on accrual basis
All Other Cases
Amount OR Perquisite treated as received [S-12(5)]:
as and when it is paid or provided;
By
(i) Employer
(ii) Associate of employer
(iii) Any 3rd party under agreement with employer or its
associate
By
(i) Past employer
(ii) Perspective employer
To
(i) Employee
(ii) Associate of employee
(iii) Any 3rd party under agreement with employee or its
associate
Receipt of Income [S-69]:
Amount/benefit/perquisite treated as received when:
(i) Actually received
(ii) Applied on behalf/instruction of person OR under any law
(iii) Made available to person

Income from Salary
3. Residential Status Recently Changed
Heads of Income Salary
62
Non Resident
Resident
Geographical Source of Income
PSI FSI
Residential
Status
FSI of Resident
Foreign Source Salary of Resident [S-102]:
Exempt if;
- Foreign tax on salary is paid by individual OR
- withheld by employer and paid to revenue
authority of foreign country
Citizen of Pakistan leaves Pakistan [S-51(2)]:
If a citizen of Pakistan leaves Pakistan in a Tax Year
and remains abroad during that tax year
then Salary earned outside Pakistan shall be
exempt
Returning Expatriate [S-
51(1)]:
If resident in a Tax Year but was
Non-Resident in preceding 4
Tax Years
Then all foreign source income
will be exempt in tax year in
which tax payer becomes
resident and the following tax
year
Short term Resident [S-50]:
FSI will be exempt
Conditions:
(i) Resident solely by reason
of employment
(ii) Present in Pakistan for 3
years or less
Exceptions:
(i) Income from business
established in Pakistan
(ii) Foreign Source Income
brought into or received
in Pakistan

Income from SalaryHeads of Income Salary
63
Deciding a Salary case:
1. Salary Definition
2. Deductions
3. Perquisites/Facilities/Benefits
4. Exemptions

64
Salary [S-12(2)] Means: any amount received by employee from employment whether capital or revenue nature
Includes: Perquisites [Section-13]
means
-items provided by employer in kind
OR
-cash reimbursed for expenses other than office purpose
includes
-Services of house keeper, driver, gardener, domestic assistant
-Utilities
-Any obligation of employee to employer, waived off by employer
-Any obligation of employee to another person paid by employer
-FMV of property transferred to employee reduced by any payment
made by employee
Allowances
-Cost of Living
Allowance
-Subsistance Allowance
-Rent
-Utilities
-Education
-Entertainment
-Travel Allowance;
except for official tours
-Pay
-Wages
-Other remuneration
-Leave pay
-Overtime
-Bonus
-Commission
-Fee
-Gratuity
-Work condition
Supplements
Expenditure
incurred by
employee but
paid by employer,
other than official
purposes
Others
-Pension,
Annuity
- Leave encashment -Vehicle wholly or partly for private use
-Accommodation
-Medical Facility
-Interest free loan
- Medical Allowance -Profits in lieu of salary
-Employee Share Scheme

65
Leave Encashment [2nd Schedule, Part-I, Clause-19]:
Encashment of
Leave Preparatory to Retirement
Of
(i) Government Employee
(ii) Member of Armed Forces
Exempt from Tax
Definition

66
Valuation of Conveyance [Rule-5]:
Taxable
Vehicle leased by employerVehicle owned by employer
Official Use only
Official & Personal use
Personal Use only
Usage
Not Taxable
5% of FMV at commencement of lease5% of cost of vehicle
10% of FMV at commencement of lease10% of cost of vehicle
Definition

67
Valuation of Accommodation [Rule-4]:
Amount that would have been paid
if accommodation was not provided
45% of MTS/Basic Salary
Higher
Taxable
Accommodation provided in mufasal areas
shall be taxable at 30% of MTS/Basic Salary
Definition

68
Medical Allowance [2nd Sched, P-I, Clause 139]:
BothMedical Facility/Reimbursement
Not in accordance with
terms of employment
In accordance with terms of
employment
Medical Allowance
Medical Allowance >>>>exempt upto 10% of Basic Salary
Medical Facility>>>>>>totally taxable
Taxable
Medical Allowance >>>>Totally Taxable
Medical Facility>>>>>>totally exempt if following
conditions are met
(i) Provide NTN of medical practitioner
(ii) Attestation of expense by employer
Totally exempt if following conditions
are met:
(i) Provide NTN of medical
practitioner
(ii) Attestation of expense by
employer
Exempt upto 10% of Basic Salary
Definition

69
Interest Free Loan [S-13(7) (8) & (14)]: Loan from employer
@
benchmark
rate or
more
Markup
charged?
Markup @ benchmark rate
Included in Taxable Income
Markup @ benchmark rate
– Markup charged by employer
Included in Taxable Income
Nothing Taxable
NoYes
Yes
Above is not applicable on loan upto Rs 1,000,000/-
OR
Where such benefit is extended by the employer due to
waiver of interest by such employee on his accounts
maintained with the employer.
No
X
(X)
X
If loan is utilized by employee to acquire an asset
(generating income under any head of income)
Then employee shall be treated as having been paid
markup @ benchmark rate or actual markup paid,
which ever is higher.
Definition
Benchmark Rate = 10%

70
Profits in lieu of salary [S-12(2)(e)]
(i) Payment of Employer's Contribution from provident fund
(ii) Amount on termination of employment, whether voluntary basis or under an agreement
(iii) Compensation for redundancy or loss of employment (e.g., Golden Hand Shake)
(iv) Consideration for employee's agreement to :
• enter into employment agreement
• accept changes to conditions of employment
• a restrictive covenant to any past, present or future employment
Includes:
[S-12(6)]
Tax payer has option to get it taxed @ last 3 years
average rate of tax
Last 3 year’s taxable income
Last 3 year’s tax liability
=Average rate of tax
Definition

71
Employee Share Scheme [S-14] Option/Right Acquired
Shares disposed off
Shares acquired without any restriction on transfer
OR restriction removed afterwards
Shares acquired with restriction on transfer
Exercised Option/Right & Shares received Taxable under salary
Consideration
- Cost Paid
Option/Right Disposed Off
Nothing Taxable
X
(X)
X
FMV
- Consideration paid to acquire option & shares
X
(X)
X Taxable under salary
Taxable under Capital Gains
Disposal value
- Consideration paid to acquire option & share
- Amount previously included in Taxable income
X
(X)
(X)
X
Nothing Taxable
Definition

72
Deductions:
Section 12(4):
No deduction shall be allowed for any expense incurred by employee in deriving salary income.

