Table of Contents

History of Tax in Pakistan............................................................................................ 1

Definition of Tax:......................................................................................................... 6
Purposes of tax:.......................................................................................................... 6
Kinds of taxes:............................................................................................................ 6
Income Tax Authorities in Pakistan............................................................................. 7
1.

Federal Board of Revenue.................................................................................... 8

Powers and Functions of the Federal Board of Revenue (FBR):...................................9

2.

Commissioner Inland Revenue...........................................................................12

Powers & Functions of the Commissioner of Income Tax:.........................................13

3.

Chief Commissioner Inland Revenue..................................................................18

Powers and Functions of Chief Commissioner Inland Revenue.................................19

History of Tax in Pakistan

Income Tax Act of 1922: prevalent in the British Raj and was adopted by the Government of
Pakistan as its Income Tax Law. Income Tax Ordinance, 1979 was the first law on Income Tax
which was promulgated in Pakistan from 1 July 1979 by Government of Pakistan.
To update the tax laws and bring country's law in accordance with international standards,
Income Tax Ordinance 2001 was promulgated on 13 September 2001, which became effective
from 1 July 2002. IT rules 2002 were promulgated by FBR on 1 July 2002 in exercise of powers
granted under section 237 of the Ordinance.
Taxation in Pakistan is a complex system of more than 70 unique taxes administered by at least
37 agencies of the Government of Pakistan
According to the International Development Committee, Pakistan had a lower-than-average tax
take. Only 0.57% of Pakistanis or 768,000 people out of a population of 190 million pay income
tax.
1

1) Promulgation of Income Tax Act, 1922:

When Pakistan came into being, the Government of Pakistan promulgated the Income Tax Act,
1922, as amended up to the date for regulating the taxation system in Pakistan.
2) An Applicability of the Income Tax Act, 1922:
The provisions of the Act were extended to the whole of Pakistan except the specified areas.
3) Formation of the Taxation Inquiry Committee:
"A Taxation Inquiry Committee", was introduced in 1958 which was consist of officials and the
representatives of trade and commerce.
4) Recommendations of Taxation Inquiry Committee:
"Taxation Inquiry Committee" submitted a report after keen analysis of prevailing tax system and
suggested some recommendations. Some of the recommendations were accommodated which
resulted in the amendment of Income Tax Act, 1922.
5) Abolishment of Super Tax:
Before 1959, super tax was imposed on the incomes of all the persons but in registered firm and
companies.
6) Expression of Rate Slab as a Percentage of Income:
In 1959, the rates of each slab were expressed as a percentage of income considering the
recommendations of "Taxation Inquiry committee".

7) Change in Financial Year:

Before 1960, the financial year was considered from 1st April to 31st March but in 1960, it was
changed from 1st July to 30th June.
2

8) Introduction of Income Tax Committee:

In 1961, FBR introduced an "Income Tax Committee". Main purpose of introduction of such
committee was to make recommendations for simplification of the Income Tax Act, 1922 and
procedure of taxation.
9) Introduction of Self-Assessment Scheme:
Before 1965, an assessment officer was assessed the income and determined the tax liability of
the person but in 1965, "Self-Assessment Scheme" was introduced.
10) Promulgation and Enforcement of the Income Tax Ordinance, 1979:
Till 1979, lots of amendments were made in the context of the Income Tax Act, 1922. As a result
of these amendments, the Act became a complicated law and difficulties arose in its working.
Keeping these difficulties in view, the Government promulgated a new income tax law namely
"The Income Tax Ordinance, 1979" through the Finance Ordinance on June 28, 1979 and
included all the basic concept of the repealed Act, so that the benefit of the whole case law built
up over the last 57 years is not rendered useless.
11) Formation of National Tax Reform Commission:
In 1985, the Federal Government formed a National Tax Reform Commission. It was consist of
members of Senate and National Assembly, high government officials and renowned
industrialist. Major purpose of such commission was to suggest way and means to improve the
existing structure of tax laws in Pakistan.
12) Income Tax Survey 1999-2000:
In 1999-2000, under the Income Tax Ordinance, 1979, an income tax survey was conducted to
analyze the prevailing taxation structure and to procure the suggestions and recommendations
from surveyors.
13) Introduction of Tax Amnesty Schemes:

