Advanced Taxation - Session-1-19082016 PDF

Institute of Business Administration, Karachi
Advanced taxation
Fall Semester 2016 Session -1 | Main Campus | Friday, 19th August, 2016
With: M. Hanif Idrees: mhidrees@iba.edu.pk
Agenda

1. Welcome
2. Introduction with students and sharing of instructors profile
3. Class room rules
4. Schedule of classes till end of semester
5. Topics: must know before we commence our journey of advanced
taxation
6. Discussion for an assessment of overall understanding level of class
7. Macro course outline
Advanced taxation Session -1 | IBA Main Campus | Friday 19th August, 2016 : M. Hanif Idrees: mhidrees@iba.edu.pk
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Instructors profile
Muhammad Hanif Idrees

House no. A-103, Street no. 7, Block 13-C, Gulshan-e-Iqbal, Karachi,
Mobile: +92 300 8224473; Residence: +92 21 34820757
Email: mhiz2000@hotmail.com
CAREER HISTORY
CURRENT:
Senior Director Finance & Company Secretary
Chief Financial Officer & Company Secretary
DHL Pakistan (Private) Limited
Tax Manager for Pakistan global role
Deutsche Post DHL
PAST:
Director Finance (CFO) & Company Secretary
Dadex Eternit Limited
Senior Manager Finance (CFO) & Company Secretary
Sony Pakistan (Private) Limited
General Manager Finance - Chemicals Division
Jaffer Brothers (Private) Limited
Accounting / Reporting/ Finance Manager/Financial Analyst
ICI Pakistan Limited
Manager Accounts and Finance
Hoechst Pakistan Limited (now known

as Sanofi-Aventis)
Audit Training
A. F. Ferguson & Co.
ACADEMIC QUALIFICATIONS
Bachelor of Commerce:
Fellow member of:
Certified Director:
University of Karachi thru Government National College - 1988

Institute of Chartered Accountants of Pakistan (ICAP) - 1992
Institute of Cost & Management Accountants of Pakistan - 1996
Accreditation under internationally acclaimed Institutional
Shareholder Services from Pakistan Institute of Corporate
Governance (PICG) - 2007
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Class room rules

1. Class representative (CR): Arsalan Haider Mobile: +923227025272;
Email: arsalanhaider.06990@khi.iba.edu.pk
2. Weightage:
Class participation
5%
Assignments*
15%
Quizzes*
10%
Mid-term-first
15%
Mid-term-second
15%
Final
40%
* 90% participation in quizzes and submission of assignments is mandatory. In case of less than 90%
participation marks will be accordingly reduced.
Class Participation
Every Friday: 6:00 pm to 7:10pm followed by 20 minutes Maghrib prayers break; 7:30 pm to 8:45 pm.
Attendance & Punctuality: Punctuality is encouraged and is appreciated to ensure class starts and
finishes on time. There will be no retake if you miss a quiz, an assignment or class:
Attendance (3%) and being active in class (2%)
The PDF versions of the presentations done in class will be uploaded on LMS after the session.
Therefore during the session do focus on the topic being discussed rather than taking notes.
Conduct
1. You are requested to kindly raise your hand in the class and speak only when acknowledged.
2. Your class participation will help you develop your communication skills, your critical thinking skills and
build your self-confidence. Every class is a chance to polish your functional knowledge and leadership
skills. Therefore, please take responsibility of your own development. It is extremely important for the
benefit of everyone that instructions are followed with Team spirit.
3. In every class you must have hard copy of the latest Income Tax Ordinance in hard with you.
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Class room rules

COURSE
PROGRAM
LG
TRAIT
ASSESSMENT METHOD
T1 History (Company Specific)

LG 2 Knowledge of
Relevant Accounting
& Finance Disciplines
T6 Context
Advanced Taxation
BS-AF
LG3 Team Skills
LG4 Ethics
T1 Respect for commitment and

deadlines
1. We can assign marks to the trait to make it

more measurable; for example; An
assignment of 10 marks can be mapped to a
trait, OR 2 marks out of a 10 marks
assignment can be mapped to a trait; OR
2. The mapping can be entirely
ungraded/unmarked. An already existing
assignment/presentation/quiz based on our
course could be used for this purpose.
3.What should be the assessment method to
be used in your view?
T2 Practices
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Class room rules