73
Perquisites/Facilities/Benefits:
1. Pension
2. Commutation of Pension
3. Gratuity & Commutation of Pension
4. Provident Fund
5. Tax on Salary Born by Employer
6. Services provided by employer to employee
7. Utilities
8. Obligation of employee waived by employer
9. Obligation of employee to 3rd party, paid by employer
10. Property or service provided to employee
11. Any other perquisite
12. Self Hiring of Property
13. Superannuation Fund
14. Benevolent Fund

74
1. Pension [2nd Sched, Pt-I, Cl (8)&(9)]
Member of Armed Force
Employee of FG/PG
Totally Exempt
Others
Age>60 Totally Exempt
Works for
same
employer or
its associate
Taxable
More than
1 pension
Totally Exempt
Higher amount is exemptYes
No
YesNo
YesNo
Perks

75
2. Commutation of Pension [2nd Sched, Pt-I, Cl (12)]
Received from Government
OR
Received from Scheme approved by FBR
Totally Exempt
Perks

76
3. Gratuity and Commutation of Pension [2nd Sched, Pt-I, Cl (13)]
Rs 75,000/-
OR
50% of amount
(Which ever is less is exempt)
Exempt upto Rs 300,000/-Totally Exempt
Un-approved Gratuity
OR
Un-approved Commutation
Gratuity & Commutation Scheme Approved
by FBR
Government Employee
OR
Approved Gratuity Fund by CIT under 6th Schedule
Exemption not available to following:
(i) Payment not received in Pakistan
(ii) Payment received by Director of Company who is not employee of company
(iii) Payment received by Non Resident
(iv) Gratuity received by employee who has already received gratuity from same or another employer
Perks

77
4. Provident Fund [2nd Sched, Pt-I, Cl (23)] & [6th Sched, Pt-I, Cl (3), (4) & (5)]
Already taxed in salary,
therefore no treatment
Employee Contribution
Govt. PF
Already taxed in salary, therefore no
treatment
Already taxed in salary, therefore no treatment
Un-recognized PFRecognized PF
ExemptEmployer Contribution
No treatment when contribution is
made
Rs 150,000
OR
10% of (Basic Salary + Dearness Allowance)
(Lesser is exempt)
Exempt
Returns credited during
year
Return @ 16%
OR
1/3rd of (Basic Salary + Dearness Allowance)
(Higher is exempt)
ExemptAccumulated Balance Paid
No treatment when returns are
credited
Exempt
Only employee’s contribution is exempt
All other sums are taxable
Note: Dearness Allowance is a type of Cost of Living Allowance
Perks

78
5. Tax on Salary Born by Employer [S-12(3)]
Amount of salary income shall be grossed up by amount of tax payable by employer.
Q. Mr. A has received taxable salary and allowances amounting to Rs 1,810,000 during tax year 2020. You are
required to calculate his taxable income and tax payable under each of following situations:
(i) 100% tax is to be borne by employer
(ii) 40% of tax is to be borne by employer and balance to be borne by Mr. A
(iii) Rs 50,000 is to be borne by employer and balance to be borne by Mr. A
(iv) Mr. A shall pay only Rs 50,000 as tax and balance tax to be borne by employer
Perks

79
6. Services provided by employer to employee [S-13(5)]
House keeper
Gardner
Driver
Other domestic assistant
Less: payment by employee to employer for these services
Salary paid to them by employer X
(X)
X Taxable
Perks

80
7. Utilities [S-13(6)]
Electricity
Gas
Water
Telephone
Less: payment by employee to employer for these utilities
Fair Market Value of utilities X
(X)
X Taxable
Perks

81
8. Obligation of employee waived by employer [S-13(9)]
Waived Amount Taxable
9. Obligation of employee payable to 3rd party paid by employer [S-13(10)]
Paid Amount Taxable
10. Property or service provided to employee [S-13(11)]
Less: payment by employee to employer
Fair Market Value X
(X)
X Taxable
Perks

82
11. Any other perquisite [S-13(13)]
Less: payment by employee to employer for perquisite
Fair MV of perquisite X
(X)
X Taxable
Perks

83
12. Self Hiring of Property [S-15(5)]
"Income from Salary" shall include value of accommodation in accordance with Rule-4
"Income from Property" shall include rent income in accordance with Section-15(4)&(5)
Perks

84
13. Superannuation Fund approved by Commissioner in accordance with Part-II of 6th Schedule [Cl-4-6] & 2nd Sched, P-I, Cl-25 :
Employer’s Contribution
During life time other than above
In lieu of annuity
On deathPayment out of fund:
Taxable
Exempt
Interest Credited
Perks

85
14. Benevolent Fund [2nd Sched, P-I, Cl-24]
Any payment in accordance with
"Central Employee Benevolent Fund & Group Insurance Act 1969"
Exempt
Perks

86
Exemptions:
1. Foreign Government Officials
2. Diplomatic & United Nations Exemptions
3. International Agreements
4. Perquisites without Marginal Cost to Employer
5. Special Allowance
6. Workers’ Participation Fund
7. Salary income of seafarer
8. Allowances to persons working outside Pakistan
9. Full Time teacher/researcher

87
Exemptions:
1. Foreign Government Officials [S-43]
Salary of foreign government employee shall be exempt from tax if:
(i) employee is citizen of foreign country and not citizen of Pakistan
(ii) services performed are similar to those performed by employees of Federal Government in foreign countries
(iii) foreign government grants similar exemption to employees of the Federal Government performing similar services in such foreign country

88
Exemptions:
2. Diplomatic & United Nations Exemptions [S-42]
Following shall be exempt from tax:
(i) Individuals entitled to privileges under the Diplomatic and Consular Privileges Act, 1972
(ii) Individuals entitled to privileges under the United Nations (Privileges and Immunities) Act, 1948
(iii) Pension received by citizen of Pakistan due to former employment in the United Nations or its specialized agencies, if the person’s salary from
such employment was exempt under this Ordinance

89
Exemptions:
3. Exemption under International
Agreements [S-44]
If Pakistan is not permitted to tax
an income under TAX TREATY,
it will be exempt from tax
Salary received under an AID AGREEMENT is exempt from
tax subject to following conditions:
(i) Salary received by individual, who is not citizen of
Pakistan
(ii) Exemption will be to the extent provided in AID
AGREEMENT
(iii) AID AGREEMENT is between FG≈Fr.G FG ≈PIO
(iv) Individual is not resident OR Is resident solely for
performance of service under AID AGREEMENT
(v) In case AID AGREEMENT is with Foreign Govt. then
individual should be citizen of that country
(vi) Salary is paid out of funds released to Pakistan under
AID AGREEMENT
Any income under a bilateral or multilateral technical assistance
AGREEMENT is exempt from tax subject to following conditions::
(i) Income is received by person, who is not citizen of Pakistan
(ii) Person is engaged as a contractor, consultant, or expert on a
project in Pakistan
(iii) Exemption will be to the extent provided in AGREEMENT
(iv) AGREEMENT is between FG≈Fr.G FG ≈PIO
(v) Project is financed out of funds released in accordance with
AGREEMENT
(vi) Person is not resident OR Is resident solely for performance of
service under AGREEMENT
(vii) Income is paid out of funds under AGREEMENT

90
Exemptions:
4. Perquisites without Marginal Cost to Employer [2nd Sched, P-I, Cl-53A]
Hospital/ClinicEducational InstitutionHotel/Restaurant
Any other notified by FBR
Free/subsidized Medical
Treatment
Free/subsidized education
Free/subsidized food
during duty hours
Totally Exempt

91
Exemptions:
5. Special Allowance [2nd Sched, P-I, Cl-39]
Any allowance, other than Conveyance and Entertainment
Allowance, specially granted to meet expenses wholly and
necessarily incurred in performance of office duties
Exempt

92
Exemptions:
6. Workers’ Participation Fund [2nd Sched, P-I, Cl-26]
Amount received as worker, out of Workers' Participation Fund Exempt

93
Exemptions:
7. Salary Income of Seafarer [2nd Sched, P-I, Cl-4]
Salary income shall be exempt if
Pakistani seafarer is on
Pakistan flag vessel
for
183 days or more on vessel
Foreign vessel
No limit of number of days
Following conditions required for exemption:
(i) Income remitted to Pakistan
(ii) through normal banking channel
(iii) within 2 months of relevant tax year

