Key Terms to Understand

Let us begin by revisiting a few basic definitions:

Taxable Income

This is the Total Income minus exemptions and any donations that are eligible for deduction from taxation and deductible allowances.

Exemptions:

Exemptions are income heads that are tax-free, therefore “exempt” from taxes.

Total Income

Total Income is the total of all income that is subject to Taxes under each head of Income.

Head of Income

Under the Income Tax Ordinance, 2001, Income is classified into the following five heads of Income:

1. Salary
2. Income from property
3. Income from business
4. Capital gains
5. Income from Other Sources

Resident

A taxpayer is considered a resident (and therefore has to pay taxes) under the following conditions:

• S/he has been living in Pakistan for a period or periods that add up to at least one hundred and eighty-three days (183 days) or more in the tax year;
• If a person individual is in Pakistan for a period or periods that add up to one hundred and twenty days (120) or more in the tax year AND, in the four years before the current tax year, has been in Pakistan for a period or periods that add up to three hundred and sixty-five days or more;
• Is an employee or official of the Federal Government or a Provincial Government posted abroad in the Tax Year?
• An Association of Persons is Resident for a Tax Year if the control and management of its affairs was wholly or partly in Pakistan for any time in that year;
• A Company is treated as a Resident for a Tax Year if :
  • It is incorporated or formed under any law in force in Pakistan;
  • The control and management of its affairs is wholly in Pakistan for any time in the year; or
  • It is a Provincial Government or a local government in Pakistan.

Non-Resident

An Association of Persons, a Company, or an Individual is considered Non-Resident for a Tax Year if they are not Resident for that year. (see requirements for Residents above)

Pakistan Source Income

Source incomes are defined in section 101 of the Income Tax Ordinance, 2001. This divides Incomes under varied heads and situations. Some of the common source Incomes are:

• Salary received or receivable from any employment in Pakistan. It doesn’t matter where it is paid.
• Salary paid by, or on behalf of, the Federal Government, a Provincial Government, or a local Government in Pakistan, regardless of where the employment (job) is
• Dividend paid by Pakistan Resident Company.
• Profit on debt paid by a Pakistani Resident Person
• Property or rental Income from the lease of immovable property in Pakistan.
• Pension or annuity paid or payable by a Resident or permanent establishment of a Non-Resident.

Foreign Source Income

Any income which is not a Pakistan source income.

Person

• Any Individual
• A Company or Association of Persons incorporated, formed, organized, or established in Pakistan or elsewhere;
• The Federal Government, a foreign government, a political subdivision of a foreign government, or public international organization

Company

• A Company is defined under the Companies Ordinance, 1984 (XLVII of 1984).
• A ‘body corporate’ formed under any law in force in Pakistan.
• A modaraba.
• A body incorporated by or under the law of a country outside Pakistan relating to the incorporation of Companies;
• An amendment has been made through the Finance Act, 2013 to enlarge the scope of the definition of a Company. Now as per Income Tax Ordinance, 2001 a company includes:
  • A co-operative society, a finance society, or any other society;
  • A non-profit organization;
  • A trust, an entity, or a body of persons established or constituted by or under any law for the time being in force.
• A foreign association, which the Board has, by general or special order, declared to be a company for this Ordinance.
• A Provincial Government.
• A Local Government in Pakistan.
• A Small Company.

Association Of Persons

• Includes a firm (the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all).
• A Hindu undivided family
• Any artificial juridical person
• Any body of persons formed under a foreign law but does not include a Company.

Tax Year

• These twelve months that ends on the 30th day of June i.e. on the financial year
• It is mentioned by the calendar year in which the date falls. For example, the tax year for the period of twelve months from July 01, 2017, to June 30, 2018, will be mentioned as the calendar year 2018 and the period of twelve months from July 01, 2018, to June 30, 2019, shall be denoted by the calendar year 2019.

Special Tax Year

This means any period of twelve months and is denoted by the calendar year relevant to the Normal Tax Year in which the closing date of the Special Tax Year falls. For example, the Tax Year for the period of twelve months from January 01, 2017, to December 31, 2017, shall be denoted by the calendar year 2018 and the period of twelve months from October 01, 2017, to September 30, 2018, shall be denoted by the calendar year 2019.