Many tax amnesty schemes were introduced under the Income Tax Ordinance, 1979. These
schemes were introduced to provide a chance to black money holders, so that they can change
their black money into white money. Latest scheme was introduced in the year 2002.
14) Promulgation of the Income Tax Ordinance, 2001:
After 22 years of the promulgation of the Income Tax Ordinance, 2001, to modernize the
taxation system, a government of Pakistan introduced a new income tax law namely, "The
Income Tax Ordinance, 2001" which was promulgated on September 13, 2001. It was published
in the Extraordinary Gazette of Pakistan at pages bearing Nos. 969 to 1217.
15) Short Title of the Income Tax Ordinance, 2001:
Under section 1, the Ordinance specifies that "The Income Tax Ordinance, 2001" shall be the
short title of the law.
16) Applicability of the Income Tax Ordinance, 2001:
Under section 1, the Ordinance specifies that the Income Tax Ordinance, 2001 shall extend to the
whole of Pakistan.

17) Date of the Enforcement of the Income Tax Ordinance 2001:

Section 1 of the Ordinance, empowers the Federal Government to notify the date from which
the Income Tax Ordinance, 2001 shall came into force. The Federal Government, vide its
notification No. S.R.O. 381 (1)/ 2002, dated 15th June, 2002, announced that the Income Tax
Ordinance, 2001 shall came into force on the first day of July, 2002.
18) Status of the Income Tax Ordinance, 2001:
According to section 3 "The Income Tax Ordinance, 2001" overrides other laws enforceable in
Pakistan. It means, in case of any contradiction between the provisions of the Income Tax

Ordinance, 2001 and any other law of the country, the provisions of the Income Tax Ordinance,
2001 shall prevail.
19) Purpose of the Income Tax Ordinance, 2001:
The preamble of the Ordinance specifies the object of law. It specifies that the Income Tax
Ordinance, 2001, is promulgated to consolidate and to amend law relating income tax and
provide for matters ancillary to and connected with the income tax.
20) Income Tax Rules, 2002:
The FBR under the authority of section 237 of the Income Tax Ordinance, 2001 made the
Income Tax rules, 2002. These rules were published on July1, 2002 in Extraordinary Gazette of
Pakistan at pages 1819 to 1966.
21) Finance Act, 2009:
To update the income tax law in Pakistan according to the requirements of time, different
methods of changes have been adopted by competent income tax authorities like S.R.O's and
Circulars etc. Finance Act is the regular source of change; it is presented in the month of June in
each year. Finance Act, 2009 is one step to continuance process of change.

Definition of Tax:
A tax (from the Latin taxo; "rate") is a financial charge or other levy imposed upon a taxpayer
(an individual or legal entity) by a state or the functional equivalent of a state such that failure to
pay is punishable by law.
5

Taxes are also imposed by many administrative divisions. Taxes consist of direct or indirect taxes
and may be paid in money or as its labor equivalent.

Purposes of tax:
Money provided by taxation has been used by states and their functional
equivalents throughout history to carry out many functions.
Some of these include expenditures on war, the enforcement of law and
public order, protection of property, economic infrastructure (roads, legal
tender, enforcement of contracts, etc.), public works, social engineering,
subsidies, and the operation of government itself.
A nation's tax system is often a reflection of its communal values and/or the values of those in
power. To create a system of taxation, a nation must make choices regarding the distribution of
the tax burdenwho will pay taxes and how much they will payand how the taxes collected
will be spent.
In democratic nations where the public elects those in charge of establishing the tax system,
these choices reflect the type of community that the public wishes to create.
In countries where the public does not have a significant amount of influence over the system of
taxation, that system may be more of a reflection on the values of those in power.

Kinds of taxes:
The Organization for Economic Co-operation and Development (OECD) publishes an
analysis of tax systems of member countries. As part of such analysis, OECD
developed a definition and system of classification of internal taxes, generally
followed below. In addition, many countries impose taxes (tariffs) on the import of
goods

 Income tax
Capital gains tax
Corporate tax
Taxes on property
Sales taxes
Other taxes
Taxes on goods and services

Income Tax Authorities in Pakistan

Federal Board of Revenue or Central Board of Revenue

Commissioner Inland Revenue
Chief Commissioner Inland Revenue
Inspector of Inland Revenue
Furnishing Return
Regional Commissioner of Income Tax (RCIT)
Power of final decision

1.