94
Exemptions:
8. Allowance to person working outside Pakistan [2nd Sched, P-I, Cl-5]
Allowance from Govt of Pakistan
to a citizen of Pakistan
for rendering services outside Pakistan
Exempt

95
Exemptions:
9. Full Time teacher/researcher [2nd Sched, P-III, Cl-1(2)]
Tax payable in salary shall be reduced by 25% if following conditions are fulfilled:
(i) The individual is Full time teacher/researcher
(ii) in non-profit education/research institution, duly recognized by
a. Higher Education Commission (HEC)
b. Board of Education
c. University recognized by HEC
(iii) including in any Government research institute
Above shall not apply to teacher of medical profession who
(i) derive income from private medical practice or
(ii) receive share of consideration received from patients

Owner/Landlord
Property
Land/Building
Tenant
Rent means:
Amount received/receivable
By owner of land/building
As consideration to use/occupy OR right to use/occupy the land/building
Rent includes:
Forfeited deposit on contract for sale of land/building [S-15(1)&(2)]
Heads of Income
96
Deciding a
Property
Income case
Accrual Basis

1. Geographical Source of Income [S-101(9) & (10)]
Heads of Income Property
97
Immovable Property
situated in Pakistan
Right to explore natural resources
in Pakistan
Rental Income shall be Pakistan Source Income
Gain on disposal of above property or right shall also be Pakistan Source Income

Deciding Income from Property Case:
98
Individual Company
Tax shall be imposed on these persons on Gross Rent
Income @ 1st Sched, P-I, Div-VIA
Except following:
(i) Individual/AOP
(ii) having no taxable income under any other head &
(iii) Taxable Property Income is upto Rs 200,000/-
[S-15(6) & (7)]
Income from Property derived shall be taxable
under
"Normal Tax Regime”
Rental income shall be reduced by allowable
expenses, detailed in Section-15A, and remaining
amount shall be included in taxable income under
Normal Tax Regime
AOP
Yes
Can opt between
[S-15A(7)]
No
rent chargeable
to tax > PKR 4
million

99
Rent
i. 1/10th of advance will be treated as Rent in
• TY of receipt &
• 9 subsequent TYs
ii. Nothing will be included in taxable income, in the tax year in which such advance is refunded
iii. If tenancy is terminated before 10 years and previous advance is returned and new advance is received then:
1/10th of advance will be treated as Rent in
• TY of receipt &
• 9 subsequent Tys
NON-ADJUSTABLE Advance (Building)
[S-16]
automatically included in
taxable income because of
accrual basis of taxation
Advance ADJUSTABLE
against Rent
Taxable on
accrual
basis
Rent
Amount of new advance
- Amount charged to tax earlier
X
X
(X)

100
Rent [S-15], [S-39] & [S-66]
Important !!
(i) Rent received/receivable OR Fair Market Rent, which ever is higher, is taxable [S-15(4)]
(ii) Above is not applicable if Fair Market Rent has already been included in salary income due to self hiring of property [S-15(5)]
(iii) Following amounts shall be included in taxable income under the heads of income mentioned thereagainst;
• Ground Rent
• Rental income from sub-lease of land or building
• Rental income from lease of building, together with Plant & Machinery
• Amount of amenities, utilities, other services connected with renting
• Amount received as consideration for vacating possession of building
(iv) When a property is owned by two or more persons &
their share is definite and ascertainable
then
Persons shall not be treated as AOP
Share of each person's income from property shall be taxed separately
Income from Other
sources
[S-39(1)(d)]
[S-39(1)(e)]
[S-39(1)(f)] & [S-15(3)]
[S-39(1)(fa)] & [S-15(3A)]
[S-39(1)(k)]

101
Allowable Deductions [S-15A]
i. Building Repair Allowance
ii. Insurance Premium-Building
iii. Rates, tax, charge, cess not being Income Tax
iv. Ground Rent
v. Markup on loan to acquire, construct, renovate, extend, reconstruct property
vi. HBFC Loan / Scheduled Bank Loan on scheme based on sharing rent
(share in rent+share in appreciation in value)
vii. Markup on mortgages/charges
1/5th of rent chargeable to tax
Paid/Payable
Paid/Payable
Paid/Payable
Paid/Payable
Paid/Payable
Paid

102
Allowable Deductions [S-15A]
viii. Expenses wholly &
exclusively for deriving rent
including administrative and
collection charges
ix. Legal Charges
x. Irrecoverable Rent
xi. Inadmissible deductions [S-21]
• Paid/Payable
• maximum upto 6% of rent chargeable to tax
• must be paid within 3 subsequent tax years
• otherwise will be included in taxable income in 4th subsequent tax year
• if unpaid amount which is included in taxable income, as above, is subsequently paid, then it will be allowed as deduction in tax
year in which it is paid
Paid/Payable (to defend title of property or defend any suit connected with property in a court)
Conditions:
i. Tenancy was bonafide
ii. defaulting tenant has vacated property OR steps have been taken to compel tenant to vacate property
iii. defaulting tenant is not occupying any other property of same person
iv. person has taken all legal steps for recovery OR reasonable grounds exist that legal proceedings will be useless
v. rent was previously included in taxable income and tax was duly paid
(if irrecoverable rent is subsequently recovered, then it will be included in taxable income in tax year of recovery)
will be studied in "Income from Business"

Income From BusinessHeads of Income
103
Business [S-2(10)]:
Includes;
• Trade
• Commerce
• Manufacture
• Profession
• Vocation
OR
adventure/concern
in nature of above
But does not
include
EMPLOYMENT
Income from Business [S-18]:
Following incomes shall be chargeable to tax under head "Income from Business"
• Profits & gains
• Income derived by trade/profession/similar association
• Income from hire/lease
• FMV of any benefit* OR perquisite
• Management Fee
Profit on debt :
Lease rentals from lease of any asset shall be "Income from business" if
"Profit on debt" earned by
& distributed to
this distributed share shall be "Income from Business" and not "Income from Other
Sources" for
Of any business carried on by person
from sale of goods OR provision of services to members
of tangible movable property
from any past, present or perspective business relationship
• benefit includes debt or profit on debt waived off under SBP(Banking Policy Deptt.)
circular 29 of 2002
derived by a management company including Modaraba Management Company
If person's business is to derive such income
then it's "Income from business"
otherwise it's "Income from Other Sources”
Lessor is scheduled bank, investment bank, DFI, Modaraba, Leasing Co.,
Mutual fund OR Pvt Equity & venture capital fund
Banking Co. or NBFC
Skip Definition >>>
Income subject to
taxation under sections
5A, 5AA, 6, 7 and 7A
shall not be chargeable
to tax under section 18

Income From BusinessHeads of Income
104
1. Permanent Establishment
3. Taxation of PENR
4. Thin Capitalization
Deciding a
Business Income
case
After reading serial 1 to 3,
attempt this
Quiz

Permanent Establishment [S-2(41)]Heads of Income
105
Includesmeans a fixed place of business through which the business of the
person is wholly or partly carried on
Not a PE
Purchase
Contract
Activities
continued for
more than 90
days in past
12 months
Dependent
Agent
Independent
Agent
Place of management, branch, office,
factory, workshop, premises for
soliciting orders, warehouse, permanent
sales exhibition or sales outlet, other
than Liaison Office
mine, oil or
gas well,
quarry or
any other
place of
extraction of
natural
resources
an
agricultural,
pastoral or
forestry
property
Construction
/ Installation
Project
Furnishing
Services
through
employees
Agent in
Pakistan
Substantial
equipment
installed to
generate
income
PE
Sales
Contract
Liaison Office
[S-2(30C)]
Negotiates
Contracts?
No
Yes
Business
Fixed Place
of business,
used or
maintained
by person