How to Register for Taxes

Any person, a company, or an association of persons (AOP), or foreign national is treated as registered when they are re-enrolled on the Iris portal. The enrollment provides you with a National Tax Number (NTN) or Registration Number and password.

• In the case of individuals, 13 digits Computerized National Identity Card (CNIC) will be used as NTN or Registration Number.

• NTN or Registration Number for AOP and Company is the 7 digits NTN received after e-enrollment.

Both these credentials allow users to access the Iris portal, the online Income Tax system. This is the only way through which online Income Tax Returns can be filed.

Documents needed for e-enrollment for an individual are as follows:

• CNIC/NICOP/Passport number
• Cell phone number in use
• Active e-mail address
• Nationality
• Residential address
• Accounting period

In case you are paying tax on business income you will also need:

• Business name
• Business address
• Principal business activity
• Name and NTN of the employer in case of salary income
• Address of property in case of property income

The principal officer of the company and AOP needs to ensure that the following information is available before starting e-enrollment

• Name of company or AOP
• Business name
• Business address
• Accounting period
• Business phone number
• E-mail address
• Cell phone number of the principal officer of the company or AOP
• Principal business activity
• Address of industrial establishment or principal place of business
• Company type, like public limited, private limited, unit trust, trust, NGO, society, small company, modaraba, or any other
• Date of registration
• Incorporation certificate by Securities and Exchange Commission of Pakistan (SECP) in case of a company
• Registration certificate and partnership deed in case of a registered firm
• Partnership deed in case firm is not registered
• Trust deed in case of a trust
• Registration certificate in case of society
• Name of the representative with his CNIC or NTN
• Following particulars of every director and major shareholder having 10% or more shares in case of company or partners in case of an AOP, namely:-
• Name
• CNIC/NTN/Passport and
• Share %

Income tax rates for Individual and AOP

The Income-tax rates of tax applied on the taxable income of every individual and AOP are in the following table:

Rate of Tax for Salaried Individual

You know your taxable income from the tables above and you deduct the deductable allowances from the income figure.

Confused? See the example below:

In case this example is of a salaried individual, there would be no tax due as their taxable income slabs start from an annual income of Rs. 600,000. In the case of self-employed or AOPs the tax would be applied as below:

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post A Guide To Personal Taxes In Pakistan appeared first on Smartchoice.pk.

The Chairman Shabbar Zaidi, while addressing a press conference in Islamabad, introduced the system, using which citizens can check their tax profile after paying a fee of Rs500.

To encourage the majority, the National Database and Registration Authority (NADRA) has propelled a Tax Profiling System in a joint effort with the Federal Board of Revenue (FBR), which enables the enlisted clients to see their duty profiles. The framework coordinates information including property, financial balances, service charges, goes from different sources.

Online Tax profiling framework for 53m individuals disclosed

The legislature on Friday morning revealed two online entrances containing data of around 53 million individuals relating to their ledgers, properties, travel history, and so forth.

At night, Prime Minister Imran Khan caused a broadcast advance to individuals to proclaim that their profiles are in safe hands under the super vision of government and this is only kept for the reason of making the whole process of tax collection transparent at every step and to also complement the available tax schemes. This announcement has just made before the assets declaration date (Tax amnesty) that is June 30.

Also read: IMF & Pakistan: Impact of Rupee Devaluation on Economy

Now is the time to flex the muscles as the asset declaration date is just around the corner

The announcement declared the safety majors that have been taken to protect the data that is going on board while whole Pakistan profile their tax.

 Tax Profile

The assessment profile incorporates every one of the subtleties from financial balances to past service bills and duties paid, your properties, the vehicle or bicycle you drive, and the local and universal excursions.

The Tax profile empowers the citizens to precisely pronounce their advantages with the FBR and have influence over each and every person to file their tax properly as well as to profile them in data base.

Upsides and downsides

Mix of information from numerous administration sources on a solitary stage is a first of its kind accomplishment and saves the residents the issue of visiting various government workplaces to submit their tax profile. Through this platform, the data can be easily assessable whenever you want.

As indicated by the official explanations, the system has been made completely secure and no other individual can get to data. If necessary, the security could be additionally upgraded. A definitive target of the entryway is to cross over any barrier and give data to the general population at their doorsteps.

The progression would fill in as a first connection in the chain for a more prominent tax net, the government shows resolve and further improves information security.