Federal Board of Revenue

Federal Board of Revenue" means the Federal Board of Revenue (FBR) established under the
Federal Board of Revenue Act, 2007.

Who appointed the FBR?

The Federal Government has appointed the Federal Board of Revenue (FBR) by the
authority of the Federal Board of Revenue Act, 2007.
7

Basic function of the FBR:

Tax collection shall be the basic function of the FBR

Status of the FBR

FBR shall be the highest executive authority in Pakistan

Head of the FBR:

Chairman of the FBR shall be the main authority in the FBR who shall be appointed by the
Federal Government.

Members of the FBR:

FBR shall consist of at least seven members who shall be appointed by the Federal
Government.

Powers and Functions of the Federal Board of

Revenue (FBR):
The FBR has following powers and performs the following functions in the presence of
its powers:
1) Approval of research institutions: [26(2)]

The FBR may approve any institution engaged in scientific research in Pakistan
Scientific Research Institution so that such institution may claim its scientific

as

research

expenditures as deduction against income from business.

2)

Approval of employee training scheme: [27(c)]

The FBR may approve a Pakistani employee training scheme against which deduction is

allowed to business.
3)

Approval of Leasing Companies and Modaraba: [28(3)]

The FBR may approve any leasing company or Modaraba, where lease rental payment

made to such company is allowed as deduction against income from business to that person who
makes such payment.
4)

Approval of charitable institutions: [61]

The FBR may approve any institution as a charitable institution for the purposes of the

Income Tax Ordinance, 2001, especially, for donation purposes.

5)

Method of accounting: [32(3)]

The FBR may specify that any class of persons shall record its "Income from Business"

on a cash or accrual basis.

6)

Apportionment of deductions: [67(2)]

The FBR may make rules u/s 237 for the purposes of apportioning

where the expenditure relates to the derivation of more than one head of income.
7)

Permission for tax year: [74]

deductions

The FBR may permit person or class of persons to use special tax year instead

of

normal tax year.

8)

Power to demand particular data: [180]

The FBR may demand any data regarding exempted income of any industrial and

commercial organization (By delivering data collection and compilation responsibility to any
government or private department)
9)

Authority of circulars: [206]

The FBR may issue circulars to achieve consistency in the administration of the

Ordinance and to provide guidance to taxpayers and officers of the FBR.

10)

Empowerment of general administration:

The FBR shall exercise the general administration of the Income Tax Ordinance, 2001.

11)

Appointment of income tax authorities: [208]

The FBR may appoint as many income tax authorities as are necessary.

12)

Criterion for selection of audit: [177(1)]

The FBR may define criterion to guide the Commissioner of Income Tax that how the

CIT select a particular person to conduct audit of its income tax affairs during a particular tax
year.

13)

Appointment of the auditor: [177(8)]

The FBR may appoint a firm of Chartered Accountants, to conduct an audit of the income

tax affairs of any person.

14)

Determination of the scope of audit: [179(8)]

10

The scope of any audit conducted by firm of Chartered Accountants or Cost and
Management Accounts shall be determined by the FBR on a case to case basis.
15)

Determination of jurisdiction: [209(6)]

Where a question arises as to whether a Commissioner has jurisdiction over a person or

not, the question shall be decided by the RCIT or RCITs concerned and, if they are not in
agreement, it is determined by the FBR.
16)

Authority of approval: [212]

The FBR may authorize the RCIT or the CIT to grant approval on behalf of the

17)

Registration of income tax practitioners: [223(10)]

The FBR may make rules u/s 237 for the registration of income tax

18)

practitioners.

Power to make rules: [237(1)]

The FBR may, by notification in the Official Gazette, make rules for
the purposes of the Income Tax Ordinance, 2001.
19)

FBR.

carrying out

Delegation of powers: [209(2)]

The FBR may delegate all or any of its powers and functions to any income tax
authority.
20)

Unexplained income or assets:

The FBR may make rules u/s 237 for the procedure of taxation of any unexplained income or
asset of any person discovered by any income tax authority.
21)

Supervision of subordinate authorities:

The FBR supervises the functions, duties and jurisdiction of its subordinate authorities.

2.