LG2 Trait 1
Unsatisfactory
Satisfactory
Good
Excellent
History
Fra gmented
unders ta ndi ng of the
hi s tori ca l devel opment
of fi el d
Demons tra tes

comprehens i ve
unders ta ndi ng of the
hi s tori ca l evol uti on of
fi el d
Abl e to us e hi s tori ca l pers pecti ve for

bus i nes s deci s i ons
Abl e to cri ti ca l l y a na l yze the current bus i nes s

s i tua ti on i n l i ght of hi s tori ca l pers pecti ve for
future bus i nes s deci s i ons
LG2 Trait 6
Unsatisfactory
Satisfactory
Good
Excellent
Context
Informa ti on i s ta ken
from l i mi ted s ources a nd
no eva l ua ti on i s evi dent;
Experts a re not
ques ti oned
Informa ti on i s ta ken
from enough s ources
wi th s ome eva l ua ti on
a nd no ques ti oni ng
Thoroughl y s tudi es a nd eva l ua tes

context ta ken from a ra nge of s ources
to devel op a coherent a na l yti ca l
pers pecti ve a nd vi ewpoi nt of experts
a re ta ken a s fa cts wi th l i ttl e
ques ti oni ng
Thoroughl y s tudi es a nd eva l ua tes context ta ken

from wi de ra nge of s ources to devel op a coherent
a na l yti ca l pers pecti ve a nd s oundl y ques ti ons
vi ewpoi nt of experts
LG3 Trait 1
Unsatisfactory
Satisfactory
Good
Excellent
Respect for commitment

and deadlines
Does not s ubmi t a ny of

the requi red modul es
Submi ts a l l the requi red Submi ts a l l requi red modul es , but does Submi ts a l l requi red modul es on ti me
modul es , but does not
not s ubmi t one on ti me
s ubmi t more tha n one
on ti me
LG4 Trait 2
Unsatisfactory
Satisfactory
Practices
Student i s una bl e to
Student a ppl i es ethi ca l
a ppl y ethi ca l
pers pecti ves /concepts to
pers pecti ves /concepts to a n ethi ca l ques ti on a nd
a n ethi ca l ques ti on
extends them to known
exa mpl es (i n a cl a s s , i n
a group, or a fi xed-choi ce
s etti ng).
Good
Excellent
Student i ndependentl y a ppl i es ethi ca l

pers pecti ves /concepts to a n ethi ca l
ques ti on, extends them to new
exa mpl es , but cons i ders onl y one
i mpl i ca ti on of the a ppl i ca ti on
Student a ppl i es ethi ca l pers pecti ves /concepts to

a n ethi ca l ques ti on, extends them to crea ti ve new
exa mpl es , a nd cons i ders s evera l i mpl i ca ti ons of
the a ppl i ca ti on.
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Schedule of classes till end of semester

Sessions
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Dates
Friday, August 19, 2016
Friday, September 02, 2016
Friday, October 07, 2016
Friday, November 04, 2016
Friday, December 02, 2016
Tuesday, December 13, 2016
Tuesday, December 13, 2016
Remarks
Travelling
Travelling
First mid-term (26th Sep'16 - 01st Oct'16)
Travelling
Travelling
Second mid-term (07th Nov'16 - 12th Nov'16)
Final exam from 17th December, 2016
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Taxation quote
In this world, nothing can be said to

be certain, except death and
taxes. Benjamin Franklin
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Topics: must know before we commence our journey of advanced taxation

