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Income Tax – Main Features

Income Tax – Main Features. Muhammad Aamir Ilyas. “The hardest thing to understand in the world is Income Tax ” Albert Einstein . What is Tax?. “A tax is a compulsory contribution imposed by a sovereign authority or required by the general body of the subjects and citizens”

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Income Tax – Main Features

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  1. Income Tax – Main Features Muhammad AamirIlyas

  2. “The hardest thing to understand in the world is Income Tax” Albert Einstein

  3. What is Tax? “A tax is a compulsory contribution imposed by a sovereign authority or required by the general body of the subjects and citizens” Muhammad Younus v. Chairman Municipal Committee, Sahiwal (53 Tax 93 (H.C. Lah) – 1986)

  4. Tax and fee? “..Therefore in the fact, the distinction between a tax and fee in the fax that tax is levied as part of common burden or general revenue, while fee is a payment for special benefit or privilege” Biafo Industries v. Federation of Pakistan

  5. Income Tax in Pakistan “Tax on taxable income imposed and collected according to provisions of Income Tax Ordinance, 2001”

  6. Income Tax • Taxable Income • Person • Period

  7. Income Tax • Taxable Income (Section 4 of ITO 2001) • Salary • Income from property • Income from Business • Capital gains • Income from other sources

  8. Income Tax 2. Person (Section 80 of the ITO 2001) • Individual • a company or association of persons established, incorporated, formed, organized or established in Pakistan or elsewhere • the federal government, a foreign government or public international organization

  9. Income Tax 3. Period – Tax year (Section 74 of the ITO 2001) Generally 1st of July to 30th of June next year

  10. Returns/ Statements • Return of Income u/s 114 of the Income Tax Ordinance, 2001 • Wealth Statement u/s 116 of ibid • Withholding statements u/s 165 of ibid

  11. Tax Evasion “An illegal practice where a person intentionally avoids his true tax liability”

  12. Tax Avoidance “Minimization of tax liability through legal methods”

  13. Tax Planning “Planning to minimize tax liability to increase cash inflow and to decrease cash out flow”

  14. Modes of Tax Evasion • Non payment of due tax • Concealment of Income • Under declaration of Income • Misdeclaration of Income • Non Arm’s length transaction ( S. 108) • Understatement of assets

  15. Modes of Tax Evasion 7. Overstatement of liabilities 8. Transfer of assets 9. Income splitting 10. Deferment of salaries 11. Expenses • Foreign Remittance • Transfer Pricing

  16. Tax crimes & Frauds 1. Issuance of Statutory Regulatory Orders (SROs) to give benefit to a person or class of persons. 2. Speed Money 3. Refund frauds 4. Forgery in tax record

  17. Tax crimes & Frauds 5. Fake exemption certificates 6. Fake NOCs 7. Date change frauds

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