Commissioner Inland Revenue

Commissioner means a person appointed as a Commissioner of Income Tax (CIT) u/s 208, and
includes a Taxation Officer vested with all or any of the powers, and functions of the
Commissioner
11

Who appoints the Commissioner?

Commissioner is appointed by the CBR u/s 208 of the Income Tax Ordinance 2001.

Basic function of the Commissioner:

Commissioner performs all such functions as are required by any provision of the Income Tax
Ordinance and as directed by the CBR.

Powers of the Commissioner:

Briefly speaking the Income Tax Ordinance, 2001, revolves around the Commissioner because
lot of powers has been granted under such Ordinance to the Commissioner.

Authority which supervises the CIT:

CBR and RCIT under whose jurisdiction, the Commissioner works, supervises the
Commissioner of Income Tax.
Note:

Income Tax Ordinance, 2001 also permits the delegation of work. If some work of

Commissioner is delegated to a Taxation Officer, such Taxation Officer may enjoy all powers of
the Commissioner.

Powers & Functions of the Commissioner of Income

Tax:
1)

Change in method of accounting [32(4)]

12

The Commissioner may allow a change in method of accounting, if the CIT is

satisfied that the change is necessary to clearly affect the persons income
chargeable to tax under the head Income from Business.
2)

Change in stock valuation method [35(6)]

A stock valuation method, once chosen, may be changed only within the written
permission of the Commissioner.

3)

Allow ability of Special Tax Year [74(3)]

The Commissioner may allow a person to use special tax year, only if the person
has shown a compelling need to use special tax year.

4)

Allow ability of Normal Tax Year [74(4)]

The Commissioner may allow a person to use normal tax year instead of special
tax year, only if the person has shown a compelling need to use normal tax year.

5)

Imposition of conditions regarding tax year [74(5)]

The Commissioner may imposer certain conditions while permitting a person to
use a special tax year or normal tax year.

6)

Withdrawal of permission to use a specific tax year:

The Commissioner may withdraw the permission granted to a person in respect of
using the specific tax year (special tax year or normal tax year), after providing
the opportunity of being head.

7)

Transactions between associations [108(1)]

The Commissioner may, in respect of any transaction between associates,
distribute apportion ate or allocate income, deduction or tax credits.

8)

Unexplaiend income or assets [111]

13

The Commissioner may charge to tax the value of any unexplained income or
asset and determine the value if it has been declared less than the fair market
value (FMV).
9)

Issuance of notice for filing of return [114(3) & (4)]

The Commissioner may issue a notice to a person or a persons representative for
filing a return for a period of less than 12 months or to a person who is required to
file a return but has failed to do so.

10)

Issuance of notice to furnish Wealth Statement [116(1)]

The Commissioner may be notice, require any person to furnish a wealth
statement in the prescribed form and verified in the prescribed manner.

11)

Return of discontinued business [117(3)]

The Commissioner may serve a notice on the person who has discontinued the
business or is likely to discontinue the business to furnish the return of income
within the specified time & specified period in the notice.

12)

Extension of time [119]

The Commissioner may grant the applicant an extension of time for furnishing the
return certificate, or statement etc.

13)

Best judgment assessment [121]

If the tax payer has not furnished required return or any other document, the
Commissioner may, based on any available information or material and to the best
of his judgment, make an assessment of the taxable income of the person and the
tax due thereon.

14)

Amended assessment order [122]

14

The Commissioner may amend an original assessment order by making necessary

alterations or additions.
15)

Recovery of tax from defaulting tax payer [138]

The Commissioner may take all necessary and appropriate actions for recovery of
tax from a defaulting taxpayer.

16)

Recovery of tax from other person on behalf of taxpayer [140]

The Commissioner may recover the tax from a person who holds money on behalf
of the defaulting taxpayer.

17)

Issuance of an exemption certificate [159]

The Commissioner may issue an exemption or lower rate certificate to the person
whose income is not likely to be chargeable to tax under this Ordinance or at
lower rate.

18)

Adjustment & refund of tax [170]

Where a person applies for refund, the Commissioner after necessary adjustments
shall refund the balance to the taxpayer within 34 days of receipt of a refund
application.

19)

Power to enter & search premises [175]

The Commissioner may enter in any business premises of the taxpayer within his
jurisdiction to perform any task which is deemed fit for the Income Tax
Ordinance, 2001.

