Introduction
to FBR
The Central Board of Revenue (CBR) was created on April 01, 1924 through enactment of the Central Board of Revenue Act, 1924. In 1944, a full-fledged Revenue Division was created under the Ministry of Finance.
After independence, this arrangement continued up to 31st August 1960 when on the recommendations of the Administrative Re-organization Committee, FBR was made an attached department of the Ministry of Finance.
In 1974, further changes were made to streamline the organization and its functions. Consequently, the post of Chairman FBR was created with the status of ex-officio Additional Secretary and Secretary Finance was relieved of his duties as ex-officio Chairman of the FBR.
In order to remove impediments in the exercise of administrative powers of a Secretary to the Government and effective formulation and implementation of fiscal policy measures, the status of FBR as a Revenue Division was restored under the Ministry of Finance on October 22, 1991. However, the Revenue Division was abolished in January 1995, and FBR reverted back to the pre-1991 position. The Revenue Division continues to exist since from December 01, 1998.
Function of FBR / Revenue Division
In the existing setup, the Chairman, FBR, being the executive head of the Board as well as Secretary of the Revenue Division has the responsibility for
(i) Formulation and administration of fiscal policies,
(ii) Levy and collection of federal taxes and
(iii) Quasi-judicial function of hearing of appeals.
His responsibilities also involve interaction with the offices of the President, the Prime Minister, all economic Ministries as well as trade and industry.
Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes.
A broad description regarding the nature of administration of these taxes is explained below:
Direct Taxes
Direct taxes primarily comprise income tax, along with supplementary role of wealth tax. For the purpose of the charge of tax and the computation of total income, all income is classified under the following heads:
• Salaries
• Interest on securities
• Income from property
• Income from business or professions
• Capital gains; and
• Income from other sources
Personal Tax
All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the rates ranging from 10 to 35 per cent.
Tax on Companies
All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at corporate rate of 39%. However, the effective rate is likely to differ on account of allowances and exemptions related to industry, location, exports, etc.
Inter-Corporate Dividend Tax
Tax on the dividends received by a public company from a Pakistan company is payable at the rate of 5% and at the rate of 15% in case dividends are received by a foreign company.
Inter-corporate dividends declared or distributed by power generation companies is subject to reduced rate of tax i.e., 7.5%. Other companies are taxed at the rate of 20%.
Dividends paid to all non-company shareholders by the companies are subject to with holding tax of 10% which is treated as a full and final discharge of tax liability in respect of this source of income.
Treatment of Dividend Income
Dividend income received as below enjoys tax exemption, provided it does not exceed Rs. 10,000/-.
1. Dividend received by non-resident from the state enterprises Mutual Fund set by the Investment Corporation of Pakistan.
2. Dividends received from a domestic company out of income earned abroad provided it is engaged abroad exclusively in rendering technical services in accordance with an agreement approved by the Central Board of Revenue.
Unilateral Relief
A person resident in Pakistan is entitled to a relief in tax on any income earned abroad, if such income has already been subjected to tax outside Pakistan. Proportionate relief is allowed on such income at an average rate of tax in Pakistan or abroad, whichever is lower.
Agreement for avoidance of double taxation
The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries including almost all the developed countries of the world.
These agreements lay down the ceilings on tax rates applicable to different types of income arising in Pakistan. They also lay down some basic principles of taxation which cannot be modified unilaterally. The list of countries with which Pakistan has concluded tax treaties is given below:
Austria Belgium Bangladesh Canada China
Denmark Egypt France Finland Germany
Greece India Indonesia Iran Ireland
Italy Japan South Korea Lebanon Libya
Malta Mauritius Saudi Arabia Singapore Poland
Romania Switzerland Thailand Sri Lanka Sweden
Turkmenistan U.K. Turkey Tunisia Kazakistan
U.A.E. U.S.A
Customs
Goods imported and exported from Pakistan are liable to rates of Customs duties as prescribed in Pakistan Customs Tariff.
Customs duties in the form of import duties and export duties constitute about 37% of the total tax receipts.
The rate structure of customs duty is determined by a large number of socio-economic factors. However, the general scheme envisages higher rates on luxury items as well as on less essential goods. The import tariff has been given an industrial bias by keeping the duties on industrial plants and machinery and raw material lower than those on consumer goods.
Central Excise
Central Excise duties are leviable on a limited number of goods produced or manufactured, and services provided or rendered in Pakistan. On most of the items Central Excise duty is charged on the basis of value or retail price. Some items are, however, chargeable to duty on the basis of weight or quantity. Classification of goods is done in accordance with the Harmonized Commodity Description and Coding system which is being used all over the world. All exports are exempted from Central Excise Duty.
Sales Tax
Sales Tax is levied at various stages of economic activity at the rate of 17 per cent on:
• All goods imported into Pakistan, payable by the importers;
• All supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him;
• There is an in-built system of input tax adjustment and a registered person can make adjustment of tax paid at earlier stages against the tax payable by him on his supplies. Thus the tax paid at any stage does not exceed 17% of the total sales price of the supplies.
