0005 NPO - By Salman Haq

8/18/2019 0005 NPO - By Salman Haq

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Income Tax Bar Association

Karachi

WORKSHOP ON INCOME TAX

Hotel Sheraton, Karachi29 – 3 A!"!#t, 2 $


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Income Tax Bar

AssociationKarachi

Wor%#ho&on Inco'e Ta(

Hotel Sheraton29-30 August 2005

2

NON PRO)IT

OR*ANISATION

By

Sal'an Ha+


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Income Tax Bar

AssociationKarachi



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C O N T E N T S

NON PRO)IT OR*ANISATION

• G ! "A# $ %I!ITI&!• $ %I!ITI&! '!$ " TH &"$I!A!(• A))#I(ATI&! )"&( $'"

• A))#I(ATI&! )"&( SS %&" ! *#+ I!(&")&"AT $ &"GA!I,ATI&!• #IST &% $&(' !TS• A))"&.A#

• (&!$ITI&!S '!$ " *HI(H A))"&.A# IS!&T G"A!T $• A))#I(ATI&! %&" " ! *A# &% A))"&.A#• " %'SA#/*ITH$"A*A# &% A))"&.A#• .A#'ATI&! &% $&!AT $ )"&) "T+


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NON PROFIT ORGANISATION” –

DEFINED GENERALLY

'n1er normal arlance a 4!on )ro it &rgani6ation7 is

one 8hich is esta lishe1 an1 o erate1 8ith a 4not orro it moti:e7 such as the a1:ancement o religion

e1ucation relie o the oor social 1e:elo ment etc;


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NON PROFIT ORGANISATION”

–

UNDER THE ORDINANCE :

(lause o section 2 o the Income Tax &r1inance200? 1e ines a !on ro it organi6ation7 tomean @

non-&ro.it or"ani/ation0 'ean# an1 &er#on,other than an in i i !al, 4hich i# –

esta lishe1 or religious e1ucationalcharita le 8el are or 1e:elo ment ur oses or

or the romotion o armature s orts

< > orme1 an1 registere1 un1er an la8 as anon- ro it organi6ation


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NON PRO)IT OR*ANISATION0 5N6ER THE OR6INANCE 7

a ro:e1 the (ommissioner or s eci ie1erio1 on an a lication ma1e in therescri e1 orm an1 manner accom anie1

the rescri e1 1ocuments an1 on

reCuisition such other 1ocuments as mae rescri e1 the (ommissioner

an1 none o the assets o such erson con ers or macon er a ri:ate ro it to an other erson;


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AssociationKarachi



D

APPLICATION PROCEDURE

"ule 2?? to 220A o the Income Tax "ules 2002


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AssociationKarachi



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APP8ICATION PROCE65RE

8IST O) 6OC5MENTS 7

6oc!'ent# to :e acco'&anie alon" 4ith the a&&lication)or a&&ro al;

Atte#te co&1 o. the con#tit!tion, 'e'oran !' an article# o.a##ociation, r!le#, re"!lation# or :1e-la4#, a# the ca#e 'a1 :e,#&eci.1in" the ai'# an o:


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APP8ICATION PROCE65RE

APPRO A87

All a lications must e eruse1 an1 inali6e1 the(ommissioner 8ithin t8omonths o the recei t o a lication;

The (ommissioner a ter erusal o such a lication magrant a ro:al / rene8 a ro:al to such an organi6ation;

Such an a ro:al is reCuire1 to e noti ie1 in the o icialGa6ette an1 is su ect to such con1itions as the

(ommissioner ma s eci ;The irst a ro:al is :ali1 u to 30th 1a o Eune o the tax

ear next ollo8ing the tax ear in 8hich the a ro:al isgrante1;


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AssociationKarachi



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CON6ITIONS 5N6ER WHICH APPRO A8IS NOT *RANTE6

"ule 2?3 o the "ules rescri e the con1itions un1er 8hichthe (ommissioner ma re use to grant a ro:al to anorgani6ation these inclu1es @

i the constitution memoran1um an1 article o

association e la8s 1ee1 etc; 1oes not ro:i1e or@ au1it o inancial statements

or the reCuire1 Cuorum o the meeting othe mem ers o the organi6ation

in the e:ent o its 1issolution or thetrans er o its net assets to another similar

organi6ation 8ithin three months o1issolution un1er intimation to the(ommissioner


