By

Mirza Munawar Hussain

LLB, FPA, FCIS, FCMA President - PIPFA Member National Council - ICMAP

Success in Examinations
1. Planning
Course Material

Select the book which adequately covers the topic you are studying. You may also select different books for different topics The key to selecting the right text book is consulting your teachers / senior students. You may also refer the list of recommended reading available on the website Panic makes you think less clearly, so avoid it by starting work early. Lecturers/tutors assume that you will decide for yourself what and when to revise and may give little direction. Identify if you are spending too much time on a topic Know what you have already done. Know what still needs to be done Prioritize things for effective studying.

The All Essential Plan

A Good Plan Helps You:

1. Planning
Factors be Considered When Planning Study Sessions should be from one to three hours Have a definite break every hour Avoid late hours Revision for other papers at the same time Family commitments, relationships, friendships Contingencies such as illness How much sleep you need Plan recreation and relaxation into your time table Monitoring Your Plan Check your plan regularly to see how well you are doing. You may need to amend your plan, e.g. if something unexpected happens or if some revision takes longer than expected.

2. Preparation
Where to Study
Always in the same place Choose a warm, light, well ventilated room Away from other distractions Properly furnished

Summarizing Key Points

Dont make long notes in the form of paragraphs, which you may find difficult to learn and retain Your notes should ideally be in the form of pointers which are easier to remember and quicker to revise Underline important points Even if a paper involves mathematical calculation it is still very important that you study the theory also to learn the concepts and logic behind the mathematical workings and formulae.

Principles of Understanding
Always aim for understanding Look for examples to illustrate the topic Promote understanding by rearranging material, questioning the ideas and looking for links with old ideas Consider your topic from all possible angles

2. Preparation

Principles of Memorizing
Never memorize something that you dont understand Always try to link new material with what you have previously learnt Select the important items to remember Organize the material into a meaningful system The sequence of memorizing should be the same as the logical sequence of the material Long pieces should be memorized in shorter chunks Go over notes, reading etc. within 12 hours of writing, reading etc. Try to master each topic before leaving it but do not spend so much time that other areas or subjects are ignored Over learn. Dont stop when you have only just learnt something Start each session with a review of the previous session

Mock Examinations
At least 10-15 days before the end of the leave conduct real time mock examinations Self assessment Identify weak areas Work on weak areas Go through the examiner comments Actually attempt the questions and do not just go through the solutions

3. Attempting the Paper

Examination Techniques Controlling the anxiety is the key Arrive early at the exam to avoid panic. Be on your seat at least 10 minutes before the examinations. This will reduce your anxiety and allow you to sort out issues which may consume your time during the examinations. In the exam, spend the first 5 minutes glancing through the paper to make sure you understand the instructions and to decide which questions to answer first. Read the question very carefully until you know exactly what is required Note any special requirements e.g. list, detail, advise, explain, report, etc. Budget your time for each question in proportion to the marks given. Stop working on it when that time is up, return to it if you have time to spare. Spending too much time on favorite topic at the expense of others may cost you the exam Repetition of the same point using different descriptions does not fool the examiner & only wastes time The first 50% of the marks of a particular question are the easiest to get; the next 25% are harder; the last 25% are the hardest. If you run out of time: two half answers may get more marks than one full one; jot down the main points to include while they are in your mind and return later. Write clearly so the examiner can read your work. Number answers correctly.

3. Attempting the Paper

QuestionsHow to Answer Them Possibilities for organizing your information in an exam include: First plan your answer as to how you want to go ahead with your answer Give a clear opening paragraph, present information in a clear order, a final paragraph drawing conclusions/summarizing. The opening paragraph should be linked with final conclusions through one of the following ways: - step by step points where there is a sequence or stage - a main initial point to make an impact which you then develop - Putting different sides of an argument - Grouping theories/concepts through a theme Present your work well. Headings and a good layout make your work easier to read Tables and graphs need to be clear with correct labeling Use practical examples to illustrate the points made subject to the availability of time and requirements of the question. It may not be practical to give examples where only brief answers are required As far as possible give answers in pointers showing the main heading and then describing it in appropriate details as per the requirements of the question. Just by giving pointers you can at least secure some marks and convey your knowledge to the examiner.

3. Attempting the Paper

Scenario Type Questions How to Answer Them It has been noted that most students only give the conclusions in such

type of questions The most important aspect of giving such questions is to test if you have understood the concepts Therefore the key to such questions is the reasoning and not the conclusion The examiner is interested in the thought process that went into the conclusion. You can conclude correctly without any reasoning, by sheer guessing you have a fifty percent chance of getting it right. The examiner knows this and therefore no marks are allowed for guessing the conclusion you must support it. If you have proper reasoning that forms the basis for your conclusions you can at least get pass marks even if your conclusion does not match with that of the examiner.

3. Attempting the Paper

How to Improve the Presentation of Your Scripts Marks that you will obtain for your answers depends on two factors: What you answered How you answered Start each new answer on a new page The arrangement should be pleasing to the eyes Write a fairly large and legible handwriting. But you should not try to change your style just for the examinations. You will have to practice it before the examinations Write your headings boldly Use a dark ink and medium pointed nib Leave space between subsections of answers The subject matter should be broken up into small paragraphs Use Apt sub-headings as it attracts the attention to the main divisions of the chapter The sentences should be short and crisp Make cancellations and corrections neatly Insert new words or sentences legibly and in an orderly way Watch your spelling and punctuation as it helps quick reading & prevent misunderstanding

3. Attempting the Paper

Most Commonly Made Mistakes Not resting adequately before the paper General instructions given on the answer scripts and sent with the admit card are often ignored Questions are not read carefully Not planning before attempting the question Getting stuck over a single question Not clearly stating the assumptions used Not being quick enough Presentation and workings not clearly shown Students do not complete the paper more due to selective studies and not because of the length of the paper Students tend to repeat points Irrelevant points are given

3. Attempting the Paper

Coping with Nerves Stress can be good - it can make you mentally alert. You will do better if you see stress as positive and the exams as a chance to show what you can do, not as a way of tripping you up. Work out what to do if you panic. Take deep breaths Do good revision/preparation. Find out in advance as much as possible about the examination centre or the exam room. Identify what to do in the first 5 minutes of the exam in what order and stick to it. Make yourself comfortable for the exam (e.g., warm/cool clothes, handkerchiefs, etc) Calm yourself beforehand (e.g., visualize a pleasant scene, distract yourself) Avoid being overtired (is it worth staying up late to cram in extras?). Avoid last minute revision. Trying to remember facts then may block out 'deep learning' (i.e. of concepts and principles).