20)

Power to impound documents [175]

The Commissioner or any authorized officer may impound any accounts or
documents relating to taxpayer and retain them for so long as may be necessary
for examination or for the purpose of prosecution.

21)

Power to make inventory [175]

15

The Commissioner may make an inventory of articles found in any premises or

place of taxpayer during special inspection of taxpayer records & inventory etc.
22)

Power to select a person for audit [177]

The Commissioner may select a person for audit of his income tax affairs.

23)

Imposition of penalties [Part-X of Chapter-X]

The Commissioner may impose penalties for different defaults discussed under
Part-X of Chapter-X of the Income Tax Ordinance, 2001.

24)

Imposition of additional tax [205]

The Commissioner may impose additional tax if the tax payer fails to pay the tax
by due date.

25)

Appointment of subordinates [208(2)]

Any income tax authority may appoint any income tax authority subordinate to it
by the approval of the CBR. So, the Commissioner may appoint any subordinate
authority by the approval of the CBR.

26)

Delegation of powers:
The Commissioner may delegate to any Taxation Officer all or any of its powers
or functions, other than the powers of delegation.

27)

Rectification of mistakes [221]

The Commissioner may amend his own order to rectify any mistake apparent
from the record on his own activity or any mistake brought to its notice by a
taxpayer or any income tax authority.

28)

Appointment of expert [222]

16

The Commissioner may appoint any expert for the purposes of audit or valuation
etc.
29)

Recognition of funds:
The Commissioner may recognize the provident fund, superannuation fund and
gratuity fund etc. under the Income Tax Ordinance, 2001.

30)

Supervision of subordinate authorities:

The CIT supervises the functions, duties and jurisdiction of its subordinate
authorities.

17

3.

Chief Commissioner Inland Revenue

Chief Commissioner Inland Revenue means a person appointed to be a chief commissioner

Inland Revenue u/s 208 of the income tax ordinance, 2001 and includes a director general of
income tax and sale tax

Appointment
Chief Commissioner is appointed by the federal board of revenue. He is appointed for a specific
area known as region

Subordination
Commissioner Inland Revenue additional Commissioner Inland Revenue, deputy commissioner
Inland Revenue, assistant commissioner inland revenue and other other taxation officers are
subordinate to the commissioner Inland Revenue.

Jurisdiction
The jurisdiction of the chief commissioner inland revenue is decided by federal board of
revenue.

Powers and Functions of Chief Commissioner

Inland Revenue
1. Transfer of jurisdiction
The Chief Commissioner Inland Revenue may transfer the
jurisdiction in respect of cases or persons from one subordinate
to another.

2. Decision of jurisdiction
If any dispute arises regarding the jurisdiction of two Commissioners
within same region, it is decided by the Chief Commissioner Inland
Revenue of that region
3. Revision of order

18

The Chief Commissioner Inland Revenue may revise any order passed by
his subordinates authorities
4. Appointment of Subordinate
The Chief Commissioner Inland Revenue can appoint of his subordinate
authority with the approval of federal board of revenue
5. Delegation of Powers
The Chief Commissioner Inland Revenue may delegate any of his power
to any subordinate taxation officer
6. Inspection of Subordinate Offices
The Chief Commissioner Inland Revenue may inspect the subordinate
offices situated under his jurisdiction
7. Supervision of Technical Work
The Chief Commissioner Inland Revenue is responsible to supervise the
technical work performed in the region
8. Write of Irrecoverable Demand
The Chief Commissioner Inland Revenue has the power to write off
irrecoverable demands in respect of instruction issued by the FBR
9. Supervise Tax Collection Procedure
The Chief Commissioner Inland Revenue being an administrative
authority is responsible to supervise the tax collection under his
jurisdiction
10. Internal Audit of Tax Departments
The Chief Commissioner Inland Revenue may conduct internal audit of
his subordinate offices
11. Regulation of Inspection Work
The Chief Commissioner Inland Revenue may supervise and regulate the
inspection work of the commissioner
12. Action Against Tax Evasion
The Chief Commissioner Inland Revenue may take action in case of
complaints of tax evasion under the region
13. Any Function Assigned By The FBR
The Chief Commissioner Inland Revenue may perform any other function
assigned by FBR

19