Beruflich Dokumente
Kultur Dokumente
ENROLL NO:01-112171-013
SUBMITTED TO: MAM AMAL KHAN
SUBJECT: ADVANCE TAXATION
Question 1: How does taxable income vary as per following categories:
a) Single owned business/entrepreneurship
A sole proprietorship is taxed through the personal tax return of the owner,. The
business profit is calculated and presented on Schedule —Profit or Loss from
Small Business. To complete Schedule , the income of the business is calculated
including all income and expenses, along with cost of goods sold for products sold
and costs for a home-based business. The result of this calculation (income minus
expenses) is the net income, the amount of taxable business income.
This net income or loss of the business is entered on Line of the owner's Form , to
be included along with other income/loss of the owner (and spouse) for income
tax purposes. If the business has a loss, this loss may be used to reduce the total
adjusted gross income of the owner (the income before exemptions and
deductions) on the tax return.
The owner of the sole proprietorship pays income tax on all income listed on the
personal tax return, including income from business activities, at the applicable
individual tax rate for that year.
b) Partnership
Generally, the FBR does not consider partnerships to be separate from their
owners for tax purposes; instead, they are considered "pass-through" tax entities.
This means that all of the profits and losses of the partnership "pass through" the
business to the partners, who pay taxes on their share of the profits (or deduct
their share of the losses) on their individual income tax returns. Each partner's
share of profits and losses is usually set out in a written partnership agreement.
Sukuk:
When investors buy Sukuk and become Sukuk holders, they receive a certificate
from the issuer to evidence ownership, and are entitled to receive periodic profit
payments on the principal amount invested. Upon maturity, the Sukuk holder will
get back the principal amount of investment. As with most Islamic financial
instruments, there are different methods of achieving the same objective, and the
above is just one method of doing it. For instance, the periodic profit payments
may come in the form of profit-sharing or rental from the asset.
IMPORTANCE
Sukuk can play an important part in the development of an Islamic market and
banking system. The main advantage of sukuk is to comply with Sharia while
boosting the standard of living in Islamic society and developing these societies’
economies. However, sukuk also bring several other important benefits.
Sukuk provide an ideal way of financing large projects for the public good that
would otherwise not be possible. There are many economic activities or projects
that are out of reach of individuals, companies, or, in the case of various
developing Islamic economies, governments. In these cases, sukuk are perfect for
financing these projects without falling into interest-based debt. This makes sukuk
an important avenue for redistribution of wealth and achievement of social
justice. The use of sukuk to fund large projects means that investors in sukuk are
incentivized to help economies develop by creating and producing rather than by
consuming or manipulating others. Islamic finance is based on principles of
fairness and justice which are achieved by avoiding Riba.
Investors on the secondary market that are looking for investments that can be
liquidated easily will find that sukuk are ideal. Thanks to the secondary market for
Islamic securities, investors can sell their securities and obtain the cost of their
certificates. If the projects that back their sukuk certificates have generated
profits, this results in a quick return in investment. This means that Islamic
financial instruments are well suited for fund management. Banks or institutes
can use part of their funds to purchase Islamic securities and then sell them on
the secondary market when liquid assets are needed.
Sukuk are well suited for smart management of risk. Uncertainty is a big part of
investment. Islamic securities can be issued with varying degrees of risk and yield,
allowing investors to choose a portfolio best suited for their risk management
profiles. It is important to note that risk in sukuk is more difficult to manipulate
artificially than is the case in other types of securities. This is because the value
and risk of sukuk is always related to real assets with provable, tangible value,
rather than on artificial manipulation of debt and credit ratings.
Tax Affect :
One of the most important factors that is necessary for sukuk when it comes to
tax regulations is to ensure that there is a parity between taxation on sukuk and
conventional bonds. If the tax system favors one of these, this creates an unfair
market where it is impossible for the financial instrument in disadvantage to
thrive. Currently, most tax systems around the world are structured to handle
conventional bonds, but lack some of the specific attributes necessary to work
with sukuk and other Islamic financial instruments.
There are several reasons why the appropriate legal structures are necessary for
the use of sukuk. These types of Islamic bonds usually involve multiple transfers
due to the nature of how they are backed by real assets rather than working on
the basis of interest. Legal structures that are not designed to handle this will tax
every transfer, creating an unsustainable situation for those involved in the sukuk
transaction. The main reason for this is that sukuk often require that ownership of
the asset covered by the sukuk be transferred repeatedly from one party to
another. Ownership of assets in many regions requires additional tax duties and
often involves other legal transactions that incur additional costs. Without special
provisions for sukuk, this characteristic of Islamic financial instruments puts them
at a severe disadvantage if the right legal frameworks do not exist. A typical
example is an Ijara sukuk structure. In these cases, the initial transfer of asset
ownership can trigger capital gains, sales tax, holding tax, and stamp duty. Each
time a transfer of ownership occurs, which will happen at least twice, these taxes
would be required, unlike convetional bonds which would only be taxed according
to their capital gains.
One hurdle when creating the necessary legal framework for sukuk in a country’s
legislation is the differential treatment between profit and interest. Most of the
time, interest payments are tax deductible. On the other hand, profit is taxable.
Some types of transactions are affected by additional duties. For example,
Murabahah sukuk must pay sales tax or Ijarah sukuk often suffers from additional
stamp duty payments. Currently, the United Kingdom, Malaysia, Qatar, and
Turkey are the four countries that have some of the best conditions when it
comes to taxation systems and frameworks for Islamic financial instruments.