Examiners Comments
It was noted that the students suffer from lack of

practice and presentation skills. Moreover, a large number of candidates fail to comprehend the exact requirement of the question and do not know how to approach the questions logically. (Summer-2006) It was noted in majority of the scripts that students lacked knowledge and practice on the subject. Furthermore, effective presentation which is essential for attempting an advanced stage paper was also lacking in most of the scripts. (Winter-2006)

Examiners Comments
Overall performance of the candidates was poor. It was

observed that instead of explaining what the law has prescribed, the students formulated their answers according to their general understanding of the subject. For example, many students believed that since the liability of shareholders of a private limited company is limited, they shall not be required to contribute anything if the company is unable to pay its tax liability. Further, many students tried to stretch the answer by providing irrelevant details and explanations. The students are once again advised that marks are only awarded for the portion of answer which is relevant and it is a waste of time to display knowledge of other irrelevant areas. (Summer-2007)

Examiners Comments
The overall performance in this paper was again very poor. It was seen that the students tried to answer according to the general understanding of the subject, and not according to the specific requirements of the question and the law. (Winter-2007) The performance in most cases was far below the level expected in a professional examination. An analysis of this low performance reveals that it was mainly attributed to lack of knowledge, inability to deal with practical

situations and the tendency to rush to a conclusion and thereby failing to grasp the exact requirements of the question. Further, it has also been noticed that the tendency to write the word assumed has increased manifold without any reason as factually very few of the questions required an answer based on any assumption. Some of the students make such assumptions which change the meaning of the question altogether. Such assumptions make the question unduly complicated and result in poor performance. The students are advised to make assumptions only when it is necessary. They would also ensure that such assumptions do not contradict the situation given in the question or its requirements. (Summer-2008)

Income Tax
Income Any bonus or bonus shares declared, issued or paid by a company with a view to increase its paid-up share capital shall not be an income in the hands of the shareholder. Deductible Allowance WWF WPPF Zakat paid under the Zakat and Ushr Ordinance, 1980.

Zakat privately paid shall not be treated as deductible allowance.

Income Tax
Employment Employment includes: A directorship or any other office involved in the management of a company; A position which entitles its holder to a fixed or ascertainable remuneration; or The holding or acting in any public office. Gratuity & commutation of pension is exempt to an

employee to the extent provided in clause (13) of Part-I of Second Schedule, but this exemption shall not be available to any payment received from a company by a director of such company who is not a regular employee of such company.

Income Tax
Kibor KIBOR means Karachi Inter-Bank Offered Rate prevalent on the first day of each quarter of the financial year.
Minor Child Minor Child means an individual who, at the end of a tax year is under the age of eighteen (18) years. [2(33)] For the purpose of section 90 (i.e., transfer of property) Minor Child shall not include a married daughter. [90(8)]

Income Tax Rates

Individuals: Different tax rates for salaried and non-salaried taxpayers Marginal Tax Relief for salaried taxpayers only Association of Persons: 25% of taxable income Where turnover is 50M or above provisions of section 113 (i.e., minimum tax @ 1% of turnover ) shall also apply Companies: Small companies 25% of taxable income Any other companies 35% of taxable income Provisions of section 113 (i.e., minimum tax @ 1% of turnover ) shall also apply

Schemes of Taxation
Normal Tax Regime (NTR) Income and tax liability are computed under normal procedure by allowing admissible deductions, deductible allowance, adjustment of losses, tax credits and tax rebates, etc Separate Taxation Certain incomes and transactions are not included in total and taxable income; rather, are kept separate and charged to tax at special rates Final Tax Regime (FTR) Certain transactions are presumed as income and tax deducted/collected at source is treated as full and final discharge of tax liability in respect of income from such transactions.

Overriding Provisions
Section 3 The provisions of the Income Tax Ordinance shall apply notwithstanding anything provided in any other law for the time being in force. Section 107 Where there is a contradiction between the provisions of the Income Tax Ordinance and any Tax Treaty, the provisions of the tax treaty shall apply.

Income from Assets

General Rule Income arising from any asset is the income of the person who is owner of the asset Exception to the General Rule Where a persons transfers his asset under a revocable transfer, or to his spouse (other than against consideration or an agreement to live apart), a minor child, or to some other person for their benefits, the income arising from such asset shall be treated as income of the transferor and not of the transferee Income from Sale of Land Taxable only if the person is in the business of buying and selling of land Under all other cases not taxable under the Income Tax Law

Taxation of Retailers (Ind. & AOPs)

Retailers With Turnover Upto Rs. 5,000,000 [113A] A retailer whose total turnover for any tax year does not exceed Rs. 5,000,000 has two alternatives for determining his tax liability under the Income Tax Ordinance. The alternatives available to him are:

He may opt to pay tax computed on of his turnover during the tax year; and He may opt to pay income tax under the normal tax regime (NTR). Under this case, the taxable income and the tax liability shall be computed as per normal procedure.

Retailers with Turnover Exceeding Rs. 5,000,000 [113B] A retailer falling under this category is required to pay income tax on his turnover instead of taxable income. Tax liability of such taxpayer shall be:

Turnover upto Rs. 10 M - @ 0.5% of turnover Turnover exceeding Rs. 10 M Rs. 50,000 Plus 0.75% of exceeding amount AOP with turnover of Rs. 50 M or above Minimum tax @ 1% u/s 113

Company as a Retailer taxable under NTR

Permanent Establishment of Non-Resident

The PE shall be treated as a distinct and separate entity from the non-resident of which it is a PE. Its profit shall be computed on the basis of this principle. Deduction on account of expenses (including executive and administrative expenses) shall be allowed as per normal procedure. A PE shall not be allowed a deduction for any amount paid or payable by it to its head office or to another PE on account of the following expenses:

Royalties, fees or other similar payments for the use of any tangible or intangible asset. Compensation for any services (including management services). Profit on debt on money lent to the PE, except in connection with a banking business.

While determining the income, any amount which is received or receivable by a PE from its head office or from another PE on account of the following incomes shall not be taken into account:

Royalties, fees or other similar payments for the use of any tangible or intangible asset. Compensation for any services (including management services). Profit on debt on money lent by the PE except in connection with a banking business. Total head office expenses of non-resident Turnover of PE Total world wide turnover of non-resident

Head office expenses shall be allowed as deduction equal to an amount which is computed as below:

Any excess amount allocated to PE shall not be allowed as deduction. A PE shall not be allowed a deduction on account of the following expenses paid or payable by the nonresident;

Any profit on debt to finance the operations of PE; or Any insurance premium in respect of the above stated debt.

Thin Capitalization
Thin capitalization is a situation wherein a company has a very lesser

amount of capital as compared to its debts. A foreign-controlled resident company shall not be allowed a deduction for the profit on debt paid by it on that part of the debt as exceeds the prescribed ratio. The provisions in this regard are as below:
The company has a foreign debt to foreign equity ratio in excess of

three to one at any time during the tax year. Profit on debt shall be allowed as deduction if the debt-equity ratio remains up to three to one. As and when it exceeds this ratio, any amount paid as profit on that part of the debt as exceeds three to one ratio shall not be allowed. The above provisions do not apply to:

(i) (ii) (iii)

A financial institution; A banking company; or A branch of a foreign company operating in Pakistan.