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or utili6ation o its mone ro ert orun1s or the o ects or 8hich it isesta lishe1

rohi iting an ri:ate ene it to amem er or relati:e o such organi6ation

or maintaining its accounts 8ith the$irectorate o !ational Sa:ings osto ice sche1ule1 anF or nationali6e1commercial anFs

or rohi iting a change in theconstitution memoran1um an1 article oassociation 1ee1 rules etc; as the casema e 8ithout the rior a ro:al o the(ommissioner


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or restricting the mone set a art or not

utili6e1 to t8ent i:e ercent o income;xcess un1s i an must ein:este1 in Go:ernment securities orsche1ule1 anFs or !IT units ormutual un1s; Ho8e:er suchin:estment or 1e osit must not excee1 onethir1 o the total sur lus o theorgani6ation at the en1 o the ear

< > i the (ommissioner is satis ie1 that theorgani6ation@

has een or is eing use1 orersonal ene it

has een ro agating the elie s o a

articular olitical art or religious sect


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has een or is eing manage1 in amanner calculate1 to ersonall ene itthe mem ers o the organi6ation

has not or 8ill not e a le to achie:e itso ecti:es;


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AssociationKarachi



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APP8ICATION )OR RENEWA8 O) APPRO A8

An a lication or rene8al o a ro:al must e urnishe18ithin six months a ter the ex ir o the :ali1it o the a ro:allast gi:en; It must e accom anie1 such 1ocuments an1in ormation as are rescri e1 an1 a lica le at the time omaFing original a lication or a ro:al;

The irst rene8al o a ro:al is :ali1 u to 30th 1a o Eune othe secon1 tax ear ollo8ing the tax ear in 8hich the rene8ala ro:al is grante1; xam le rene8al o a ro:al grante1 onan 1ate et8een the 0? Eul 2003 an1 30 Eune 200 is :ali1

u to 30 Eune 200=; Su seCuent rene8als 8ill e :ali1 u to 3ears 1e en1ing on the au1ite1 inancial statements an1 theer ormance re ort 1ul :eri ie1 an1 certi ie1 the

authori6e1 agenc ;


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RE)5SA8 ? WITH6RAWA8 O) APPRO A8

The (ommissioner ma re use / 8ith1ra8 the a ro:al othe organi6ation 1ul intimating to it an1 the authori6e1agenc certi ing the er ormance re ort the reason or its8ith1ra8al;

The or1er o the (ommissioner re using or 8ith1ra8ing ana ro:al is a ella le e ore the "egional (ommissionero Income Tax un1er "ule 2? o the "ules;


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AssociationKarachi



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A85ATION O) 6ONATE6 PROPERT

%or the ur ose o claiming tax cre1it / re ate in res ecto 1onation gi:en a 1onor to a non ro it organi6ationin terms o section =? o the &r1inance su rule < > o"ule 22 rescri es the ollo8ing :alues to e a1o te1

or 1onate1 ro ert @

I'&orte ite'#7 :alue or the ur ose o custom1ut along 8ith all 1uties an1 charges ai1 the1onor

< > Ite'# 'an!.act!re in Pa%i#tan7 urchaserice along 8ith 1uties an1 charges ai1 the 1onor

5#e e&recia:le ite'#7 Tax *ritten $o8n.alue;


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Income Tax Bar

AssociationKarachi



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= @ Motor ehicle# 7

!e8 cars an1 ee s im orte1 the 1onorshall e :alue1 at (I% :alue lus all 1utiesan1 charges till their registration;

!e8 cars an1 ee s locall urchase1 shall

e :alue1 at rice ai1 the 1onor lusall 1uties an1 charges till their registration;

'se1 cars an1 ee s im orte1 the 1onorshall e :alue1 at the im ort rice a1o te1

the (ustom Authorities lus all chargesan1 1uties till their registration;

.alue a1o te1 in the irst ear shall ere1uce1 ?0 o the sai1 :alue or each successi:e

ear u to a maximum o 5 ears;


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'se1 cars an1 ee s locall urchase1shall e :alue1 as@