The Central Board of Revenue (CBR) was created on April 01, 1924 through enactment of the Central Board of Revenue Act, 1924. In 1944, a full-fledged Revenue Division was created under the Ministry of Finance.
After independence, this arrangement continued up to 31st August 1960 when on the recommendations of the Administrative Re-organization Committee, FBR was made an attached department of the Ministry of Finance.
In 1974, further changes were made to streamline the organization and its functions. Consequently, the post of Chairman FBR was created with the status of ex-officio Additional Secretary and Secretary Finance was relieved of his duties as ex-officio Chairman of the FBR.
In order to remove impediments in the exercise of administrative powers of a Secretary to the Government and effective formulation and implementation of fiscal policy measures, the status of FBR as a Revenue Division was restored under the Ministry of Finance on October 22, 1991. However, the Revenue Division was abolished in January 1995, and FBR reverted back to the pre-1991 position. The Revenue Division continues to exist since from December 01, 1998.
Function of FBR / Revenue Division
In the existing setup, the Chairman, FBR, being the executive head of the Board as well as Secretary of the Revenue Division has the responsibility for
(i) Formulation and administration of fiscal policies,
(ii) Levy and collection of federal taxes and
(iii) Quasi-judicial function of hearing of appeals.
His responsibilities also involve interaction with the offices of the President, the Prime Minister, all economic Ministries as well as trade and industry.
Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes.
A broad description regarding the nature of administration of these taxes is explained below:
Direct Taxes
Direct taxes primarily comprise income tax, along with supplementary role of wealth tax. For the purpose of the charge of tax and the computation of total income, all income is classified under the following heads:
• Salaries
• Interest on securities
• Income from property
• Income from business or professions
• Capital gains; and
• Income from other sources
Personal Tax
All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the rates ranging from 10 to 35 per cent.
Tax on Companies
All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at corporate rate of 39%. However, the effective rate is likely to differ on account of allowances and exemptions related to industry, location, exports, etc.
Inter-Corporate Dividend Tax
Tax on the dividends received by a public company from a Pakistan company is payable at the rate of 5% and at the rate of 15% in case dividends are received by a foreign company.
Inter-corporate dividends declared or distributed by power generation companies is subject to reduced rate of tax i.e., 7.5%. Other companies are taxed at the rate of 20%.
Dividends paid to all non-company shareholders by the companies are subject to with holding tax of 10% which is treated as a full and final discharge of tax liability in respect of this source of income.
Treatment of Dividend Income
Dividend income received as below enjoys tax exemption, provided it does not exceed Rs. 10,000/-.
1. Dividend received by non-resident from the state enterprises Mutual Fund set by the Investment Corporation of Pakistan.
2. Dividends received from a domestic company out of income earned abroad provided it is engaged abroad exclusively in rendering technical services in accordance with an agreement approved by the Central Board of Revenue.
Unilateral Relief
A person resident in Pakistan is entitled to a relief in tax on any income earned abroad, if such income has already been subjected to tax outside Pakistan. Proportionate relief is allowed on such income at an average rate of tax in Pakistan or abroad, whichever is lower.
Agreement for avoidance of double taxation
The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries including almost all the developed countries of the world.
These agreements lay down the ceilings on tax rates applicable to different types of income arising in Pakistan. They also lay down some basic principles of taxation which cannot be modified unilaterally. The list of countries with which Pakistan has concluded tax treaties is given below:
Austria Belgium Bangladesh Canada China
Denmark Egypt France Finland Germany
Greece India Indonesia Iran Ireland
Italy Japan South Korea Lebanon Libya
Malta Mauritius Saudi Arabia Singapore Poland
Romania Switzerland Thailand Sri Lanka Sweden
Turkmenistan U.K. Turkey Tunisia Kazakistan
U.A.E. U.S.A
Customs
Goods imported and exported from Pakistan are liable to rates of Customs duties as prescribed in Pakistan Customs Tariff.
Customs duties in the form of import duties and export duties constitute about 37% of the total tax receipts.
The rate structure of customs duty is determined by a large number of socio-economic factors. However, the general scheme envisages higher rates on luxury items as well as on less essential goods. The import tariff has been given an industrial bias by keeping the duties on industrial plants and machinery and raw material lower than those on consumer goods.
Central Excise
Central Excise duties are leviable on a limited number of goods produced or manufactured, and services provided or rendered in Pakistan. On most of the items Central Excise duty is charged on the basis of value or retail price. Some items are, however, chargeable to duty on the basis of weight or quantity. Classification of goods is done in accordance with the Harmonized Commodity Description and Coding system which is being used all over the world. All exports are exempted from Central Excise Duty.
Sales Tax
Sales Tax is levied at various stages of economic activity at the rate of 17 per cent on:
• All goods imported into Pakistan, payable by the importers;
• All supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him;
• There is an in-built system of input tax adjustment and a registered person can make adjustment of tax paid at earlier stages against the tax payable by him on his supplies. Thus the tax paid at any stage does not exceed 17% of the total sales price of the supplies.