Professional Services
Services of Entertainers
Sports Person
Paid by
Resident
(except fee in respect of business
outside Pak through a PE) OR
PENR
Geographical Source of Income
[S-101(2),(3),(4),(5),(12A),(13A),(14)]
Heads of Income
106
Business
Business Income
Insurance/Reinsurance
Premium
PENR
Business Income is attributable to
PSI
Business
carried on
in Pakistan
Non ResidentResident
Resident Insurance
Company
Remuneration is paid by
Resident OR PENR
Independent services
including:
Business
connection in
Pakistan
Other activities
similar to those
provided through
PE of Non
Resident
Sale of Goods
similar to those
sold by PE of Non
Resident
Gain on disposal
of any asset used
to derive above
Pakistan Source
Income
Overseas Insurance Co.
Import of Goods, if
such import is part
of certain activities
performed in Pak
either by PENR or
Associate of NR
Income subject to tax
u/s 5A, 5AA, 6, 7 and
7A shall not be taxable
under “income from
business”
Fee for Offshore Digital
Services

Taxation of PENR [S-105]Heads of Income
107
Business
1. Profits of PENR shall be determined separately from Non-Resident as independent and distinct entity
2. Expenses incurred by PENR for the purpose of business shall be allowed as deduction, whether incurred in Pakistan or elsewhere
3. Head Office expenses upto a maximum of [HO Expenses x Turnover of PENR / Worldwide Turnover]
Not Allowed
(O)
Allowed
(P)
Oi) Royalty OR Fees for use of tangible OR intangible asset by PENR
ii) Compensation for services performed for PENR (including management services)
Amounts paid/payable by PENR to its Head Office or to another PE:
iii) Profit on Debt on money lent to PENR (except in case of Banking Business)
P
O
O
Above expenses actually paid by Head Office or by another PE and reimbursed by PENR
Amounts charged by PENR to its Head Office or to another PE:
Oi) Royalty OR Fees for use of tangible OR intangible asset by PENR
Insurance Premium on above Profit on debt paid by NR
iii) Profit on Debt on money lent by PENR (except in case of Banking Business)
P
O
O
Above expenses actually paid by PENR and reimbursed by Head Office or by another PE
Head Office Expenses:
Means; executive or general
administrative expense incurred by NR
for business operations in Pakistan of
PENR
Includes:
• Rent, rates taxes except foreign
income tax
• Repair
• Insurance premium for risk of
damage outside Pakistan
• Salary to Head Office employee
• Travelling expense of employee
• Any other prescribed expenseProfit on Debt paid by NR to finance operations of PENR O
ii) Compensation for services performed for PENR (including management services) O

Thin Capitalization [S-106]Heads of Income
108
Business
Foreign Company/Foreign Controller (FC) Foreign Controlled Resident Company (FCRC)
(50% or more ownership held by FC, individually OR through associates)
Other than;
- Financial Institution
- Banking Company
- Branch of FC
Foreign Equity
Foreign Debt
Associate
Profit on Debt
Dividend Not an expense
Is an expense
Foreign Equity Foreign Debt
Foreign Debt
Foreign Debt
Profit on
Debt
Allowed as
expense
Foreign
Debt
Profit on
Debt
Not Allowed
as expense
Profit on Foreign Debt, which exceeds 3 times of Foreign Equity at
any time during TY will not be allowed as expense
Foreign Debt:
Greatest amount at any time in TY of following;
(i) Debt payable to FC OR Associate of FC:
(Profit on debt is deductible expense for
FCRC & POD is not taxable in hands of FC
OR is taxable @ lower than corporate rate
of tax applicable on FC)
(ii) Debt payable to any other person who
owes similar debt to FC OR Associate of FC
Foreign Equity:
Sum of following at beginning of TY;
(i) Paid up Capital owned by FC OR Associate of
FC
(ii) Proportionate share premium account
balance
(iii) Proportionate accumulated profit balance
(iv) Proportionate Asset Revaluation Reserve
(i) Debt owed to FCRC by FC OR Associate of FC
(ii) Proportionate accumulated losses balance

Basis of TaxationHeads of Income
109
Business
When payable by person
When due to person
Stock in trade [S-35]
Method of Accounting [S-32]
1. The method of accounting should be regularly employed
2. Company must employ accrual basis of accounting.
3. Other persons may apply cash basis of accounting OR accrual basis of accounting
4. FBR can prescribe a class of persons to follow cash or accrual basis of
accounting
5. Change in method of accounting:
a. Application to Commissioner in writing
b. Satisfy commissioner that the change in method of accounting is
necessary to clearly reflect taxable income
c. Commissioner, if satisfied may approve, by an order in writing, that the
method of accounting be changed
6. While applying change in method of accounting, it must be ensured that no
item of income or expense is omitted or accounted for more than once.
Accrual Basis of Accounting [S-34]Cash Basis of Accounting [S-33]
When paidIncur expense
When receivedDerive income
Un-paid Liability:
• if deduction allowed in a tax year for an expense which is neither paid in same tax year
nor paid in 3 subsequent tax years
then it will be included in taxable income in 4th subsequent tax year
• if amount included in taxable income as stated above is paid in any later year
then it will be allowed as deduction in tax year in which it is paid
(amount is payable by person when
- all events determining liability have occurred
- amount of liability can be ascertained with reasonable accuracy)
(amount is due to person when he is entitled to receive it)
Opening Stock
Closing Stock
Starting/1st period FMV when stock ventured in business
Subsequent Period
NRV
Cost
Lesser of
Any of Marginal OR
Absorption Costing
Absorption Costing
Cash
Accounting
Accrual
Accounting

Deciding Business Income CaseHeads of Income
110
Business
1. Speculation Business
2. Deductions Allowed
3. Deductions not allowed
4. Assets
5. Acquisition & Cost
6. Depreciation
7. Initial Allowance
8. First Year Allowance
9. Accelerated Tax Depreciation to Alternate Energy Projects
10. Disposal & Consideration
11. Non Recognition Rule
12. Depreciation on asset partly used in business
13. Leasing Business
14. Intangibles
15. Pre-commencement Expenditure
16. Scientific Research Expenditure
17. Bad Debts
18. Employee Training & Facilities
19. Profit on Debt, Financial Cost and Lease Payments
20. Requirement of withholding tax against “Expenses”

111
Business
1. Speculation Business [S-19]:
Means:
business in which, contract for purchase or sale of commodity is settled, otherwise than by actual delivery of commodity
does not include following contracts to guard against future price fluctuations
i. contract in respect of materials to fulfill another contract of actual delivery of goods
ii. contract in respect of shares & stocks entered into by dealer or investor
iii. contract entered into by member of stock exchange or forward market to guard against jobbing or arbitrage transaction in ordinary course of business
Taxation of Speculation business:
i. It shall be treated as a separate business from any other business under head "Income from Business“
ii. Principles of apportionment of deductions under section 67 shall apply as if it is a separate head of income
iii. Loss from Speculation Business shall be treated under section 58