Thin Capitalization

Foreign-Controlled Resident Company [106(2)]

It means a resident company in which fifty percent (50%) or more underlying ownership of the company is held by a nonresident person either alone or together with an associate or associates.

Foreign Debt [106(2)] Foreign debt has been defined in relation to foreign-controlled resident company and it means the greatest amount of the total of the following amounts:

The balance of any debt owed by the company to a foreign controller or his non-resident associates, the profit on which is either exempt from tax or is taxable at a rate which is lower than the corporate rate; and The balance of any debt owed by the company to a person other than specified in No. 1 above, if that other person is owing a similar amount of debt to the foreign controller or his associates.

Note: The greatest amount at any time in a tax year shall be taken as foreign-debt. Foreign Equity [106(2)] The amount of foreign equity of a foreign-controlled resident company shall be computed as below: Amounts representing share in the equity of the company of foreign-controller or his non-resident foreign associates:

Paid up value of shares held Share premium Accumulated profit Asset revaluation reserve

XXX XXX XXX XXX

XXX

Less:

Debt obligation owed to the company by the foreign-controller and his non-resident associates XXX Share in accumulated losses XXX

XXX

Foreign equity XXX Note: All the above mentioned amounts should be taken at the balance appearing in the books at the beginning of the tax year.

Modarabas

Income from Non-Trading Activities According to clause (100) of Part-I of the Second Schedule the income of a Modaraba from nontrading activities shall be exempt from tax for any assessment year commencing on or after 01-071999. In order to avail this exemption, it shall have to fulfill the following conditions:

Minimum 90% of the total profit (after transfer to mandatory reserve) is distributed among the certificate holders; and For the purpose of determining the distribution of 90% profits, the profits distributed through bonus certificates or shares shall not be taken into account.

Incomes from Trading Activities [Clause (18) of Part-II of Second Schedule] Currently, a Modaraba is taxable for such incomes, which are generated through trading activities. It shall be taxable at the rate of twenty five percent (25%) of its total trading income excluding the followings:

Dividend incomes; Incomes to which section 153 applies (i.e., supply of goods, rendering of services or execution of contracts). Incomes to which section 154 applies (i.e., exports).

Non-application of Minimum Tax u/s 113 [Clause (11A)(xiii) of Part-IV of Second Schedule] The provisions of sections 113 regarding payment of minimum tax are not applicable to a Modaraba registered under the Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980.

Banking Companies
No depreciation allowance or deduction shall be admissible on

assets given on finance lease Provisions for advances and off balance sheet items shall be allowed up to a maximum of 1% of total advances; and Provisions for advances and off-balance sheet items shall be allowed at 5% of total advances for consumers and small and medium enterprises (SMEs) Provisioning in excess of 1% would be allowed to be carried over to succeeding years If provisioning is less than 1% of the advances, then actual provisioning for the year shall be allowed The amount of bad debts classified as sub-standard under the Prudential Regulations issued by the State Bank of Pakistan shall not be allowed as expense

Banking Companies
Capital Gain/Loss capital gains on sale of shares of listed companies shall be taxed at the rate of ten per cent Where the shares of listed companies are disposed of within one year of the date of acquisition, the gain shall be taxed at the normal rate Loss on sale of shares of listed companies, disposed of within one year of the date of acquisition, shall be adjustable against business income of the tax year. Where such loss is not fully set off against business income during the tax year, it shall be carried forward to the following tax year and set off against capital gain only. No loss shall be carried forward for more than six years immediately succeeding the tax year for which the loss was first computed. Dividend Income The income under the head dividend shall be taxed at the rate of ten per cent Income from Business Taxable @ 35%

Banking Companies
Advance tax The banking company shall be required to pay advance tax for the year under section 147 in twelve equal installments payable by 15th of every month. Other provisions of section 147 shall apply as such. Provisions of withholding tax under this Ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. Minimum Tax The provisions of section 113 shall apply to banking companies as they apply to any other resident company Exemptions Exemptions and tax concessions under the Second Schedule to this Ordinance shall not apply to income of a banking company computed under Seventh Schedule

Salary Income
Salary Which Income: Employee / employer relation must exist between the recipient and the payer Definition: Salary, briefly, is any benefit to a person from his employer Basis of Taxing Salary: Primarily salary is taxable on actual receipt basis Exceptions are:

Salary received in arrears may be taxed on accrual basis at the option of taxpayer Commissioner may opt to tax salary income of an employee of a private company if he is opinion that payment of salary was deferred to avoid tax Terminal benefits may, at the option of taxpayer, be taxed at the ART based on immediately preceding three tax years

Salary Income
Loan from Employer: Interest-free: Interest at BMR shall be salary income Interest-bearing: BMR less interest charged shall be salary income Interest exceeding BMR: No benefit to employee BMR for tax year 2011 is 13% per annum Loan Used in Acquiring Asset Generating Taxable Income: Interest-free or interest up to BMR: Interest at BMR shall be allowed as deduction against such income Interest exceeding BMR: Actual interest charged to the employee shall be allowed as deduction against such income

Salary Income
Conveyance : Conveyance allowance Totally taxable Conveyance facility:

For official use only Nothing is salary For personal use only 10% of cost is salary income For official and personal use 5% of cost is salary income If vehicle is on lease Instead of cost the FMV of the vehicle at the time of its acquisition shall be used.

House Accommodation: House rent allowance Totally taxable Rent-free accommodation:

In big cities Higher of FMR or 45% of MTS/basic salary shall be salary income In small towns Higher of FMR or 30% of MTS/basic salary shall be salary income

Any other Perquisites: Difference between the FMV of the perquisite and the amount actually paid by the employee shall be included in salary income of employee

Salary Income
Medical Facility: Medical allowance with no other medical facility Exempt up to 10% of basic salary. Any excess amount shall be taxable Hospitalization or Reimbursement of Medical Expenses:

Provided as per terms of employment Exempt Provided without entitlement as per terms of employment Fully taxable Medical allowance shall be taxable and facility shall be treated as per general rule

Medical allowance as well as Free medical facility:

Salary Income
Employee Share Option Scheme: Value of right/option in itself is not taxable If option exercised FMV of shares less price paid shall be salary income If option is renounced disposal consideration less price paid for the option, if any, shall be salary income FMV of the shares at the time of acquisition or when free right to transfer those shares is granted shall be the cost of acquisition of such shares. This shall be used for computing capital gain

Income from Property

Rent Chargeable to Tax (RCT)
RCT shall include the following amounts:

Higher of the rent received/receivable or the fair market rent for the period for which the property was actually rented out; Forfeited deposit received under a contract for the sale of land or a building; Any obligation of the owner paid by the tenant; One-tenth (1/10th) of the advance not adjustable against rent.

