taxation management

TAXATION MANAGEMENTLECTURE 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 Provincial Taxes

Income TaxCorporate Tax Customs DutiesSales TaxCapital value Tax Excise Duties

Stamps DutyRegistration TaxMotor 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 areDebt servicesDefenseCivil administrationLaw and orderSubsidesBeneficent departments such as education,

health, fisheries, forests etc.

HEADS OF EXPENDITURE--continued

Grants to provinces and Azad KashmirOther expenses like parks, sports, national

assembly etc.

DEVELOPMENT EXPENITURES

RoadsCanalsDamsBridgesEducational and health facilitiesAgricultural and industrial development

SOURCES OF REVENUES

TaxesFees 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 RECEIPTS

Interest on loanThrough trading of government organizationFee like passport, post, telephone etcLicense fee and finesReceipts from State BankCurrency and coins

SOURCES

• EXTERNAL SOURCESLoansAid• INTERNAL SOURCESLoansServicesBusinessTaxes

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

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