112
Business
2. Deductions Allowed [S-20]:
i. Any expenditure incurred wholly and exclusively for purpose of business
ii. Depreciation of tangible assets, amortization of intangible assets & pre-commencement expenditures
iii. Legal & financial advisory services & administrative cost incurred by amalgamated company for it's amalgamation
iv. Animal used for business & profession becomes permanently disable or is dead then following deduction shall be allowed:
(Above is not applicable in case of animals which are stock-in-trade)
Actula Cost X
Less:Amount realized from animal carcass (X)
X

113
Business
3. Deductions not Allowed [S-21]:
i. Cess, rate, tax on profits of business whether payable in Pakistan or outside Pakistan
ii. Tax deducted at source from amounts received
iii. All such payments shall not be allowed as deduction, if applicable tax at source, is not deducted while making payment
Except: in case of purchase of Raw Material & Finished Goods, the disallowed expense shall be limited to 20% of total purchases
iv. Full amount of commission paid or payable
i. to person who is EITHER not registered with Sales Tax OR is not appearing on ATL under ITO &
ii. Amount of commission is above 0.2% of supply of products listed in the 3rd Sched of Sales Tax Act, 1990
v. Entertainment expenses exceeding prescribed limits. Rule-10 specifies the prescribed limits as follows:
Expense has been incurred
a. wholly & exclusively for business
b. outside Pakistan for business transaction OR allocated as Head Office Expenses
c. inside Pakistan, for foreign customers & suppliers
d. at business premises for customers & clients
e. on meetings of shareholders, directors, agents or employees
f. on opening of a new branch
g. on entertainment of persons related directly to business
Entertainment means
meals, refreshment,
reasonable leisure facility
in accordance with
traditions of business &
subject to overall norms of
business

114
Business
v. Contributions to following funds:
Un-recognized Provident Fund / Un-approved Pension Fund / Un-approved Superannuation Fund / Un-approved Gratuity Fund
vi. Contribution to Provident Fund OR any other fund for benefit of employees, in respect of which, arrangements have not been made for deduction of tax at
source at the time of making payments from the fund to employees
vii. Penalty / fine for violation of any law
viii. Personal expenditure
ix. Amount transferred to Reserve OR capitalization of profits in any way
x. Profit on debt / Brokerage / commission / Salary / remuneration paid by an AOP to its members

115
Business
xi. Expenditure under single head of account exceeding Rs 50,000/- paid other than by :
a. crossed cheque
b. crossed bank draft
c. crossed pay order
d. other crossed banking instrument
e. online transfer
f. payment through credit card
Above is not applicable to following:
a. expenditure not exceeding Rs 10,000/-
b. expenditure on account of:
• Utility bills
• Freight charges
• Travel fare
• Postage
• Taxes/duties/fees/fines

116
Business
xii. Salary exceeding Rs 15,000/- per month, paid other than by:
a. crossed cheque OR
b. direct transfer to employee bank account
xiii. Capital expenditure
xiv. In case of pharmaceutical manufacturer any advertisement/publicity/sales promotion expense > 10% of turnover

117
Business
4. Assets:
i. Depreciable Asset [S-22(15)]:
Means any tangible movable property, immovable property or structural improvement to immovable property owned by a person that :
a. has normal useful life exceeding one year
b. is likely to lose value as a result of normal wear and tear or obsolescence AND
c. is used wholly or partly by person in deriving income from business
it shall not include any asset whose entire cost is allowed as deduction under Income Tax Ordinance 2001
ii. Structural Improvement [S-22(15)]:
Includes building, road, driveway, car park, railway line, pipeline, bridge, tunnel, airport runway, canal, dock, wharf, retaining wall, fence, power lines, water
or sewage pipes, drainage, landscaping or dam.
iii. Eligible Depreciable Asset [S-23(5)]:
a depreciable asset which is not:
a. furniture & fittings
b. road transport vehicle not plying for hire
c. plant & machinery previously used in Pakistan
d. plant & machinery whose entire cost is allowed as deduction under Income Tax Ordinance 2001
Where any asset is jointly owned by Tax Payer and Islamic Financial Institution under Musharika
Financing or Diminishing Musharika Financing, such asset shall be treated to be owned by “Tax Payer”
[Proviso to S-22(15)]

118
Business
4. Assets:
iv. Business Asset [S-75(7)]:
Means asset held wholly or partly for use in business, including stock-in-trade and depreciable asset
v. Personal Asset [S-75(7)]:
Means asset held wholly for personal use

119
Business
5. Acquisition & Cost:
i. Acquisition [S-75]:
when the person begins to own the asset including when the right is granted OR
when the personal asset is applied to business use
ii. Purchase of Asset through Banking Channel [S-75A]:
Immovable property having FMV > PKR 5 million OR
Any other asset having FMV > PKR 1 million
iii. Cost [S-76]:
Consideration paid / payable in cash X
FMV of consideration given in kind X
Incidental expenditure for acquisition / disposal of asset X
Expenditure to alter or improve asset X
X
If not purchased through banking channel;
Then amount shall not be considered as cost
i. for calculating depreciation/amortization and
ii. for calculating gain on disposal.

120
Business
iii. Cost [S-76]:
a. Cost of Passenger transport vehicle not plying for hire shall not exceed Rs 2.5 million. [Section-22(13a)]
b. Cost of immovable property shall not include cost of land [Section-22(13b)]
c. Forex Gain/loss to be adjusted in cost of asset [Section-76(5 & 6)]
• if asset has been acquired with a foreign currency loan, then increase or decrease in liability due to foreign currency rate shall be adjusted in cost
of asset
• while determining above forex gain / loss the person's position under hedging agreement relating to foreign currency loan shall also be
considered
d. Grant, subsidy, rebate, commission or any other assistance in relation to acquisition of asset [Section-76(10)]
if chargeable to tax then it will be included in cost of asset and vice versa
e. If asset acquired in a non-arm's length transaction, then FMV of asset shall be treated as its cost [Section-78]
f. If personal asset is applied to business use, then its FMV shall be treated as its cost [Section-76(3)]

121
Business
iii. Cost [S-76]:
g. If asset is produced or constructed by person, then its cost will include following:[Section-76(4)]
h. If an asset is partly disposed off, then its cost shall be apportioned between the part disposed off and part retained on basis of respective FMV at time of
acquisition of asset [Section-76(7)]
i. If acquisition of an asset is derivation of an amount chargeable to tax, then its cost will include following:[Section-76(8)]
j. If acquisition of an asset is derivation of an amount exempt from tax, then its cost will include following:[Section-76(9)]
Total production/construction cost X
+Incidental expenditure for acquisition / disposal of asset X
+Expenditure to alter or improve asset X
X
Amount chargeable to tax X
Amount paid to acquire asset X
X
Amount exempt from tax X
Amount paid to acquire asset X
X

122
Business
6. Depreciation [S-22]:
Method of tax depreciation : Diminishing/Reducing Balance Method
Rate of Depreciation : as per 3rd Schedule Part-I
Full Year depreciation in year of acquisition
No Depreciation in year of disposal
7. Initial Allowance [S-23]:
Allowed for "eligible depreciable asset" used 1st time in Pakistan OR
Year in which commercial production is started
Rate of Initial Allowance : as per 3rd Schedule Part-II
8. First Year Allowance [S-23A]: (in lieu of initial allowance)
Conditions to be fulfilled:
• Plant & machinery & equipment installed by Industrial Undertaking in rural or under developed area OR
by cell phone manufacturer who qualifies for exemption under clause 126N of part-I of second schedule
AND
• Owned and managed by a Company
Rate of First Year Allowance : as per 3rd Schedule Part-II
which ever is later