I cars an1 ee s are u to 5 earsol1 :alue shall e the original cost asre1uce1 ?0 or e:er ear ollo8ing

the ear in 8hich it 8as im orte1 orurchase1

I cars an1 ee s are more than 5 ears

ol1 :alue shall e the urchase rice ai1 the 1onor or the use1 car or 50 o the

original :alue 8hiche:er is higher

=e@ Other ite'#7 %air marFet :alue as 1etermine1

the (ommissioner


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AssociationKarachi



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C O N T E N T S

PRESENTATION – INS5RANCE >5SINESS• &) "ATI!G #A*• T+) S &% I!S'"A!( B'SI! SS• S) (IA# )"&.ISI&!S " #ATI!G T&

I!S'"A!( B'SI! SS

• $ $ )"&.ISI&!S !&T A))#I(AB# &! I!S'"A!( B'SI! SS

• &! BASK T I!(&

•J )TI&!&% GAI! &! SA# &% SHA" S

• $I.I$ !$ I!(& %I!A# TAJ " GI• I!(& &% #I% I!S'"A!( B'SI! SS• I!(& &% G ! "A# I!S'"A!( B'SI! SS


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AssociationKarachi



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OPERATING LAW

The Insurance &r1inance 2000 an1 the "ules ma1e

there un1er is the go:erning la8 or Insurance com anies

in )aFistan; Insurance com anies are a1ministere1 the

Securities L xchange (ommission o )aFistan;


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AssociationKarachi



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T PES O) INS5RANCE >5SINESS

In terms o the Insurance &r1inance insurance usinessis roa1l classi ie1 into 4li e insurance7 an1 4non li einsurance7; A1o ting the same classi ication the %ourthSche1ule to the Income Tax &r1inance 200? also la s

1o8n the rinci les or taxation o each class o insuranceusiness i;e; li e insurance an1 general insurance;


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AssociationKarachi



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SPECIA8 PRO ISIONS RE8ATIN* TOINS5RANCE >5SINESS7

Section 99 rea1 8ith section an1 the %ourth Sche1ule tothe &r1inance rescri es the asis or com uting income

ro its an1 gains arising to an insurer rom con1uctinginsurance usiness; :en though section 99 o the

&r1inance eing ari materia to section 2= o theIncome Tax &r1inance ?9D9 1onot s eci icall regar1 the ro:isions as 4non o stantia7

eing 4s ecial ro:isions7 the osition has not change1an1 the %ourth Sche1ule has an o:erri1ing e ect to allother ro:isions inclu1ing the Secon1 Sche1ule to the&r1inance; The 1ictum generalia specialibus non dergant i;e; s ecial ro:isions o la8 8oul1 re:ail o:er general

ro:isions 8oul1 there ore a l ;


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6EEMIN* PRO ISIONS NOT APP8ICA>8ETO INS5RANCE >5SINESS7

The 1eeming ro:isions o the &r1inance such as thosecontaine1 in section 3 relating to un ai1 lia ilitiesoutstan1ing or more than three ears or section 39relating to cash loans are not a lica le to insurance

usiness;


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AssociationKarachi



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ONE >ASKET INCOME7

The most signi icant eature o the %ourth Sche1ule is that

there is no s eci ic 1istinction et8een the :arious hea1so income :is-M-:is income rom ro ert income rom

usiness ca ital gains an1 income rom other sourcesan1 the ro it an1 gains 1eri:e1 an insurer romcarr ing on insurance usiness is regar1e1 as 4income

rom usiness7; This emanates rom the rinci le that thesur lus/ ro it 1isclose1 the insurer in its ooFs oaccounts constitute the asis or com uting 4Income romBusiness7; Hence an 4 ro it on 1e t7 or 4ca ital gain7earne1 the insurer in the normal course o its usinessacti:it 8oul1 e regar1e1 as its 4income rom usiness7an1 not other8ise ;


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EXEMPTION O) *AIN )ROM SA8E O) SHARES

The %inance Act 2005 has intro1uce1 "ule to the %ourth

Sche1ule to the &r1inance 8here gain rom the sale o @ o1ara a certi icates< > #iste1 re1eema le ca ital Shares o a u lic com an an1 )aFistan Telecommunications (or oration .ouchers

is ro:i1e1 as exem t rom charge o tax; u to 30th 1a o Eune200D; )lease a reciate that these ro:isions in su stancecorres on1 to (lause