Property Income is taxable on actual receipt basis or on accrual

basis It is a separate block of income chargeable to tax at special rates applicable to it only Certain persons are required to deduct tax at the time of making payment for Rent. This amount shall be adjustable against final tax

Income from Business

Incomes may fall under following categories: Local Supplies made out of:

Own-Manufactured goods - NTR Locally purchased goods - FTR Imported goods - FTR Goods manufactured for exports and its scrap (maximum up to 20% of such production) May be treated as Export (circular 20/92) Own-Manufactured goods - FTR Locally purchased goods - FTR Imported goods Shall be excluded from exports, as tax u/s 148 shall be final tax in respect of such goods. Shall not be considered as additional receipt. The exports already included it and was subject to tax deduction u/s 154. (circular 14/93)

Exports made out of:

Duty Draw-Backs

Income from Business

Deductions Admissible Any expense incurred wholly and exclusively for the business Depreciation and amortization Expense of death of animal being used for business other than as stock-in-trade Amalgamation expenses by amalgamated company Financial charges Lease rentals by the lessee Apportionment of Common deductions Common expenditures shall be apportioned among different heads of income on some reasonable basis

Income from Business

Deductions Not Admissible [21] Any tax, cess or rate (including income tax) levied on the profits or gains of the business. Any amount of tax deducted at source from an amount received by the person. Any payment made to any person without deducting tax at source (under section 149 to 158 & 232), if applicable. A person is required to deduct tax at source in respect of the following payments:

Salary; Rent; Brokerage or commission; Profit on debt; Payment to non-resident; Payment for services; or Fee.

Any payment on which tax at source was deducted but has not been paid. Any payment made by an association of persons to its partners or members on

account of profit on debt, brokerage, commission, salary or any other remuneration.

Income from Business

Expenditure of a non-resident business on account of Head Office Expenditure which exceeds the allowable limits. The allowable deduction on account of head office expenditure is calculated as follows: Total Head Office Expenditure Total Turnover in Pakistan Total World Turnover Any expenditure incurred on entertainment except those, which are incurred: Abroad in connection with the business; In Pakistan on entertainment of foreign or local customers and suppliers; At the meetings of members, agents, directors and employees; On refreshment of employees; At the opening of branches; and On entertainment of persons related directly to business. [Rule-10] Notes: Entertainment means the provision of meals, refreshments and reasonable leisure facilities in accordance with the tradition of business and subject to over all norms and customs of business in Pakistan. The Board may prescribe the conditions for allowing an entertainment expense. The violation of such conditions shall also render the expense as inadmissible.

Income from Business

Any expenditure under a single account head exceeding Rs. 50,000 in aggregate shall be inadmissible if the payment is not made through a crossed cheque or a bank draft. However, this provision shall not be applicable to: Utility bills. Postage. Single transactions not exceeding Rs. 10,000. Payments on account of freight charges. Any amount credited by direct transfer to an employees bank account for reimbursement of expenses incurred on behalf of the taxpayer. Payments made to discharge any statutory obligation (such as duties, taxes, octroi, export tax, fines, fee, cess, etc.). Note: Online transfer of payment from the business account of the payer to the business account of the payee as well as payment through credit card shall be treated as transactions through the banking channel, if such transactions are verifiable from the bank statements of the respective payer and the payee. Any payment on account of salary exceeding Rs. 15,000 per month if not made through a crossed cheque or transfer to the employees bank account.

Income from Business

Any contribution to such provident fund, pension fund, gratuity fund,

superannuation fund or annuity fund which is not recognized or approved under the income tax law. Any contribution to any provident or other fund, if the person has not made effective arrangements for deduction of tax at source at the time of payments out of such fund. Any donation to an unapproved institution. Any provision against the profits of the business, e.g., provision for bad debts. Any appropriation of profit such as dividends, transfer to reserves or capitalization in any way. Any expenditure in the nature of fine or penalty for the violation of any law, rule or obligation. Any expenditure of a capital nature (e.g., purchase of assets). Any personal expenditure incurred by the person.

Income from Business

Bad Debts: Actual allowed; provision for doubtful debts, inadmissible Losses: Normal admissible Abnormal admissible (net-off any claim) Non-payment of a liability: Income if not paid within three years. Expense if paid thereafter Consumers Loan by HBFC/NBFCs: Provision equal to 3% of income from such loan shall be deduction on account of bad debts If actual bad debts are more, those shall be carried forwarded to next year for adjustment of provision for that year

Income from Business

Assets: Depreciable asset Normal depreciation (DBM) Eligible depreciable asset Initial allowance plus normal depreciation (DBM) Intangible Amortization for lesser of useful life of the asset of 10 years (SLM) Pre-commencement expenditure Amortized @ 20% of cost (SLM) Acquisition of an Asset: A person shall be treated as having acquired an asset at any of the following times:

When he begins to own an asset; When he is granted any right to own an asset; or When a personal asset is applied for business use.

Income from Business

Disposal of An Asset Disposal of an asset means to pass over an asset to some other person. In its general meanings it denotes the change in ownership of an asset. Under the Income Tax Ordinance, 2001 a disposal may take place when an asset is: [75(1)]

Sold; Exchanged; Transferred; Distributed; Cancelled; Redeemed; Relinquished (to abandon, give up or renounce some right or thing); Destroyed; Lost; Expired; Surrendered; Transmitted by succession or under a will; In case of a business asset, applied to personal use; or [75(3)] In case of a business asset, discarded or ceased to be used in business. [75(3A)]

Income from Business

Asset from Foreign Currency Where an asset is acquired with a loan in foreign currency and exchange rate fluctuation increases or decreases the liability of the person in Pak rupees, then any increase or decrease in the liability, before full and final repayment of the loan shall also be added to or deducted from the cost of the asset. Asset Acquired From Any Subsidy, Etc. The amount of any grant, subsidy, rebate, commission or any other assistance received or receivable in respect of acquisition of an asset shall not be included in the cost of such asset. However, where the amount of grant, etc., is chargeable to tax under the Income Tax Ordinance, 2001 then such amount shall also be included in the cost of the asset.