123
Business
9. Accelerated Tax Depreciation to Alternate Energy Projects [S-23B]:
Conditions to be fulfilled:
• Plant & machinery & equipment installed by Industrial Undertaking installed any where in Pakistan AND
• for generation of alternate energy AND
• Owned and managed by a Company
Rate of First Year Allowance : as per 3rd Schedule Part-II

124
Business
10. Disposal and Consideration:
i. Disposal [S-75]:
Asset is treated as disposed off when:
• person parts with its ownership
• sold, exchanged, transferred, distributed, destroyed or lost
• cancelled, redeemed, relinquished
• Transmitted
• put wholly to private use from business use
• discarded or ceased to be used
Gain or loss on disposal shall be calculated as follows:
Consideration for disposal X
Less:
Cost X
Initial Allowance OR (X)
First Year Allowance OR (X)
Accelerated Tax Depreciation (X)
Normal Depreciation (X)
X
Gain / Loss on disposal X

125
Business
ii. Consideration for Disposal [S-77]:
a. If Asset is lost or destroyed, then consideration shall include compensation, indemnity or damages received from:
• insurance claim
• Settlement
• judicial decision
b. If asset applied to personal use from business use or is discarded, then consideration shall be FMV of asset
c. If two or more assets disposed off in single transaction and consideration of each asset is not specified, then total consideration received shall be
apportioned on basis of FMV of each asset, at time of disposal
d. If actual cost of passenger transport vehicle not plying for hire was more than Rs 2.5 million, then consideration shall be calculated as follows:
Amount Received X
FMV of consideration in kind X
X
FMV of asset at time of disposal X
Which ever is higher
Actual consideration received on
disposal
x
2.5 million
Actual cost paid to acquire vehicle
[Section-77(2)]
[Section-77(3)]
[Section-22(10)]
[Section-77(5)]

126
Business
ii. Consideration for Disposal [S-77]:
e. If consideration for immovable property exceeds its cost, then it's consideration received shall be treated as cost.
f. If asset disposed off in a non-arm's length transaction, then FMV of asset shall be treated as consideration.
g. If depreciable asset is exported/transferred outside Pakistan, then its cost shall be treated as consideration received.
[Section-22(13d)]
[Section-78]
[Section-22(14)]

127
Business
11. Depreciation on asset partly used in business:
i. Where asset is used partly for business purposes and partly for any other use, the depreciation expense shall be restricted to fair proportional part which
is used for business.
ii. Initial Allowance/First Year Allowance/Accelerated Tax Depreciation shall be allowed on total cost of asset. The fact that asset was partly used for
business is irrelevant here.
iii. Written Down Value of such assets shall be calculated, as if the asset was wholly used for business purposes.
iv. Asset shall be treated to be wholly owned by the taxpayer if asset is jointly owned by a taxpayer and an Islamic financial institution licensed by SBP or
SECP under Musharika or diminishing Musharika arrangement
v. On disposal of such asset, following shall be deducted from consideration
[Section-22(3)]
[Section-22(6)]
Total cost of asset X
Less:
Initial Allowance-if any (X)
First Year Allowance-if any (X)
Accelerated Tax Depreciation-if any (X)
Normal Depreciation allowed as deduction (proportionate basis) (X)
X
[Proviso to Section-22(15)]

128
Business
12. Leasing business:
Leasing Co., Investment Bank, Modaraba, Scheduled Bank, Development Finance Institution
i. Initial Allowance/First Year Allowance/Accelerated Tax Depreciation or Normal Depreciation is allowed as deduction only against lease rental income
ii. Asset shall be treated as used in the business of lessor
iii. On completion of lease term, asset shall be transferred to lesee and treated as disposed off by leasing company and the consideration received shall be
residual value received by leasing company
iv. The cost of asset realized through lease rentals + residual value should not be less than cost of the asset
[Sections-22(12), 23(4), 23A(2), 23B(2)]
[Section-22(13c)]
[Section-77(4)]
[Section-77(4)]

129
Business
13. Intangibles [S-24]:
Means : patent, invention, design or model, secret formula or process, copyright, trade mark, scientific or technical knowledge, computer software, motion
picture film, export quotas, franchise, license, intellectual property, or other like property or right, contractual rights and any expenditure that provides an
advantage or benefit for a period of more than one year other than expenditure incurred to acquire a depreciable asset or unimproved land
And does not include self-generated goodwill or any adjustment arising on account of accounting treatment.
i. Cost of Intangibles:
Means expenditure incurred in acquiring or creating intangible
Includes expenditure for improving or renewing intangible
ii. Conditions for amortization:
a. intangible is wholly or partly used for business
b. normal useful life is more than 1 year
iii. Rules for amortization:
a. Year of acquisition; Number of days basis (An intangible available for use on a day shall be treated as used on that day)
b. Year of disposal; No amortization

130
Business
13. Intangibles [S-24]:
iv. Rate of amortization:
v. Intangible partly used for business and partly for any other use:
Amortization expenses shall be restricted to fair proportion of intangible used for business.
vi. Disposal:
Upon disposal, following shall be included in income from business
Cost
Useful life in whole years Note:
if useful life is not ascertainable, then it will be treated as 25 years
Consideration X
Written Down Value X
X

131
Business
14. Pre-commencement Expenditure [S-25]:
Means, expenditure incurred before commencement of business wholly and exclusively to derive taxable income
Includes,
• cost of feasibility studies
• construction of prototypes
• trail production
Does not include,
• expenditure to acquire land
• depreciable assets
• Intangibles
i. Method: Straight line basis
ii. Rate: as per 3rd Schedule, Part-III
No deduction shall be allowed for expense which allowed as deduction under any other provision of Income Tax Ordinance 2001

132
Business
15. Scientific Research Expenditure [S-26]:
Expenditure for scientific research
Contribution to Scientific Research Institution to do research
wholly and exclusively to derive income from business
shall be allowed as deduction.
• Scientific Research:
Means activity in Pakistan in the field of natural or applied science for development of human knowledge
• Scientific Research Expenditure:
Means expenditure on scientific research, for development of business
Includes contribution to scientific research institution to do research for business
not include expense incurred for
o acquisition of depreciable asset or intangible
o acquisition of immovable property
o ascertaining existance/location/extent/quality of natural deposits
• Scientific Research Institution:
Means any institution certified by FBR to do scientific research in Pakistan

133
Business
16. Bad Debts [S-29]:
i. Conditions to claim bad debts as expense
a. Amount was previoulsy included in taxable income
b. In case of a financial institution, the amount was lent to derive taxable income
c. amount is written off as bad debts in accounts
d. resonable grounds exist that debt is irrecoverable
ii. Subsequent recovery of bad debts written off:
Following shall be included in taxable income
(10,000)
40,000
Deduction from income from business
Included in income from business
(20,000)
10,000
(20,000)
60,000
Less: amount previously not allowed
Subsequent recovery
Case (b)Case (a)
20,000
(80,000)
100,000
amount previously allowed as deduction
Whole amount of debt

134
Business
17. Employee Training & Facilities [S-27]:
Expenditure in respect of following is allowed:
a. Educational institution/hospital for benefit of employees/dependents
b. Institute for training of industrial workers
recognized/aided/funded by
Federal Govt / Proviscial Govt / Local Govt
c. Training of Pakistani citizen under scheme approved by FBR
established in Pakistan