Definition of taxation: Transfer of resources from private sector to public sector with or
without reference to specific benefit received
Objectives of taxation: Revenue objectives (meeting expenses) & Non-revenue
objectives (managing macro-economic parameters, foreign relations and international
trade)
Modes and types of tax: In cash or in kind; Direct and indirect taxes. Video
presentation for explaining difference between direct and indirect tax.
The Difference Between Direct & Indirect Taxes.mp4
-
Direct tax: Paid by a taxpayer directly to the Government
Indirect tax: Paid by taxpayer indirectly to he Government through various

channels. Hence it is ultimately passed on to the consumers.
Direct tax: Not avoidable
Indirect tax: Maybe avoidable by avoiding consumption of certain items
Main canons of taxation: Characteristics or qualities which a good tax should possess.
Adam Smiths (Scottish economist) in his famous book An inquiry into the Nature and
Causes of Wealth of Nations outlined equity; certainty; economy; convenience as
main canons of taxation
Types of tax system: Vertical equity: Progressive; Proportional or flat; Regressive;
Hybrid. Horizontal equity.
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Tax avoidance vs. tax evasion: Legally adopting the means to reduce the incidence of
tax with full disclosures is tax avoidance. Illegal means for reducing the incidence of
taxation involving deliberate misstatements, concealments and distortion of facts is tax
evasion.
Constitutional provisions on taxation: Empowerment under article 77 of the
Constitution of Pakistan (COP). Article 80 of COP requires presenting Annual Budget
Statement in respect of every financial year. Article 160 makes National Finance
Commission (NFC) responsible for making recommendations to the President in respect
of distribution of revenues between Federation and Provinces.
Constitutional provisions on taxation: Part I of the Fourth Schedule to the COP
defines the areas where Federal Government (FG) can legislate to collect revenue.
Entries 47 to 53 of Federal Legislative List (FLL) deals with taxes which can be imposed
by FG. All taxes other than those mentioned in 47 to 53 are covered in the scope of
Provinces. Act is a legislation passed by the Parliament and ordinance is a legislation
promulgated when Parliament is not in session. Generally Ordinance lapses after
certain time if not enacted by the Parliament. Azad Jammu Kashmir and Gilgit Baltistan
are self governing states under control of Pakistan with no representation in Parliament
and Senate of Pakistan. They have adopted all laws of Pakistan.
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10

Origin of taxation in sub-continent & history of income tax law in Pakistan:
The Income Tax Act of 1860
Super Tax Act of 1917
Super Tax Act of 1920
Income Tax Act, 1922
Financial year-end of Government of Pakistan changed from 31st March to 30th
June in 1960
Income Tax Ordinance 1979
Income Tax Ordinance, 2001 (ITO)
Why these ordinances did not lapse in spite

of not being the Act of Parliament?
Tax year: Normal (1stJuly-30thJune) denoted by calendar year; Special (any 12

months) denoted by calendar year applicable to the normal tax year in which the closing
date of the special year falls; Transitional (less than 12 months on switching between
normal to special or vice versa; Separate or distinct (less than 12 months under
special circumstances such as discontinuance of business.
Person: Individual; AOP; Company (including small company, a single member
company, modaraba, trust, provincial govt., NPO, local government, venture capital
company, banking company, private company, public company); Federal Government,
a foreign government or its political subdivision, pubic international organization.
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11

Public company: 50% or more owned by FG or PG or foreign govt. or by a company
owned by a foreign govt.; listed on exchange at the end of the tax year; open ended
trusts.
Income: includes loss of income; Principles include that an income is not taxed twice
(dividend is an exception), whether legal or illegal is subject to tax; regular in nature,
real and not fictional; cash basis vs. accrual basis;
Revenue receipts: taxable unless specifically exempt

Capital receipts: exempt unless specifically taxable
Revenue expenditure : deductible unless specifically disallowed
Capital expenditure: not deductible unless specifically allowed
Heads of income:
Salary (no admissible deductions)
Income from property (Rent including deemed rent less admissible deductions)
Income from business (including speculation business) (Computation: Revenue less
admissible deductions and add inadmissible deductions)
Capital gains(Disposal proceeds less admissible deductions / cost of Capital Asset)
Income from other sources. (Income less admissible deductions / costs)
ASSIGNMENT NO. 1: What type of income is not covered by any of the heads of
income specified under section 11 of the Income Tax Ordinance, 2001?
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12

Total income = Sum of income from all heads of income + Exempt income
Taxable income = Total income Exempt income Deductible allowances : section 9
Deductible allowances: [deductible allowances (Total income Exempt income)]

Zakat: section 60
WPPF: section 60A
WWF: section 60B
Profit on debt for house: section 64A