Income from Business

Consideration of a Leased Asset The residual value received by a leasing company on maturity of a lease agreement shall be taken as consideration for disposal of such asset. However, it should be noted that the residual value plus total amount received by the leasing company towards the cost of the asset (i.e. the principal part of the lease rentals realized by to the leasing company) should not be less than the original cost of the asset to the leasing company. Consideration of Assets Sold in Bulk Where different assets are disposed off through a single transaction and the consideration of each asset is not determined / specified separately, the total consideration received shall be apportioned amongst all assets so disposed off. This apportionment shall be on the basis of fair market value of assets at the time of the transaction. In other words the disposal consideration shall be computed with the help of the following formula:

Total Consideration Received FMV of an asset FMV of all assets

Income from Business

Non-recognition of Gain or Loss on Disposal of an Asset [79] Normally, the gain or loss on disposal of an asset is taken into account. However, under the following cases no gain or loss shall be taken to arise, if the person acquiring the asset is a resident person:

Where disposal is between spouses under an agreement to live apart; Where disposal is by reason of the transmission of the asset to an executor or beneficiary on the death of a person; Where disposal is by reason of a gift of the asset; Where disposal is by a company to its members on its liquidation; Where disposal is by an association of persons to its members on its dissolution. However, under this case the assets should be distributed in accordance with the interest of members in the capital of AOP. Notes: If the person acquiring the asset is a non-resident person, the gain or loss on disposal of assets shall be computed as per normal procedure. Under all the above cases it shall be treated that: The person is acquiring the asset of the same character as the person disposing of the asset; and The person is acquiring the asset at a cost that is equal to the cost of the asset at the time of disposal to the person disposing it of.

Where the disposal is by reason of the compulsory acquisition of the asset under any law.

In order to avail this benefit the consideration received on disposal shall be reinvested (within one year of the disposal) in an asset of similar kind.

Income from Business

Exceptions Regarding Cost & Disposal Consideration Passenger transport vehicle not plying for hire:

The cost of such vehicle shall be lesser of the actual cost of the vehicle or Rs. 1,500,000. In other words the maximum cost for depreciation purpose shall be Rs. 1,500,000 if the vehicle is purchased at a price higher than this amount. For gain or loss on disposal of a passenger transport vehicle not plying for hire the Consideration Received on Disposal shall be computed according to the following formula A B C A = Amount received on disposal of vehicle B = Cost determined for depreciation purpose (i.e., lesser of actual cost of the vehicle or Rs. 1,500,000) C = Actual cost of acquiring the vehicle.

Assets given on lease by leasing company, etc:

Income from Business

Disposal of immovable property: Any consideration received on disposal of an immovable property shall be treated as cost of the property if the consideration exceeds the original cost of the asset. Under such a case the total amount allowed as deduction on account of depreciation allowance (accumulated depreciation) on such asset shall become the gain on disposal of the asset. Export of depreciable asset: The cost of the asset shall be treated as the consideration received on disposal of an asset if: It is a depreciable asset; It has been used in Pakistan by the person; and It is exported or transferred by the person out of Pakistan

Capital Gains
Capital Asset [2(10) & 37(5)] Capital asset means property of any kind held by a person excluding the following assets:

Any stock-in-trade, consumable stores or raw materials; Any depreciable assets; Any intangible asset on which amortization is allowed u/s 24; Any immovable property; and Any movable property held for personal use by the person or his family member dependent upon him. However, the following assets shall be treated as capital assets:

A painting, sculpture, drawing or other work of art; Jewelry; A rare manuscript, folio or book; A postage stamp or first day cover; A coin or medallion; or An antique.

Capital Gains
Tax on Capital Gains [Clause (5B)] Capital gain is included in taxable income and taxed under NTR Where a capital asset is disposed of after one year of its acquisition then the gain for income tax purposes shall be taken as 3/4th (i.e., 75%) of the actual gain on disposal. Remaining 1/4th (i.e., 25%) of the gain shall be treated as exempt. Disposal within one year of acquisition total capital gain in taxable Tax @ 10% of the capital gain shall be charged if the gain is from the sale of shares or assets by a private limited company to Private Equity and Venture Capital Fund

Capital Gains
Capital Gain on Disposal of Securities [37A] From 1st day of July, 2010 capital assets have been split into two categories for taxation purposes. A new category termed as securities has been introduced. Security means the following capital assets:

Share of a public company; Voucher of Pakistan Telecommunication Corporation; Modarba certificate; An instrument of redeemable capital: Participation Term Certificates (PTCs); Term Finance Certificates (TFCs); Musharika Certificates; and Any other security (other than shares) not based on interest; and Derivative products (e.g., treasury bonds).

Capital Gains
Taxation of Gain of Securities for Tax Year 2011 From 01-07-2010 any capital gain arising from disposal of securities held for a period of less than a year shall be treated as a separate block of income and charged to tax depending upon the holding period of security Less than 6 months 10% More than 6 months but less than 12 months 7.5% More than a year 0% Loss on Disposal of Security Any loss sustained by a person on disposal of securities shall be treated separately from any other loss sustained by him. This loss shall be dealt with as below:

Any loss sustained on disposal of a security in a tax year shall be set-off only against any gain of the person from any other security disposed off during that tax year; and Loss on disposal of a security shall not be carried forward to the subsequent tax year.

Income from Other Sources

Incomes Covered: All incomes except the following shall be taxable under this head:

Incomes which are covered under any other head of income Incomes covered under separate taxation Incomes covered under FTR Incomes exempt from tax

Deductions: All expenses incurred for the purpose of earning this income shall be allowed as deduction

Dividend
Received by a Company: Taxable as a separate block of income @ 10% of the gross amount of dividend Received by Any Other Person Taxable under FTR
Obligation of Company Paying Dividend: Tax shall be deducted at the time of making payment for the dividend u/s 150

Tax Credits
Foreign Tax Credit Salary income Any other income Donations to Approved Institutions/Funds Specified under clause (61) of Part-I of Second Schedule Others Maximum limit of 20% or 30% not applicable in case of donations to Agha Khan Hospital and Medical College Investment in Shares Lesser of cost, 10% of taxable income or Rs. 300,000 Contribution to Approved Pension Fund Lesser of contribution, 20% of taxable income or Rs. 500,000 Mark-up on Loans for Houses Lesser of profit of debt, 50% of taxable income or Rs. 750,000

Tax Credits
Tax Credit To Manufacturer Registered Under Sales

Tax Act

A manufacturer shall be entitled to a tax credit of two and a

half per cent (2 %) of tax payable for a tax year if the following conditions are satisfied:

The manufacturer is registered under the Sales Tax Act, 1990; Ninety per cent (90%) of the sales of the manufacturer are to the persons who are registered under the Sales Tax, 1990; In order to claim the tax credit the person shall provide complete details of the persons to whom sales were made; The person should be taxable under normal tax regime. Tax credit shall not be allowed to a person whose income is covered under final tax or minimum tax; and Carry forward of any amount shall not be allowed where full credit may not be allowed against the tax liability for the tax year.

Tax Credits
Tax Credit For Investment In Plant And Machinery [65B] A tax credit equal to 10% of the amount invested by a company in purchase of plant and machinery shall be allowed against the tax payable by it. Other provisions in this regard are:

The plant and machinery is purchased by the company for the purposes of Balancing, Modernization and Replacement (BMR) of the plant and machinery already installed. The plant and machinery is for an industrial undertaking set up in Pakistan and is owned by the company making the investment. The plant and machinery should be purchased between 01-07-2010 and 30-06-2015. Amount of tax credit shall be deducted from the tax payment in the tax year in which plant or machinery is purchased and installed. Where there is no tax payable for the year in which plant or machinery is installed or tax payable for that year is less than the amount of tax credit, the unadjusted tax credit shall be carried forward and deducted against tax payable for following tax years. The amount of unadjusted tax credit may be carried forward maximum up to two (2) tax years. The Commissioner may re-compute the tax payable for the relevant tax years if subsequently it is found by the CIR that any of the above-referred conditions was not fulfilled. Under this case it shall be deemed that tax credit was wrongly allowed.