135
Business
18. Profit on debt, Financial costs and Lease Payments [S-28]:
Following shall be allowed as expense:
i. Profit on debt:
• on loan utilized for business purposes
• paid by bank on deposit accounts
ii. Financial costs:
• by originator on securitization of receivables in respect of special purpose vehicle (SPV)
iii. Lease rentals
• paid to scheduled bank, financial institution or approved modaraba, leasing company, SPV
iv. Share of profit
• under musharika scheme paid to a bank
• under musharika scheme paid to certificate holders. Such scheme should be approved by SECP and Religious Board under Modaraba Ordinance 1980
• paid on funds borrowed from modaraba or participation term certificates
v. State Bank of Pakistan (SBPs) share of profit paid by
• House Building Finance Corporation (HBFC)
• National Development Leasing Corporation
• Small & Medium Enterprises Bank
on investment/credit line provided by SBP

136
Business
Provisions relating to withholding taxes are mentioned in following chapters of Income Tax Ordinance 2001
Ch-X, Part-V, Div-III Ch-XII
Tenth Schedule
Collection/deduction of advance tax from persons not appearing
in active taxpayers’ list will be in accordance with
TENTH SCHEDULE
[S-100BA]
Important !!!
 Rate of WHT increased by
100%, with some exceptions
 WH Agent, with notice to CIT,
may not withhold extra 100%
if satisfied that payee is neither
required to file a return u/s
114 nor a statement u/s 115(4)

137
Business
149. Salary
150. Dividends
150A. Return on Investment in sukuks
151. Profit on debt
152. Payments to non-residents
152A. Payment for foreign produced commercials
153. Payments for goods, services and contracts
154. Exports
155. Income from property
156. Prizes and winnings
156A. Petroleum products
156B. Withdrawal of balance under pension fund
158. Time of deduction of tax
Ch-X, Part-V, Div-III
Sections Relate to Expense (Y/N)
Withholding Requirements
Yes
No
No
Yes
Yes
Yes
Yes
No
Yes
Yes
No
Yes
Irrelevant here

138
Business
149. Salary
151. Profit on debt
152. Payments to non-residents
152A. Payment for foreign produced commercials
153. Payments for goods, services and contracts
155. Income from property
156. Prizes and winnings
156B. Withdrawal of balance under pension fund
Requirement of withholding tax against “Expenses”
Ch-X, Part-V, Div-III
Relevant Sections Only Withholding Requirements
Every person responsible for making payment of salary OR directorship fee should deduct tax
Persons mentioned in S-151(1)(a) to (d) shall deduct tax at the time of making payment
>>>Refer details<<<
Every person making payment to Non Resident (for foreign produced commercial for advertisement on TV) should deduct tax
>>>Refer details<<<
Only “Prescribed Persons” are required to withhold tax while making payment of rent
Every person is required to withhold tax
Pension fund manager is required to withhold tax

139
Business
Royalty or FFTS to Non-Resident [S-152(1)]
Ch-X, Part-V, Div-III (152. Payments to non-residents)
Transaction Withholding Requirements
Every person while making payment is required
to withhold tax
Exception
Payment to Non-Resident on execution of following:
i. Contract/sub-contract under construction, assembly
or installation project in Pakistan and supervisory
activity in relation to above
ii. Any other contract for construction or services
iii. Contract for advertisement services rendered by TV
satellite channel [S-152(1A)]
Insurance/re-insurance premium to Non-Resident [S-
152(1AA)]
Payment to Non-Resident media person relaying from
outside Pakistan [S-152(1AAA)]
CIT approved “payment without withholding tax OR deduction of tax at
reduced rate”, where application made by recipient, having PE in
Pakistan [S-152(4A)]
N/A where amount is taxable to PENR and CIT granted approval [S-
152(2AA)]
Continued…..
Fee for offshore digital services [S-152(1C)] Every banking company or a Fin. Inst. making
payment on behalf of any resident or PENR

140
Business
Transaction
Withholding
Requirements Exception
CIT approved payment without withholding tax OR deduction of tax at
reduced rate, where application made by PENR [S-152(4A)]
Any other payment to Non-Resident not mentioned above [S-152(2)]
Payment to PENR for following:
i. Sale of goods (except: sale is made by importer + tax u/s 148
has been paid + goods have been sold without value addition)
ii. Rendering of services (treated as Minimum Tax [S-152(2B])
iii. On execution of contracts (other than contract for sale of goods
and execution of service) [S-152(2A)]
Prescribed Person is required to
withhold tax
N/A on following:
i. WHT applicable u/s 149, 150, 156, 233 OR
ii. Amount taxable to PENR and CIT approved it OR
iii. Amount payable by representative u/s 172(3) OR
iv. Non-resident is exempt from tax
Continued…..
Every person while making
payment is required to withhold
tax

141
Business
If a person intends to make payment to Non-Resident without deducting tax under this section, then prior approval of CIT will be required [S-152(5)(5A)(6)]
Above permission is not required in following cases:
i. Import of goods, where title of goods passes outside Pakistan and is supported by import documents except where:
a) the supply is made in connection with the overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory
activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether
or not the title passes outside Pakistan and whether or not the goods are imported in the name of the associate or any other person
b) Supply is made by Resident or by PENR in Pak, in connection with above arrangement.
ii. Education & Medical Expenses remitted in accordance with SBP Regulations [S-152(7)]
http://www.sbp.org.pk/epd/2015/FEC8.htm

142
Business
Payment to Resident Person for:
i. Sale of goods (if payment
is year is more than Rs
75,000)
ii. Rendering of services (if
payment is year is more
than Rs 30,000)
iii. Execution of contracts
iv. Contract signed with
sports person [S-153(1)]
Ch-X, Part-V, Div-III(153. Payments for goods, services and contracts)
Transaction
Withholding
Requirements
Exceptions (SRO 586)
Prescribed Person is
required to withhold
tax
In case payment for rendering of services is received through intermediary and such intermediary retains amount of any
service charges, then service provider is required to collect tax from intermediary on service charges retained.
S-153(1) not applicable on following:
i. Payment to importer in respect of imported goods, where importer has paid tax u/s 148 and has sold goods without
value addition.
ii. Refund of security deposit
iii. Payment by FG, PG, LG to contractor in respect of construction material supplied to contractor by FG, PG, LG
iv. Purchase of asset under lease-and-buy-back agreement by modaraba, leasing Co., banking Co., financial institution
v. Payment for securitization of receivables or issuance of sukuks by SPV to Originator
vi. Payment to traders of yarn by taxpayers specified in zero-rated regime of Sales Tax (2nd Sched, P-IV, Cl-45A)
Payment for stiching, dying,
printing, embroidery, washing,
sizing, weaving [S-153(2)]
Every exporter or
export house

