By:

ABDUL HAMEED SHAIKH

ADDITIONAL COMMISSIONER ,IR,
LARGE TAXPAYERS UNIT,
KARACHI.
 DIRECT TAX:
The impact and incidence on the same person.It
can not pass on to the end user. Its not part of
the cost.
The person who pays also bears.

IN DIRECT TAX:
The impact and incidence not on the same
person.It can pass on to the end user/consumer,
in that case it is part of the cost.

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 DIRECT TAX: IN DIRECT TAX:

INCOME TAX SALES TAX (ST)

WEALTH TAX FEDERAL EXCISE DUTY
PROPERTY TAX (FED)
PROFESSIONAL TAX CUSTOMS DUTY(CD)
MV TAX IQRA SURCHARGE

PETROLEUM
DEVELOPMENT LEVY(PDL)

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 Tax was imposed on Income in 1799 for
the first time in Britain.
Taxes on trade, land, property, or even tax
on expenditure preceded tax on income.
The reason for tax on income was to
generate revenues to meet the expenses of
Britains war against Napoleon. Hence, it is
sometimes said that Napoleon is the Father
of Income Tax

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 HOWEVER, THE BASIC
CONCEPT OF THE LEVY OF
THE INCOME TAX IS
DERIVED FROM ISLAMIC
CONCEPT OF DISTRIBUTION
OF WEALTH BASED ON THE
PRINCIPLES OF ZAKAT

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1. Who levies it? Parliament.
2. Why is it imposed? - Generate revenue for Govts.
- Redistribution of wealth
- Tool of Fiscal Policy
(encourage/discourage certain activities)

3. What is taxed? Income (Real & Deemed/Fiction).

4. Type of tax? Direct Tax.

5. Who pays it? The Person on whom it is levied.

Incidence many not passed on to other
person.

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1. There should be Income Income (Real & Deemed/Fiction).
2. There should be a Person - Individual
- Association of Person(AOP)
- Company

3. There should be a period Tax Year (period of twelve

months)

4. There should be Pakistan Geographical source of Income

Income

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1. Income Tax Ordinance, 2001.
2. Income Tax Rules, 2002.
3. Finance Acts.
4. Statutory Regulatory Orders (SRO)
5. Circulars.
6. Clarifications.
7. Case Laws.

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 Historically, there have been three laws
imposing tax on income in Pakistan:

Income Tax Act,1922.

Income Tax Ordinance, 1979.

Income Tax Ordinance,2001.

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 REASONS FOR PROMULGATION:
Simplification of income tax law
Effort to make it easy to understand even for a lay
man.
Rearrangement of income tax law
Due to numerous amendments, the I.T.
Ordinance,1979, had become complex.
Introduction of Universal Self Assessment Scheme
(USAS).

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There are 13 Chapters in ITO,2001.
Chapter are divided into Parts
Parts may be further sub-divided into
Divisions
Divisions consists of Sections
No. of original sections : 240
No. of sections inserted later on: 109
No. of current sections : 349
No. of schedules : 09

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Representation of Sections and their Sub-
divisions:
Sections are represented by 1,2,3
Sub-sections are represented by (1),(2), (3).
Clauses are represented by (a), (b), (c)..
Sub-clauses are represented by (i), (ii), (iii).
Later Insertions:
- If a section is inserted between two
sections, such as between Section 138 and
Section 139, it is written as 138A.
- The sections are not renumbered due to the
cross-referencing of those sections found
in same or other laws.

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 Schedules are integral part of
Ordinance/Act but they are
separately denoted owing to
their lengthy description and
tabulation of data/provisions.

There are 09 Schedules in

ITO, 2001

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1. Part I Exemption from total income.
2. Part II Reduction in tax rates.

3. Part III Reduction in tax liability.

4. Part IV Exemption from specific

provisions
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 Charging Section: The section which imposes
tax is called charging section.
Sections: 4 of the IT Ordinance,2001 is the charging
section, which imposes tax on taxable income.

Machinery Sections: Those sections which

provide for the method of computation and
collection of the tax imposed in charging
section.
All the sections of the IT Ord,2001, other than
Section: 4, are machinery sections.

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Section 4(1) reads:

4. Tax on taxable income.- (1) Subject

to this Ordinance, income tax shall be
imposed for each tax year, at the rate
or rates specified in Division I,IB or II
of Part I of the First Schedule, as the
case may be, on every person who
has taxable income for the year.

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There are five major underlying concepts in
Section 4(1):
1.Income Concept.
2.Person Concept.
3.Period (Tax Year) Concept
4.Pakistan Concept.
5.Rate Concept.
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Section 2 (29)
Income includes any amount
chargeable to tax under this
ordinance.

Any amount treated as income

under any provision of this
ordinance.