Tax Credits
Tax Credit For Enlistment [65C] A tax credit @ 5% of tax payable shall be allowed to a company for the tax year in which it is enlisted in any registered stock exchange in Pakistan.
Priority Of Tax Credits [4(3)] Where a person is entitled to more than one tax credit, the tax credit shall be allowed in the following order:

First of all foreign tax credit; then Tax credit for investment, donations, etc., allowable u/s 61-64; and then Tax already deposited by or on behalf of the taxpayer.

Withholding Tax
Imports u/s 148 Final discharge except under certain specified cases Salary u/s 149 Adjustable against final tax liability Dividend u/s 150 Final discharge except in case of a company receiving it Profit on debt u/s 151 Final discharge except received on Government securities, where it is adjustable Non-Residents u/s 152 FTR if deducted against Royalty, Fee for technical services, construction, services or advertisement contracts, insurance or reinsurance premium NTR in case of all other payments to non-residents

Withholding Tax
Goods u/s 153 If on Supplies then under FTR On own manufactured goods NTR Services u/s 153 For companies NTR For AOPs Minimum tax on such income For Individuals Minimum tax on such income Contracts u/s 153 Covered under FTR

Withholding Tax
Exports u/s 154 FTR Rent u/s 155 Adjustable Prizes u/s 156 FTR

Sales Tax
Cottage Industry Cottage industry means a manufacturer who fulfills any of the following conditions: Whose annual turnover from taxable supplies during last twelve (12) months does not exceed Rs. 5,000,000; or Whose annual utility bills (i.e., electricity, gas and telephone) during last twelve (12) months do not exceed Rs. 700,000. Goods Goods means every kind of movable property excluding the following:

Actionable claims; Money; Stocks; Shares; and Securities.

Sales Tax
Input Tax In relation to a registered person, the input tax means:

The tax levied under Sales Tax Act, 1990 on the supply of goods to the person; The tax levied under Sales Tax Act, 1990 on import of goods by the person; In relation to goods or service acquired by the person, excise duty levied under Federal Excise Act, 2005 in sale tax mode on the manufacture or production of goods, or rendering or providing of services; The Provincial Sales Tax levied on services rendered or provided to the person; and The tax levied under Sales Tax Act, 1990 of Pakistan as adapted in the State of Azad Jammu and Kashmir on the supply of goods received by that person;

Output Tax In relation to a registered person output tax means the following taxes and duties payable by that person:

Tax levied under the Sales Tax Act, 1990 on supply of goods made by that person; Excise duty levied under the Federal Excise Act, 2005 in sales tax mode on manufacture or production of goods or the rendering or providing of the services by the persons; and The Provincial Sales Tax levied on services rendered or provided by the person.

Sales Tax
Retail Price

charges and taxes (other than sales tax) at which any particular brand or variety of any article should be sold to the general consumer. Where more than one such price is fixed for the same brand or variety, the highest of such prices shall be taken as retail price. Supply Supply means sale or other transfer of the right to dispose of goods as owner. It also includes the following: Sale or transfer under a hire purchase agreement; Putting to private, business or non-business use of the goods acquired, produced or manufactured in the course of taxable activity for purposes other than those of making a taxable supply; Auction or disposal of goods to satisfy a debt owed by a person; and Possession of taxable goods held immediately before a person ceases to be a registered person.

It means a price fixed by the manufacturer, inclusive of all duties,

Sales Tax
Time Of Supply Time of supply is defined separately for supply of goods and rendering of services. Supply of Goods

Time of supply, in relation to a supply of goods (other than under hire purchase agreement) means the time at which the goods are delivered or made available to the recipient of the supply.

Supply under Hire Purchase Agreement Where goods are supplied under hire purchase agreement, time of supply means the time at which agreement is entered into. Rendering of Services Time of supply, in relation to services, means the time at which the services are rendered or provided.

Sales Tax
Value Of Supply It means the consideration in money including all Federal and Provincial duties and taxes which a supplier receives form the recipient against taxable supplies. While determining the value of supply the amount of sales tax is not included. Value of Supply Where Trade Discount is Allowed

Where a trade discount is allowed the value of supply will be the discounted price (prior to the amount of sales tax). In this case the following conditions shall be fulfilled: The discount allowed is in conformity with the normal business practice; and The tax invoice shows the discounted price and the related tax.

Open Market Price as Value of Supply Open market price will be taken as value of the supply in the following cases: Where the consideration of supply is in kind or partly in kind and partly in money; Where the supplies are made to an associated person against no consideration or for a consideration, which is lower than the open market price; and Where for any special nature of a transaction it is difficult to ascertain the value of a supply.

Sales Tax
Value in Case of Supply on Installment Basis

Where a taxable supply is made to a consumer from general public on installment basis and the price includes a mark-up or surcharge, then the value of supply shall be the open market price (excluding the amount of tax on such supply). Where the goods are imported the value determined under section 25 of the Customs Act, 1969 will be the value of the supply. The amount of customs duties and Federal excise duty levied thereon will also be included in the value of the supply.

Value of Supply for Imported Goods

Sales Tax
Zero Rated Supply It means a supply, which is charged to tax at the rate of zero percent under section 4 of the Sales Tax Act, 1990. According to section 4, the following goods shall be charged to tax at the rate of zero percent:

Goods exported out of Pakistan; Goods specified in the Fifth Schedule; Supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan; Such other goods as the Federal Government may notify; and Such other goods as may be specified by the Board through a general order as are supplied to registered persons engaged in manufacture and supply of zero-rated goods.