143
Business
Ch-XII Requirement of withholding tax against “Expenses” mentioned in GREEN
236G. Advance tax on sales to distributors, dealers and wholesalers
236H. Advance tax on sales to retailers
236HA. Tax on sale of certain petroleum products
236I. Collection of advance tax by educational institutions
236J. Advance tax on dealers, commission agents and arhatis etc.
236K. Advance tax on purchase or transfer of immovable property
236L. Advance tax on purchase of international air ticket
236O. Advance tax under this chapter
236P. Advance tax on banking transactions otherwise than through cash
236Q. Payment to residents for use of machinery and equipment
236R. Collection of advance tax on education related expenses remitted abroad
236S. Dividend in specie
236U. Advance tax on insurance premium
236V. Advance tax on extraction of minerals
236W. Tax on purchase or transfer of immoveable property
236X. Advance Tax on Tobacco
236Y. Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards
231A. Cash withdrawal from a bank
231AA. Advance tax on transactions in bank
231B. Advance tax on private motor vehicles
233. Brokerage and Commission
233A. Collection of tax by a stock exchange registered in Pakistan
233AA. Collection of tax by NCCPL
234. Tax on motor vehicles
234A. CNG Stations.
235. Electricity Consumption
235A. Domestic electricity consumption
235B. Tax on steel melters, re-rollers etc.
236. Telephone and internet users
236A. Advance tax at the time of sale by auction
236B. Advance tax on purchase of air ticket
236C. Advance Tax on sale or transfer of immovable Property
236D. Advance tax on functions and gatherings
236F. Advance tax on cable operators and other electronic media

144
Business
233. Brokerage and Commission
Ch-XII
Relevant Sections Only Withholding Requirements
FG, PG, LG, Company, AOP formed under any law are required to withhold tax

Capital GainsHeads of Income
145
Deciding a
Capital Gains
case

Geographical Source of Income [S-101(13)] & [S-101A]Heads of Income
146
1. Gain on disposal of shares of Resident Company shall be Pakistan Source Income
2. Gain on disposal of Assets outside Pakistan [S-101A]
Capital
Gains

Gain on disposal of Assets outside Pakistan [S-101A]Heads of Income
147
Capital
Gains
“Share” shall be treated to be located in
Pakistan if:
(i) It derives its value from assets in Pakistan
&
(ii) 10% or more of share capital of NR Co. has
been disposed off.
Company
(outside Pakistan)
Asset
(located in Pakistan)
ownership
Gain
shall be PSI
Tax on Gain (Higher of):
20% x (FMV – Cost)
OR
10% x FMV
Disposed off
Conditions:
1. if value of assets (without deduction of liabilities) > PKR 100 million
on last day of the tax year preceding the date of transfer of share &
2. represents at least 50% of the value of all the assets owned by NR. Co.
Share
Certificate
NR Company
Asset of NR Company
(located in Pakistan)
Asset of NR Company
(located outside Pakistan)
Share
Certificate
The person acquiring the asset from the non-resident person shall
deduct tax from the gross amount @ 10% of FMV
Tax Credit of above tax will be allowed against
IF tax has been withheld by the buyer or by resident company, no tax
shall be payable by the non-resident company in respect of the gain
under the head “Income from Business” or “Capital Gains”.
IF entire assets by the non-resident company are not located in Pakistan
THEN income of the NR Co. from disposal shall be treated to be located in
Pakistan, to the extent it is reasonably attributable to assets located in Pakistan
and determined as may be prescribed.

Vodafon StoryHeads of Income
148
Capital
Gains
CGP Limited
in Netherland
Hutchison Essar Ltd (HEL)
in India
Hutchison Telecommunications
International Ltd’s (HTIL) in Hong Kong Vodafone International Holdings
100% shares
through intermediate companies and
contractual arrangements controlled 67%
A JV between
Hutchinson Group
ESSAR Group
Shares disposal to Vodafon
Above transaction was made taxable in India by
amending Law with retrospective effect

Basis of TaxationHeads of Income
149
Accrual basis, as Gain / Loss is to be taxed in year of disposal
[S-37(1)]
Capital
Gains

Deciding a Capital Gains CaseHeads of Income
150
1. Capital Gains [S-37]
2. Capital Gain on disposal of Securities [S-37A]
3. Special provisions relating to Capital Gains tax [S-100B]
4. Deduction of Losses from Capital Gains [S-38]
5. Non Recognition Rule [S-79]
6. 8th Schedule
7. Rule 13A to 13P
8. Liability in respect of security transactions [S-112]
9. Advance Tax [S-147(5B), 236C & 236K]
Capital
Gains

151
Capital
Gains
Capital Asset:
Means “property of any kind held by person whether or not connected with business”
Does not include
i. Stock in trade
ii. Depreciable asset
iii. Intangibles
iv. movable property held for personal use by person or dependents excluding following:
a. painting, sculpture, drawing or other work of art
b. Jewelry
c. rare manuscript, folio or book
d. postage stamp or first day cover
e. coin or medallion
f. Antique
[S-37(5)]
Capital Loss from disposal
of these assets shall not be
recognized, only capital
gains will be recognized.
[S-38(5)]
Capital Gain from disposal of immovable
property shall be determined on basis of
Holding period as follows:
Land
upto 1 year >>>>>fully taxable
1 to 8 years>>>>>3/4th taxable
more than 8 years>>>nothing taxable
Constructed Property
upto 1 year >>>>>fully taxable
1 to 4 years>>>>>3/4th taxable
more than 4 years>>>nothing taxable
[S-37(3A)]
Above gain shall be taxable as separate
block of income @ 1st Sched, P-I, Div-VIII

152
Capital
Gains
Gain on Capital Asset [S-37(2)]:
Consideration
- Cost
Gain/Loss X
(X)
X
Cost shall not include:
• expenses deductible under any other provision of Income Tax
Ordinance
• inadmissible deductions under section 21
[S-37(4)]
FMV on date of acquisition shall be treated as cost in following cases:
• gift from a relative as defined in S-85(5), bequest, will
• succession, inheritance, devolution
• dissolution of AOP
• liquidation of company
[S-37(4A)]Gain or Loss on disposal shall be recognized in year of disposal even if cash
basis of accounting is being adopted. [S-37(1)]
If capital asset is held for more than 1 year
Then 3/4th of capital gain will be taxable [S-37(3)]
No loss on disposal shall be recognized if gain from such asset is not taxable
[S-38(2)]
this provision is not applicable on disposal of following capital
assets:
• shares of public company
• vouchers of PTC
• Modaraba Certificates
• Redeemable Capital

153
2. Capital Gains on Securities [S-37A]
Capital
Gains
Security [S-37A(3)] :
Means:
• share of a public company
• voucher of Pakistan Telecommunication Corporation
• Modaraba Certificate
• an instrument of redeemable capital
• debt Securities
• derivative products
Capital Gain from disposal of security shall be taxed as a
separate block of income
@ 1st Schedule, Part I, Division VII
[S-37A(1)&(4)]
Loss from securities shall be
setoff only against gains from securities &
can be c/f upto 3 subsequent TYs.
This c/f is allowed only for loss arising during TY 2019 &
onwards.
[S-37A(5)]
Corporate debt security
Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds),
Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and
all kinds of debt instruments issued by any Pakistani or foreign company or
corporation registered in Pakistan
[S-37A(3A)(a)]
Government debt security
Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment
Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds,
Infrastructure Bonds and all kinds of debt instruments issued by Federal
Government, Provincial Governments, Local Authorities and other statutory bodies
[S-37A(3A)(b)]
This section is not applicable on
Banking Co & Insurance Co
[S-37A(1)]

154
3. Special provisions relating to Capital Gains tax [S-100B]
Capital
Gains
Capital gains on disposal of listed securities and tax thereon, subject to section 37A, shall be determined in accordance with
Eighth Schedule
This section is not applicable on following:
• mutual fund
• banking company
• NBFC
• insurance company
• modaraba
• company, in respect of debt securities only and
• any other person notified by FBR

Income Tax Law - Pakistan

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