LECTURE NO: 1

GENERAL UNDERSTANDING OF TAX

Literal meanings --- Burden, strain
For example, Ramiz Raja in his commentary used the

phrase that singles will not tax Pakistan

General Definition
It is compulsory contribution of wealth levied upon

by the state, to meet the expenses incurred in providing common benefits to the residents.

STATUTARY DEFINITION
Tax means any tax imposed under chapter II and

include a penalty, fee or other charge or any sum or amount leviable or payable under the Ordinance. TAX vs FEE Tax is compulsory levy and subject to general benefits, whereas, fee paid entitles a person to claim counter benefit.

WHAT IS FISCAL POLICY?

It is a discipline that deals with arrangements which

are adopted by the government to collect the revenue and make the expenditures so that social and economic stability could be maintained.

WHAT IS FISCAL POLICY?

Objectives of Fiscal Policy
Economic development Raising employment level

Influencing consumption pattern

Price stability Proper distribution of income

Removal of deficit in the Balance of Payment postion

FISCAL POLICY
Instruments of the Policy
Government Expenditure Taxes

Deficit Financing
Subsidies Transfer Payments like unemployment Allowance

Sources for Revenue generation-like internal external

borrowing, aids and grants.

CANONS OF TAXATION
Presented by ADAM SMITH, the father of Economics Simplicity Convenience Certainty Judicious (fair play) Capacity to pay Benefit principle Business friendly

TYPES OF TAXES
Direct Taxes
Incidence (burden) of tax on the same person, on whom it is levied. For example , Income tax

Indirect Taxes
Incidence of tax can be shifted by the person on whom levied to other person. For example, Sales tax

TYPES OF TAXES
Proportional Taxes
Levied with same %age. For example ,Sales tax is levied at 16% .

Progressive Taxes
Based on capacity to pay. The tax rates increases with increase in income.

TYPES OF TAXES
Regressive Tax
A tax that takes a larger %age of income of low-income people than larger-income people.

Value Added Tax

A tax levied at each stage of value addition. For example, Sales tax.

TAXATION STRUCTURE OF PAKISTAN

Federal Taxes Income Tax Corporate Tax Customs Duties Sales Tax Capital value Tax Excise Duties Provincial Taxes Stamps Duty Registration Tax Motor Vehicle Tax

TAXATION MANAGEMENT
Taxation Management is a strategy for the business

managers to make maximum use of tax holidays, exemptions, rebates, tax credits, deductible allowances available under the law and derive the benefit of minimum tax liabilities and tax payments. For better understanding of taxation structure, it is prerequisite to know the different business entities. Scope of taxation ranges from incorporation of business to merger, amalgamation, winding up of the business

BUDGET
The word budget is derived from French word

Bougette means little bag or purse

Budget is estimation of revenues and

expenditures for

specified future period

BUDGET
A statement showing estimates of the revenues

and payments position of a government for a particular financial year. It shows the direction of the polices of the government in power. Estimated revenues exceeds the estimated expenditure, the budget is called surplus budget, otherwise a deficit budget. If both the sides are equal then it is called balanced budget.

FEDERAL BUDGET OF PAKISTAN

Prepared by Central Finance Ministry Presented to the National Assembly, by the Finance Minister in the month of May or June Discussed by the Assembly Passed by the Assembly in original or amended form Financial year starts from 1st of July, the budget must be passed before this date. The original budget is called budget Estimates (BE)

THE TWO SECTIONS

a) Revenue or Non- developmental Budget
Revenue Budget (R.B) shows anticipated revenues from tax and non-tax sources for

meeting the running expenses of the government on civil administration and defense. Surplus RB is transferred to the Capital Budget. Tax revenues includes income tax, sales tax, custom duties, central excise duty

THE TWO SECTIONS

Non-tax receipts include income from post office, telephone and telegraph, interest on loan, surcharges etc.

b)Capital Budget. contains the proposed development expenditure during the year and estimates of receipts from loans, aid and surplus from the Revenue Budget Both types of the budgets are taken together give a good picture of the economic picture of the country.

HEADS OF EXPENDITURE
Non-Development Expenditure are Debt services Defense Civil administration Law and order Subsides Beneficent departments such as education, health,

fisheries, forests etc.

HEADS OF EXPENDITURE-continued
Grants to provinces and Azad Kashmir
Other expenses like parks, sports, national assembly

etc.

DEVELOPMENT EXPENITURES
Roads
Canals Dams Bridges Educational and health facilities Agricultural and industrial development

SOURCES OF REVENUES
Taxes Fees and fines Prices for services (like use of railway service,

telephone etc) Grants and gifts Sale proceeds of government property Local taxes (toll tax, octroi charges, property tax)

NON-TAX RECEIPTS
Interest on loan
Through trading of government organization Fee like passport, post, telephone etc License fee and fines Receipts from State Bank Currency and coins

SOURCES
EXTERNAL SOURCES
Loans Aid

INTERNAL SOURCES
Loans Services

Business
Taxes

TAXES IN PAKISTAN
FEDERAL TAXES
PROVINCIAL TAXES TAXES OF LOCAL AUTHORITIES ZAKAT AND USHER

IMPORTANCE OF INCOME TAX

It is direct tax Combats inflation Influence the rate of economic growth Encourage full employment Favours the small business Reduces the inequalities of income Social reforms are possible Pervasive influence on all types of business decisions

B.ADMN 610: TAXATION MANAGEMENT

COURSE INSTRUCTOR: SHAHID MAHMOOD OBJECTIVES Overall view of the economic structure of Pakistan Salient features of Federal, Provincial and Local taxation laws Understanding the application of the above legislation, especially with reference to definitions, Exemptions, Salary, Income from Property, Income from Business, Capital gain and Income from other

sources.

OBJECTIVES--continued
Availing the exemptions under the laws
Taxation planning of business organizations COURSE CONTENTS

Laws and practice of Income Tax in Pakistan, Sales tax, Central excise, Provincial taxes and Local taxes
Working of the above legislations Practical problems

BOOKS RECOMMENDED
TAX LAWS OF PAKISTAN (as amended 2010) BY

HUZAIMA & IKRAM COMPLETE INCOME TAX LAW BY S.A.SALAM SYNOPSIS OF TAXES IN PAKISTAN BY MIRZA MUNAWAR HUSSAIN INCOME TAX LAW BY PROF. DR. KHAWAJA AMJAD SAEED

MAGAZINES
PAKISTAN TAX AND CORPORATE LAWS

(LAHORE) TAXATION (LAHORE) TAX OBSERVER (KARACHI) TAXATION FORUM (LAHORE)

VISIT:
www.finance.gov.pk

GENERAL KNOWLEDGE 5 AGENCIES OF WORLD BANK