Sales Tax
Sales Tax The Sales Tax is charged, levied and paid at the rate of seventeen per cent (17%) of the value of taxable supplies made by a registered person and of the value of goods imported into Pakistan. The sales tax, being an indirect tax, is ultimately shifted towards the ultimate consumers of the goods. Tax in respect of imported goods is paid at the time of clearance of goods from the Customs authorities. Tax for the taxable goods supplied in Pakistan is paid at the time of filing of return. Under this case tax for a tax period is computed as under:

Output tax Less: Input tax (adjustable against output tax) Tax payable / (Refundable) for the tax period

XXX XXX XXX

Sales Tax
Tax On Supplies Specified In Third Schedule Taxable supplies specified in the Third Schedule shall be liable to tax @ 17% of the retail price. Tax By Importers The Value Addition Tax shall be levied and collected at import stage on import of goods @ 2% of the value of goods in addition to tax chargeable u/s 3 of the Sales Tax Act (i.e., 17%) or a notification issued for this purpose. If the goods are imported by a manufacture for in-house consumption then value addition tax shall not be charged. [R 58B(1)] Value addition tax paid on imports shall be treated as input tax and adjustable against output tax and be carried forward as specified in the Sales Tax Act. [R-58B(2)] Any excess amount of input tax over output tax, which is attributable to value addition tax, shall in no case be refunded to the registered person. Where the person is also dealing in goods other than imported goods, he shall be entitled to file refund claim of excess carried forward input tax for a period as per section 10 and the rules, after deducting the amount attributable to the tax paid at import stage. Such deducted amount may be carried forward to subsequent tax period. [R-58C]

Sales Tax
Conditions for Claiming Credit of Input Tax A registered person can deduct input tax from output tax only if:

He holds a tax invoice in respect of taxable supplies made in Pakistan, He holds a goods declaration duly cleared by the Customs, in case of imported goods, or He holds a treasury challan showing payment of sales tax, in respect of goods purchased in auction. The challan shall bear the name and registration number of the person. [7(2)] Note: All above referred documents (i.e., tax invoice, goods declaration or treasury challan) should bear the name and Sale Tax registration number of the person claiming the credit of input tax.

Sales Tax
Restriction of Credit of Input Tax
A registered person is not entitled to deduct or reclaim the input tax if it is

paid in respect of the following goods: [8(1)] The goods, which are not used for manufacture or production of taxable goods or for making taxable supplies; The goods in respect of which extra tax [u/s 3(5)] is applicable. Only extra tax will not be allowed as input tax; The goods in respect of which sales tax has not been deposited in the government treasury by the respective supplier; The goods which are exempt from tax; Input tax paid on fake invoices; Purchases made by such registered person, who has not furnished the details as required by Board through a notification issued under section 26(5); Supply of specified goods to non-registered person; and Any other goods, which are specified for this purpose by the Federal Government.

Sales Tax
Adjustable Input Tax [8B] In relation to a tax period, a registered person shall not be allowed to adjust or refund input tax in excess of ninety per cent (90%) of the output tax for that tax period. In other words at least ten per cent (10%) of the output tax for a tax period must be paid by a registered person. Tax charged on the acquisition of fixed assets shall be adjustable against the output tax in twelve (12) equal monthly installments. [8B(1)] The Board may, by notification, exclude any person or class of persons from the purview of the above discussed provisions. [8B(1)] The inadmissible input tax (i.e., over and above 90% of output tax) may be allowed as adjustment or refund subject to the following conditions: [8B(2)]

In Case of Companies: Upon furnishing a statement along with annual audited accounts, duly certified by the auditors, showing value additions less than 90% of the output tax; or In Case of Other Registered Persons: If conditions and restrictions as may be notified by the Board are satisfied.

The adjustment or refund of input tax as discussed in point No. 4, if any, shall

be made on yearly basis in the second month following the end of the financial year of the registered person. [8B(3)]

Sales Tax
Apportionment of Input Tax
Rules-24 and 25 of the Sales Tax Rules, 2006 deal with the

apportionment of input tax. The provisions of these Rules are summarized below.

These rules are applicable to such registered persons who make taxable and exempt supplies simultaneously. Input tax paid on raw materials relating wholly to the taxable supplies shall be admissible. Input tax paid on raw materials relating wholly to the exempt supplies shall not be admissible. Input tax incurred for making both exempt and taxable supplies shall be apportioned and admissible amount shall be calculated as below: Residual Input Tax Value of Taxable Supplies Value of Taxable + Exempt Supplies

Sales Tax
Debit Credit Notes A registered person may issue a debit or credit note and adjust the resultant modification in the tax amount against the output tax if the following conditions are fulfilled:

The person has issued a tax invoice against the supply of goods made by him; and The modification is necessary due to any of the following reasons: Cancellation of supply; Return of goods; Change in the nature of supply; Change in the value of supply; or Any other event requiring modification in the amount of tax on invoice and in the return

 Assessment of Tax Under the following circumstances an authorized officer of Inland Revenue shall make an order for assessment of tax, including imposition of penalty and default surcharge:

Where a person who is required to file a return has failed to file it by the due date; Where a person, due to some miscalculations, pays a lesser amount than actually payable; Where a person has not paid the tax due on supplies made by him; and Where a person has claimed a credit or refund of an input tax which was not admissible under the Sales Tax Act, 1990.

The officer of Inland Revenue shall give a show-cause notice (within

five (5) years) and provide an opportunity of being heard to a person before making an order for assessment of tax, etc. Where a person files the return after due date and pays the amount of tax payable along with the default surcharge and penalty, the show-cause notice and the order of assessment shall abate.

Sales Tax
Sale Of Taxable Activity, Etc. Transfer to Non-Registered Person [49(1)]

If the taxable activity is terminated or transferred to a nonregistered person, the stock of taxable goods shall be deemed as supply and the tax on such goods shall be recovered from the registered person. Where the tax could not be recovered from the transferor, it shall constitute a first charge on the assets of the business and shall be recovered from the transferee.

Transfer to Another Registered Person [49(2)] If the taxable activity is sold or transferred to another registered person as an ongoing concern, the tax chargeable on stocks of goods shall be paid by the transferee.

Sales Tax
Inadmissible Transactions [73] Payment of the amount of invoice of a transaction (other than utility bills) as shown in the sales tax invoice should be made through crossed cheque, bank draft, pay order or any other banking instrument if it exceeds Rs. 50,000. Otherwise, such transaction shall not be admissible for the purposes of input tax credit, adjustment or deduction, or refund, repayment or draw back or zero rating of tax under the Sales Tax Act. In order to render a transaction (exceeding Rs. 50,000) as admissible the following conditions should be fulfilled:

The payment of tax is made through a banking channel/instrument. The banking instrument should be in favour of the supplier. It should be drawn from the business bank account of the buyer to the business bank account of the supplier.

Sales Tax
Tax Paid on Stocks Acquired Before Registration [59] Where a person has purchased from a registered person or has

imported certain goods before his registration under the Sales Tax Act, 1990, the sales tax paid by him on such purchases or imports shall be deemed as input tax if the following conditions are fulfilled:
In Case of a Purchase From a Registered Person The goods were purchased within thirty (30) days before the date of compulsory registration or the date of application for registration. The person holds a proper tax invoice issued by the seller. The goods are verifiable as unsold or un-consumed stocks on the date of compulsory registration or the date of application for registration. In Case of an Import of Goods The goods were imported within ninety (90) days before the date of compulsory registration or the date of application for registration. The person holds a bill of entry in respect of such import. The goods are verifiable as unsold or un-consumed stocks on the date of compulsory registration or on the date of application

Provincial Sales Tax Ordinances

Scope of Tax The sales tax on services is payable @ 17% of the value of taxable services rendered or provided in a province. Applicability of Provisions of Sales Tax Act, 1990 The sales tax on services under the Provincial Sales Tax Ordinances is levied and collected under the Sales Tax Act, 1990. The provisions of the Act and Rules, etc., made under the Act shall apply in respect of the following matters:

Manner, time and mode of payment; Registration and de-registration; Keeping of records and audit; Enforcement and adjudication; Penalties and prosecution; and All other allied and ancillary matters.

