Gul Sher Mari
A very prominent words that hold field about the taxation said by Franklin D. Roosevelt: “Taxation according to income is the most effective instrument yet devised to obtain just contribution from those best able to bear it and to avoid placing onerous burdens upon the mass of our people. So, taxation in our life is so serious and critical as we are under its burden as being taxed time and again. I being a tax lawyer having cup of coffee with my partner adv. Rafia Ajmal at Pearl Continental, Karachi, as we were truly engaged in the discussion on the subject of taxation over the notice pertaining to WITHHOLDING TAX our client received from FBR meanwhile a reputable and well-educated lady came near to us and pleaded that may she sit here as she has to ask something, Rafia allowed. She inquired us that she has been noticed for tax filing but as routine we being taxed many times in day despite that FBR ask us to file tax return why! Yes, it is true, I replied. I explained her that there are certain tax regimes in Pakistan that catch transactions to be taxed. I found her satisfied and she left us in very good mode. Later on, I asked Rafia lets write an article on this topic- TAX REGIMES IN PAKISTAN for our readers. To start with, in Pakistan, there are majorly four tax regimes – NTR, FTR, STR and MTR. For the ease and able assistance of readers each regime is being discussed separately as following.
NTR- Normal Tax Regime: In fiscal laws parlance Normal Tax Regime is very basic concept as to be understood. As being student of law whenever we learn or teach, we firstly teach associates HEADS OF INCOME so under income tax ordinance 2001 this regime operates to tax on income from heads of income allowing expenses, deductible allowances, tax credits and other nature of expenditure incurred in driving income from any heads of income. Let me illustrate a situation how this works in daily routine, like there is company as legal entity deals in business of manufacturing bottles for medicine, annual turnover is 100 billion rupees and its cumulative expenses in 200 million rupees, allowances paid in 10 million. Now, in this case, deductible allowances, expenditure and ancillary losses shall be deducted from total income then taxable income be taxed under NORMAL TAX REGIME under Income Tax Regimes. What law involves as per method of taxation under this regime stands on section 37, 114 and to certain extent section 113 whereas this section pertains to MTR. These sections specially 37 explains how tax is calculated and once it is done then under FIRST SCDEDUALE rates as well as tax slab is applied. It is pertinent to share two prominent case laws on this method of taxation as are – (CIT vs Habib Bank Limited, 2018 PTD 456, Standard Chartered Bank Vs 2016 PTD 1234). In both the case laws the court has clarified that companies operating under this regime are allowed to manage their tax chargeability by deducting expenses, depreciation, allowances and other ancillary expenditure if stands lawful under the machinery of Income Tax Ordinances 2001.
FTR- Final Tax Regime: This is a kind of method to calculate, impose, apply tax on certain transactions under the scheme of Income Tax Ordinance 2001 read with rules. This regime works entirely different from the rest of tax regimes as this applies on transactions not on income. Furthermore, Final Tax Regime by its name and nomenclature speaks it is charged at source and its chargeability is final not required to be charged again. Its application is not general but specific in operation like it applies on certain – dividend, on royalties, on non-resident persons, on contractual activities, exporters, commission agents, non-resident shipping and airlines. Let’s produce relevant sections where tax is charged falls under final tax regime. Fundamental condition for this regime is tax to be deducted at source like salary under section 149 is deducted by employer , under section 150 the tax is deducted on dividend as tax on source, under section 152 advance tax is charged at source on Payments to Non-Resident on the exchange of certain defined services, tax on transactions at source pertaining to export comes under the category of final tax regime as deducted under section 154 so onward sections like 155 ( tax on rent on immovable properties), 156 tax on prize and winnings, 156 on petroleum products. Furthermore, law is so beautiful it also lays down time schedule for deduction of advance tax at source as under section 157 of the Ordinance 2001, reads – 158.Time of deduction of tax.— A person required to deduct tax from an amount paid by the person shall deduct tax — (a) in the case of deduction under section 151, at the time the amount is 2 [paid or] credited to the account of recipient 3 [, whichever is earlier]; and (b) in other cases, at the time the amount is actually paid 4 [;and] 5 [“(c) amount actually paid shall have the meaning as may be prescribed. To add more, there are certain principles that govern how to deal with tax deducted at source. Like section 159 of the Ordinance deals with Exemptions provided against advance Tax deducted at source manner and procedure given to transactions exemption provided. For example, a person or a small enterprise runs a business who certain transactions fall under ibid sections but the activity that he deals in fall under three defined and given conditions like- exemption granted under the ordinance, rate of tax collected is lower than per given in Schedule/ slabs, hundred per cent tax credit then the ibid transactions stand exempted.
To be continued…