Where the taxable salary
income does not exceed Rs 400,000, the rate of income tax is 0%;
Where the taxable income exceeds Rs 400,000 but does not exceed Rs 750,000, the rate of income tax is 5% of the amount exceeding Rs 400,000.
Where the taxable income exceeds Rs 750,000 but does not exceed Rs 1,400,000,the rate of income tax is Rs 17,500 + 10% of the amount exceeding Rs 750,000.
Where the taxable income exceeds Rs 1,400,000 but does not exceed Rs 1,500,000, the rate of income tax is Rs 82,500 + 12.5% of the amount exceeding Rs 1,400,000.
Where the taxable income exceeds Rs 1,500,000 but does not exceed Rs 1,800,000, the rate of income tax is Rs 95,000 + 15% of the amount exceeding Rs 1,500,000.
Where the taxable income exceeds Rs 1,800,000 but does not exceed Rs 2,500,000, rate of tax is Rs 140,000 + 17.5% of the amount exceeding Rs 1,800,000.
Where the taxable income exceeds Rs 2,500,000 but does not exceed Rs 3,000,000, the rate of income tax is Rs 262,500 + 20% of the amount exceeding Rs 2,500,000.
Where the taxable income exceeds Rs 3,000,000 but does not exceed Rs 3,500,000, the rate of income tax is Rs 362,500 + 22.5% of the amount exceeding Rs 3,000,000.
Where the taxable income exceeds Rs 3,500,000 but does not exceed Rs 4,000,000, the rate of income tax is Rs 475,000 + 25% of the amount exceeding Rs 3,500,000.
Where the taxable income exceeds Rs 4,000,000 but does not exceed Rs 7,000,000, the rate of income tax is Rs 600,000 + 27.5% of the amount exceeding Rs 4,000,000.
Where the taxable income exceeds Rs 7,000,000, rate of tax is Rs 1,425,000 + 30% of the amount exceeding Rs 7,000,000.
Where the taxable income exceeds Rs 400,000 but does not exceed Rs 750,000, the rate of income tax is 5% of the amount exceeding Rs 400,000.
Where the taxable income exceeds Rs 750,000 but does not exceed Rs 1,400,000,the rate of income tax is Rs 17,500 + 10% of the amount exceeding Rs 750,000.
Where the taxable income exceeds Rs 1,400,000 but does not exceed Rs 1,500,000, the rate of income tax is Rs 82,500 + 12.5% of the amount exceeding Rs 1,400,000.
Where the taxable income exceeds Rs 1,500,000 but does not exceed Rs 1,800,000, the rate of income tax is Rs 95,000 + 15% of the amount exceeding Rs 1,500,000.
Where the taxable income exceeds Rs 1,800,000 but does not exceed Rs 2,500,000, rate of tax is Rs 140,000 + 17.5% of the amount exceeding Rs 1,800,000.
Where the taxable income exceeds Rs 2,500,000 but does not exceed Rs 3,000,000, the rate of income tax is Rs 262,500 + 20% of the amount exceeding Rs 2,500,000.
Where the taxable income exceeds Rs 3,000,000 but does not exceed Rs 3,500,000, the rate of income tax is Rs 362,500 + 22.5% of the amount exceeding Rs 3,000,000.
Where the taxable income exceeds Rs 3,500,000 but does not exceed Rs 4,000,000, the rate of income tax is Rs 475,000 + 25% of the amount exceeding Rs 3,500,000.
Where the taxable income exceeds Rs 4,000,000 but does not exceed Rs 7,000,000, the rate of income tax is Rs 600,000 + 27.5% of the amount exceeding Rs 4,000,000.
Where the taxable income exceeds Rs 7,000,000, rate of tax is Rs 1,425,000 + 30% of the amount exceeding Rs 7,000,000.
Taxation according to a
person’s ability to pay is universally accepted principle, and income is
considered a satisfactory though not a sufficient index of such ability to pay.
Income Tax is, therefore, generally recognized as a highly equitable form of
taxation. A tax levied on income can normally be shifted to others and thus its
incidence is on those for whom it is intended. Since income tax is progressive
in nature, it tends to reduce economic disparity. Tax rates and method of
calculating taxable income varies with fiscal status of the tax payer.
Following are the broad categories of taxpayers:-
Companies
Association of Persons (AOP)
Non Salaried Individuals
Salaried individuals
Capital Value Tax
It is payable by individuals, firms and companies which acquire an asset by purchase or a right to use for more than 20 years.
Corporate Asset Tax
It is levied through section 12 of the Finance Act, 1991. This is one time levy payable by a company as defined in Companies Ordinance, 1984, on the value of fixed assets held by the company on the "specified date".
Following are the broad categories of taxpayers:-
Companies
Association of Persons (AOP)
Non Salaried Individuals
Salaried individuals
Capital Value Tax
It is payable by individuals, firms and companies which acquire an asset by purchase or a right to use for more than 20 years.
Corporate Asset Tax
It is levied through section 12 of the Finance Act, 1991. This is one time levy payable by a company as defined in Companies Ordinance, 1984, on the value of fixed assets held by the company on the "specified date".