Any loss of income

 Section 10: Total Income
The total income of a person for a tax year
shall be the sum of the persons income
under each of the heads of income for the
year.
Section 11: Heads of income
For the purposes of the imposition of tax and the
computation of total income, all income shall be
classified under the following heads, namely:
(a) Salary
(b) Income from Property
(c) Income from Business
(d) Capital Gains, and
(e) Income from Other Sources.
 Income=
Total of amounts derived
chargeable to tax under that head
reduced by
Total of deductions allowable
under that head

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 Section 9: Taxable income.

The taxable income of a person for a

tax year shall be the total income of
the person for the year reduced (but
not below zero) by the total of any
deductible allowances under Part IX of
this Chapter of the person for the
year.
 Section 60: Zakat.

Section 60A: Workers Welfare Fund (WWF)

Section 60B: Workers Participation Fund

(WPPF)
 Salary income 50
Net property income 50
Net business income 50
Exempt income 50
Zakat paid 160
Total income .
Taxable income .

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 Salary income 50
Net property income 50
Net business income 50
Exempt income 50
Zakat paid 160
Total income 200
Taxable income / loss 0
Computation Total income
(50+50+50+50)
Computation Taxable Income
(50+50+50-160<not below zero) 0

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Section 80: Person
The following shall be treated as persons for
the purposes of this Ordinance, namely:
(a) An individual;
(b) A company or association of persons
incorporated, formed, organized or
established in Pakistan or elsewhere;
(c) The Federal Government, a foreign
government, a political subdivision of a
foreign government, or public
international organization.
An individual;
A natural human being.
 An Artificial or Juridical persons.

Association of Persons (AOP)

Company.
association of persons
includes a firm, a Hindu
undivided family (HUF), any
artificial juridical person and
any body of persons formed
under a foreign law, but does
not include a company.
Company means:

(i) a company as defined in the Companies

Ordinance, 1984.
(ii) a body corporate formed by or under any law
in force in Pakistan
(iii) a Modaraba
(iv) a body incorporated by or under the law of a
country outside Pakistan relating to
incorporation of companies
(v) a trust, a co-operative society or a finance
society or any other society established
or constituted by or under any law for the
time being in force
(vi) a foreign association, whether
incorporated or not, which the Board
has, by general or special order, declared
to be a company for the purposes of this
Ordinance
(vii) a Provincial Government
(viii) a Local Government] in Pakistan, or
(ix) a Small Company as defined in section 2.
1. Individual Present in Pakistan 183 or more days
in a Tax Year
2. AOP If the control and management
situated wholly or partly in Pakistan
3. Company It is incorporated or formed under
any law in Pakistan,

If the control and management of

the affairs of the Company is
situated wholly in Pakistan at any
time in the year

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 Section 74: Tax year
Tax year is a period of twelve
months ending on the 30th
day of June.
Types of Tax Years
Normal Tax Year
Special Tax Year
Transitional Tax Year
 A Tax Year is denoted by the calendar year in
which 30th June of the said tax year falls.
And, such tax is called Normal Tax Year

EXAMPLE
01.07.2008 to 30.06.2009 (Tax Year 2009)
01.7.2005 to 30.06.2006 (Tax Year )
 On application, the Commissioner may allow a
taxpayer to use a period of twelve months
different from normal tax year.
Such tax year is called special tax year
It is denoted by the calendar year relevant to
normal tax year in which the closing date of the
special tax year falls.
EXAMPLE
- 01.01.2009 to 31.12.2009
31.12.2009 relates to N.T. Year 01.07.2009-
30.06.2010
Hence, Tax Year 2010 (not Tax Year 2009)
 Where the tax year of a person changes from
normal to special tax year, the period
in-between the two tax years is known as the
transitional tax year.
A taxpayer with Normal Tax Year 01.06.2007
to 30.06.2008, shifts to Special Tax Year
01.01.2009 31.12.2010.
The period of 01.07.2008 to 31.12.2009 is
known as special tax year.
Pakistan source of income.

Foreign source of income.

 For resident persons both
Pakistan source of income.
Foreign source of income.
For non resident persons only
Pakistan source of income.
 Types of Tax Rates:
Progressive
Regressive
Flat
Tax rates in Income Tax Ordinance,2001, are
Progressive.

Tax rates are provided in the 1st Schedule.

 Head of Inc Salary IFP IFB C.GAINS IFOS TOTAL
Amount 500,000 250,000 800,000 200,000 150,000 1,900,000
Chargeable
Les: Deductions Nil Nil 600,000 50,000 50,0000 700,000
/expenses
Allowed
Net Amount 500,000 250,000 200,000 150,000 100,000 1,200,000
Chargeable
under the Head
Total Income 1,200,000
Less: 100,000
Deductable
Allowances
Taxable Income 1,100,000
Tax Rate 10%
Tax Liability 110,000
Less: Tax Cr 10,000
Net Tax Liability 100,000
Less: @ source 50,000
deduction
Tax Payable 50,000