Taxation Management

LECTURE NO: 1

GENERAL UNDERSTANDING OF TAXLiteral meanings --- Burden, strainFor example, Ramiz Raja in his commentary

used the phrase that “singles will not tax Pakistan”

General DefinitionIt is compulsory contribution of wealth

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

STATUTARY DEFINITIONTax 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 FEETax 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 PolicyEconomic developmentRaising employment levelInfluencing consumption patternPrice stabilityProper distribution of income Removal of deficit in the Balance of Payment

postion

FISCAL POLICYInstruments of the PolicyGovernment ExpenditureTaxesDeficit FinancingSubsidiesTransfer Payments –like unemployment

AllowanceSources for Revenue generation-like internal

external borrowing, aids and grants.

CANONS OF TAXATION Presented by ADAM SMITH, the father of

EconomicsSimplicityConvenienceCertaintyJudicious (fair play)Capacity to payBenefit principleBusiness friendly

TYPES OF TAXESDirect 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 TAXESProportional 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 TAXESRegressive 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 Provincial Taxes

Income TaxCorporate Tax Customs DutiesSales TaxCapital value Tax Excise Duties

Stamps DutyRegistration TaxMotor Vehicle Tax

TAXATION MANAGEMENTTaxation 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

BUDGETThe word budget is derived from French

word “Bougette” means little bag or purse“Budget is estimation of revenues and

expenditures for specified future period”

BUDGETA 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 PAKISTANPrepared by Central Finance MinistryPresented to the National Assembly, by

the Finance Minister in the month of May or June

Discussed by the AssemblyPassed by the Assembly in original or

amended formFinancial 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 SECTIONSNon-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 EXPENDITURENon-Development Expenditure areDebt servicesDefenseCivil administrationLaw and orderSubsidesBeneficent departments such as education,

health, fisheries, forests etc.

HEADS OF EXPENDITURE--continuedGrants to provinces and Azad KashmirOther expenses like parks, sports, national

assembly etc.

DEVELOPMENT EXPENITURESRoadsCanalsDamsBridgesEducational and health facilitiesAgricultural and industrial development

SOURCES OF REVENUESTaxesFees and finesPrices for services (like use of railway

service, telephone etc)Grants and giftsSale proceeds of government propertyLocal taxes (toll tax, octroi charges, property

tax)

NON-TAX RECEIPTSInterest on loanThrough trading of government organizationFee like passport, post, telephone etcLicense fee and finesReceipts from State BankCurrency and coins

SOURCESEXTERNAL SOURCESLoansAidINTERNAL SOURCESLoansServicesBusinessTaxes

TAXES IN PAKISTANFEDERAL TAXESPROVINCIAL TAXESTAXES OF LOCAL AUTHORITIESZAKAT AND USHER

IMPORTANCE OF INCOME TAX

It is direct taxCombats inflationInfluence the rate of economic growthEncourage full employment Favours the small businessReduces the inequalities of incomeSocial reforms are possiblePervasive influence on all types of

business decisions

B.ADMN 610: TAXATION MANAGEMENTCOURSE INSTRUCTOR:SHAHID MAHMOODOBJECTIVESOverall view of the economic structure of

PakistanSalient features of Federal, Provincial and

Local taxation lawsUnderstanding 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--continuedAvailing the exemptions under the lawsTaxation planning of business

organizationsCOURSE CONTENTSLaws and practice of Income Tax in

Pakistan, Sales tax, Central excise, Provincial taxes and Local taxes

Working of the above legislationsPractical problems

BOOKS RECOMMENDEDTAX LAWS OF PAKISTAN (as amended 2010)

BY HUZAIMA & IKRAMCOMPLETE INCOME TAX LAW BY

S.A.SALAMSYNOPSIS OF TAXES IN PAKISTAN BY

MIRZA MUNAWAR HUSSAININCOME TAX LAW BY

PROF. DR. KHAWAJA AMJAD SAEED

MAGAZINESPAKISTAN TAX AND CORPORATE LAWS (LAHORE)TAXATION (LAHORE)TAX OBSERVER (KARACHI)TAXATION FORUM (LAHORE)

VISIT:www.finance.gov.pk

GENERAL KNOWLEDGE5 AGENCIES OF WORLD BANK