Tuition fee paid: section 64 AB.
Resident and non-resident and short-term resident: Individual: staying 183 days in
PK and employee or official of FG or PG posted abroad in the TY is resident; AOP: if
control and management (C&M) is wholly or partly in PK at any time in a TY is resident;
Company if C&M is wholly in PK at any time during a TY; PG and LG is resident; An
individual who is resident by reason of employment and is present in PK for not
exceeding 3 years is a short term resident (STR)
Geographical source of salary: employment exercised in PK wherever paid or paid by
FG or PG or LG wherever employment exercised is treated as Pakistan source income
(PSI) from salary
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Valuation of perquisites under salary: Motor vehicle; Utilities; Interest free loan;
Accommodation; employee share scheme; medical allowance; any other perquisite
Provident Fund and gratuity: Recognized and unrecognized PF; Interest credit in
excess of prescribed limits; Accumulated balance; applicability of last three years
average tax rate
Exemptions and concessions in respect of income from salary: Diplomats,
consular, UN officials, foreign govt. officials, non-resident individuals as per aid
agreements, scholarships, AKDN non-citizen employees, allowance attached to award
granted by president of Pakistan, perquisites of president, governors, chiefs of staff,
judges etc. etc.; submarine allowance @ 2.5% and allowance to pilots @7.5%; senior
citizen rebate; reduction for a full time teacher or a researcher
Tax credits for:
Charitable donations under section 61 (section 61 provides for tax credit and
donations to institutions under clause 61 of Second Schedule are exempt income)
Investment in shares
Approved pension fund
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THANK YOU
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Institute of Business Administration, Karachi

Institute of Business Administration, Karachi

Institute of Business Administration, Karachi

Muhammad Hanif Idrees

DHL Pakistan (Private) Limited

Tax Manager for Pakistan global role

Deutsche Post DHL

Dadex Eternit Limited

Senior Manager Finance (CFO) & Company Secretary

Sony Pakistan (Private) Limited

General Manager Finance - Chemicals Division

Jaffer Brothers (Private) Limited

Accounting / Reporting/ Finance Manager/Financial Analyst

ICI Pakistan Limited

Manager Accounts and Finance

Hoechst Pakistan Limited (now known

A. F. Ferguson & Co.

University of Karachi thru Government National College - 1988

Institute of Business Administration, Karachi

Class room rules

Institute of Business Administration, Karachi

Class room rules

T1 History (Company Specific)

LG3 Team Skills

T1 Respect for commitment and

1. We can assign marks to the trait to make it

Institute of Business Administration, Karachi

Class room rules

Demons tra tes

Abl e to us e hi s tori ca l pers pecti ve for

Abl e to cri ti ca l l y a na l yze the current bus i nes s

Thoroughl y s tudi es a nd eva l ua tes

Thoroughl y s tudi es a nd eva l ua tes context ta ken

Respect for commitment

Does not s ubmi t a ny of

Student i ndependentl y a ppl i es ethi ca l

Student a ppl i es ethi ca l pers pecti ves /concepts to

Institute of Business Administration, Karachi

Schedule of classes till end of semester

Second mid-term (07th Nov'16 - 12th Nov'16)

Final exam from 17th December, 2016

Institute of Business Administration, Karachi

In this world, nothing can be said to

Institute of Business Administration, Karachi

Topics: must know before we commence our journey of advanced taxation

Direct tax: Paid by a taxpayer directly to the Government

Indirect tax: Paid by taxpayer indirectly to he Government through various

Direct tax: Not avoidable

Indirect tax: Maybe avoidable by avoiding consumption of certain items

Institute of Business Administration, Karachi

Topics: must know before we commence our journey of advanced taxation

Institute of Business Administration, Karachi

Topics: must know before we commence our journey of advanced taxation

Why these ordinances did not lapse in spite

Tax year: Normal (1stJuly-30thJune) denoted by calendar year; Special (any 12

Institute of Business Administration, Karachi

Topics: must know before we commence our journey of advanced taxation

Revenue receipts: taxable unless specifically exempt

Institute of Business Administration, Karachi

Topics: must know before we commence our journey of advanced taxation

Deductible allowances: [deductible allowances (Total income Exempt income)]

Profit on debt for house: section 64A