Registration
Persons Liable To Be Registered [Rule-4] The following persons are required to get themselves registered under the Sales Tax Act, 1990:

A manufacturer not being a cottage industry; A retailer whose value of supplies exceeds rupees five (5) million in any period during the last twelve months; An importer; A wholesaler, dealer and distributor; A person who is required under any law (whether Federal or Provincial) to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Sales Tax Act; and

Examples of such laws are Federal Excise Act, 2005 and Provincial Sales Tax Ordinances.

A commercial exporter who intends to obtain sales tax refund against his zero-rated supplied.

Registration
De-Registration [21 & Rule-11] Under the following circumstances the CRO or other authorized officer may, on an application made by a registered person to CRO, cancel the registration from such date as may be determined by him:

If a registered person ceases to carry on his business. If the supplies made by a registered person become exempt from the sales tax. If the turnover of a registered person during the last twelve months remains below the following limits. In case of a manufacturer or a producer, taxable turnover of five (5) million rupees; and In case of a retailer, total turnover of five (5) million rupees. Where an exporter had got registration for the purpose of claiming refunds on the basis of zero-rating export, he may like to de-register upon ceasing to be an exporter. The CRO may of its own (without application from the registered person) cancel the registration if a registered person fails to file his tax return for a consecutive period of six (6) months. However, before such cancellation he will have to give an opportunity of being heard to the registered person.

Federal Excise Duty

Dutiable Goods [2(8b)] Dutiable goods means all excisable goods specified in the

First Schedule except those which are exempt u/s 16 of the Federal Excise Act, 2005. Dutiable Supply [2(8c)] Dutiable Supply means a supply of dutiable goods made by a manufacturer. Supply of exempt goods shall not be dutiable supply. Dutiable Services [2(8d)] Dutiable services means all excisable services specified in the First Schedule except those which are exempt u/s 16 of the Federal Excise Act, 2005.

FED
Franchise [2(12A)] Franchise means an authority given by a franchiser under which the franchisee is contractually or otherwise granted any right to produce, manufacture, sell or trade in or do any other business activity in respect of goods or to provide service or to undertake any process identified with franchiser against a fee or consideration including royalty or technical fee, whether or not a trade mark, service mark, trade name, logo, brand name or any such representation or symbol, as the case may be, is involved.

Goods [2(13)]
Goods means the goods leviable to excise duty under the Federal Excise Act,

2005 or as specified in the First Schedule and includes the goods manufactured or produced in non-tariff area and brought into the tariff area for use or consumption. Non-tariff area means Azad Jammu and Kashmir, Northern Areas and such other territories or areas to which the Federal Excise Act, 2005 does not apply. [2(17)] Tariff area means the areas other than the non-tariff area. [2(24)]

FED
Manufacture [2(16)] General Meanings

It means and includes any process incidental or ancillary to the completion of a manufactured product and any process of remanufacture, remaking, reconditioning or repair and the process of packing or re-packing such product. Manufacture includes the preparation of: Cigarettes, Cigars, Cheroots (cigars with both end open), Biris, Cigarette, pipe or hookah tobacco, Chewing tobacco, or Snuff (powdered tobacco taken into the nose by snuffing).

Meanings in Relation to Tobacco

FED
Scope of FED The federal excise duty is levied and collected on excisable goods and services of the following categories: [3(1)]

The goods which are produced or manufactured in Pakistan. The goods which are imported into Pakistan. The goods which are produced or manufactured in the non-tariff areas and are brought to the tariff areas. (These goods are notified by the Federal Government in the official Gazette) The services provided in Pakistan including the services originated outside but rendered in Pakistan.

The excise duty is levied and collected at the rate of 15% ad Valorem. However,

the goods and services specified in the First Schedule to the Federal Excise Act shall be charged to duty at such rates as are specified against each goods and service. Excise Duty on Imported Goods [3(2)]

Where any excisable goods are imported into Pakistan, the excise duty in respect of such goods shall be levied and collected in the same manner and at the same time as if it were a customs duty payable under the Customs Act, 1969. Under this case all the provisions of that Act shall apply.

FED
Basis of the Duty [3(1) & (3)] The duty may be charged on any of the following basis: Percentage to the value of the goods or services (ad valorem); Percentage to the retail price of the goods or services; Production capacity of the plant, machinery, installations, etc.; or Fixed duty.

FED
Value For The Purposes Of Duty [12]
The Federal excise duty is generally levied on the value of the goods or services.

Under such a case, the determination of the value of goods or services is very important. Legal provisions in this regard are discussed below: Value of Goods [12(1), (3), (4) & (5)] Where any goods are liable to duty under the Federal Excise Act at a rate dependent on their value, duty shall be assessed and paid on the basis of value as determined under section 2(46) of Sales Tax Act, 1990, excluding the amount of duty payable on these goods. Where the excise duty is chargeable on the goods at the import stage, the value for excise duty shall be the value as determined under section 25 of the Customs Act, 1969 for customs duty or increased by the amount of customs duty payable in respect of such goods. [12 (3)] Where the excise duty on any goods is chargeable on the basis of Retail Price, the value of such goods shall be the retail price fixed by the manufacturer at which a particular brand or variety of such goods should be sold to the general body of consumers. This price shall include all duties, charges and taxes other than the sales tax. Where more than one retail price is fixed for the same brand or variety, the highest of such price shall be taken for charging the excise duty. [12(4)]

FED- Value of Goods

Where the duty is chargeable on the basis of retail price, the retail price shall be legibly, prominently and indelibly indicated on each good, packet, container, package, cover or label of such goods. The Board has the authority to direct otherwise. [12(4)] The Board is empowered to specify any goods or class of goods on which duty, in case of local production, is payable on retail price. In case of import of such goods the duty shall be charge in the like manner as is payable in case of goods locally produced. [Proviso to 12(4)] The Board may fix the minimum price of any goods or class of goods for the purpose of levying and collecting the excise duty. Where the price at which goods or class of goods is sold is higher than the price fixed by the Board, the duty shall be charged and levied at such higher price. However, the Board may also direct otherwise. [12(5)] Value of Services [12(2)] The value of services, in a case where excise duty is chargeable on the charges for the services, shall be the total amount of charges for the services, including the ancillary facilities or utilities, if any. Where any such services are provided free of charge or at a concessional rate, the duty shall be charged on the amount which would have been charged if the services, etc., had not been provided free of charge or at a concessional rate.

 Question & Answer Session

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