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6I I6EN6 INCOME – )INA8 TAX RE*IME

$i:i1en1 income earne1 an insurance com an issu ect to tax at the rate o 5 as rescri e1 in the %irstSche1ule; %urther the tax lia ilit o the insurancecom an in res ect o 1i:i1en1 income earne1 itstan1s inall 1ischarge1 8hen the tax is 8ithhel1 the

a er o such 1i:i1en1 at the time o maFing a ment inaccor1ance 8ith section 5 rea1 8ith section o the&r1inance;


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AssociationKarachi



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INCOME O) 8I)E INS5RANCE >5SINESS

In terms o the Insurance &r1inance li e insurancecom anies are reCuire1 to maintain se arate statutor

un1s or 4 olic hol1ers7 an1 4sharehol1ers7; It is onl thesur lus attri uta le to the sharehol1ersN un1 1isclose1 to

ro it an1 loss account or the ear as er a1:ice o the A ointe1 Actuar 8hich constitute the asis orcom uting the taxa le usiness income o an insurancecom an carr ing on li e insurance usiness;

This means that all the ro:isions an1 reser:es that aremaintaine1 un1er the Insurance &r1inance or the ur oseo com uting statutor sur lus are allo8a le 1e1uctionsan1 the taxation authorities cannot reinstate the same;


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%rom the amount o net sur lus the ollo8ing 1e1uctionsare allo8a le@

$e1ucti le ex enses as attri uta le to thesharehol1ersN un1

< > Amount ai1 to or reser:e1 or or ex an1e1 onehal o olic hol1ers; Ho8e:er no account shalle taFen o the amount ai1 out &" roughtor8ar1 sur lus rom a re:ious inter :aluation erio1;

&n the other han1 i the amount reser:e1 or

a ment to olic hol1er ceases to e so reser:e1an1 is no longer a a le the sum re:iouslallo8e1 as a 1e1uction is treate1 as art o the income

or the tax ear in 8hich the amount ceases to e soai1;


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Amount 8ritten o or reser:e1 in the accounts

through the actuarial :aluation or 1e reciation&" loss on reali6ation o in:estment is allo8e1as a 1e1uction; &n the other han1 amount taFencre1it or in the accounts or a reciation &" gain in the reali6ation o in:estment is treate1 as

art o sur lus or the ear ro:i1e1 the (ommissionerconsi1ers the amount o 1e reciation /a reciation loss / gain as reasona le;

)ro it on 1e t on securities issue1 the %e1eralGo:ernment as 4income tax ree7 shall not e

exclu1e1 ut shall e exem t rom tax;


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INCOME O) *ENERA8 INS5RANCE >5SINESS

The amount o ro it 1isclose1 in the accounts re are1un1er the Insurance &r1inance an1 su mitte1 to theSecurities L xchange (ommission o )aFistanconstitutes the asis or com uting the taxa le income

rom usiness o general insurance;

This 8oul1 mean that all the ro:isions an1 reser:esman1ator create1 un1er the Insurance &r1inance or the

ur ose o com uting such ro its are allo8a le an1 thetaxation authorities cannot 1ilate on them in:oFing thegeneral ro:isions o the &r1inance;


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%rom the amount o such ro it the ollo8ing a1 ustmentsare ermissi le@

!o 1e1uction shall e allo8e1 or anex en1iture ro:ision allo8ance or reser:e in excesso the limit rescri e1 the Insurance &r1inanceunless the excess is allo8e1 the Securities L

xchange (ommission an1 is incurre1 in 1eri:ingincome rom usiness chargea le to tax;

< > An ex en1iture allo8ance reser:e or ro:ision8hich is ina1missi le in com uting 4income rom

usiness7 is also ina1missi le or the ur ose ogeneral insurance usiness7;


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Amount 8ritten o or reser:e1 in the accountsthrough the actuarial :aluation or 1e reciation&" loss on reali6ation o in:estment is allo8e1as a 1e1uction; &n the other han1 amount taFencre1it or in the accounts or a reciation &" gain in the reali6ation o in:estment is treate1 as

art o ro its or the ear ro:i1e1 the (ommissionerconsi1ers the amount o 1e reciation

/a reciation loss / gain as reasona le;


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Documents

0005 NPO - By Salman Haq