Also read: Want to Know How to File Tax Returns in Pakistan? Read this Guide

The drawback is the Rs 500 expense, which may hamper the procedure. It could fill in as an impediment to a generally helpful procedure as many citizens would be hesitant to pay a charge for the procedure. Cutting the charge would help guarantee most extreme investment from the majority.

Registration Criteria

for registering on the portal, these are the points to be considered:

• Pakistani National and hold a valid CNIC/NICOP
• Hold a PTA registered Mobile number (for citizen residing in Pakistan only)
• Should have an Email Address (for citizen residing outside Pakistan)
• Should have made payment of 500 PKR either through e-Sahulat or Debit Card
• Should be above or 18 years of age

Easy Three steps for registration

To approach your information accessible with the administration, you should enroll on the Tax Profiling System by filling in your information and addressing numerous inquiries, for security reasons.

The enlistment procedure further incorporates three stages:

1.         Personal data – CNIC, PTA-affirmed mobile number

2.         Email/Mobile verification – Verification code through mobile/email

3.         Citizen confirmation – Two key questions identified with your family for check

When you are done, you need to make a payment of Rs 500 either through a debit card or by visiting any e-Sahulat center.

The way that the choice to transfer the individual information of around 53m natives online was taken without following a partner procedure and parliamentary discussion is very concerning. The Constitution ensures residents’ entitlement to protection, and however the information gathered by Nadra, for instance, was energetically submitted, it was without the understanding that this data would be put on an online gateway at some future date. The way that movement history is additionally incorporated into this profile has been especially shaking for some. During a time when utilizing a moderately amiable application requires consenting to a comprehensive terms-and-conditions understanding, this sells out a lazy demeanour towards how Pakistanis’ own information is assembled, put away and utilized. Furthermore, however FBR director Shabbar Zaidi has given affirmations that the database is secure, the general absence of transparency still brings up difficult issues about what safeguards have been taken — or what plan of action natives have in the (anyway impossible) case of a security rupture.

 Pakistan still comes up short on an individual information security law. A draft bill presented by the IT service a year ago has a few noteworthy weaknesses — the most appropriate for this situation being that it doesn’t stretch out to open bodies and government-held individual information, which incorporates biometric sensitivities. Following the June 30 due date (after which the entryway would have viably filled its need) it should be taken disconnected.

All the way this is going to be an efficient initiative — and it is trusted that it has fruitful security and protection addresses should be replied before any comparative activities are embraced once more.

Regardless of whatever the circumstances are, this step by the Pakistani authorities should be praised and accepted all the way by the citizens in order to make our Tax profiling system stronger and just.

For further information please refer to the official websites of FBR and NADRA.

Khurram Zahid

The post Tax Profiling System Launched by NADRA & FBR with all Your Asset Details appeared first on Smartchoice.pk.

Following are some startling facts regarding an agreement (to which Pakistan is a signatory):

• International Trade Agreement (ITA) was signed by 29 countries in 1996 as part of WTO. It decreed all signatories to remove all import duties from IT related products. Today, the signatories are 86 nations that cover 97% of global IT trade. Pakistan is also signatory of the agreement.
• Pakistan had removed duties back in 2001-2002 but placed them back in subsequent years
• The only entity really benefiting from these taxes is FBR as it probably helps it to meet tax collection targets (in 2013 FBR collection Rs 3.4 Billion Custom Duties and Rs 5.5 Billion Import Duties, unclear if these figures are specific to IT related imports)
• Philippines signed the agreement in 1997 and abolished duties over IT product imports. Multinational companies established companies there and today Philippines exports IT related products and solutions worth $25 Billion
• India signed the agreement in 1997 and abolished import duties as well. In 2000 the Indian IT exports were $5 Billion, in 2013 they are $51 Billion.
• Pakistan’s IT related exports are about $500 Million.

This report is important considering the 3G/4G roll out in Pakistan with $1.3 Billion investment by telecom companies over the next five years in import of telecom equipment. The import duties and taxes will cost them additional $190 million, a significant amount of money that’s making companies hesitant to invest at large scale.

Pakistan’s IT industry can grow phenomenally if tax hurdles are better managed by the government.

Khurram Zahid

The post Duty on IT Imports Hurting Industry Growth appeared first on Smartchoice.pk.