Incomes / Expenses & Withholdings Flashcards
Mixture RP———-> PSI+FSI (Residence Principle) NRP————————>PSI (Source Principle)
How is N/R taxed
Resident——–Both Non-Resident——-Source basis (as ITO has effect in Pakistan only)
Residency/Source
- Has fixed place of business in Pakistan? Yes PE PE becomes person taxation in S105 PE Income from Business NTR 2. Does not have fixed place of business? No S6 (&S7), S8, S152 Withholding from Income FTR NTR MTR
How is N/R Taxed in Pakistan
Fixed Place means (generally, specifically defined in ITO) Even a hair-dresser on roadside - Chair a PE Service provider - Service based PE
Fixed Place concept
S 44 exemptions under International Treaties S 107 DTT S 6&7 Charging sections S 8 Regime S 152 Withholding S105 PE
N/R Taxation Sections
S6 - FFTS/Royalty 15% S6 - OSDS 5%
Rtaes
- NR has PE & services provided by PE of NR 2. NR has PE & income related property (asset) owned by PE of NR 3. Exmpt under Ordinance 4. Exempt under DTT
S 6 Applicability
NR has PE - S105 NTR NR has no PE - S8 FTR
Royalty/FFTS/FFODS
MTR
What is regime for NRs Constrcuction, Assembly
MTR
What is regime for NRsbelow SERVICESadvertisement onTV
MTR
What is regime for NRsbelow SERVICESadvertisement onTV
MTR
What is regime for NRsbelow SERVICESinsurance premium or re
FTR
What is regime for NRsbelow SERVICESadvertisement services
FFODS & Capital gain (Govt securities through NR Rs A/C) BC/FI
Are there any payments to NR where WHA is not payer&who is W
NTR with 20% rate
What about other transactions (not specifically defined in 1
Exclusions from sub-Sec 2 of S152 (in other words exclusions from Sec 152 as (2) of 152 covers all transactions to NR other than specifically mentioned) -Deductions covered u/other Sections; Salary, dividend, prizes & winnings, commission payments -Amounts taxable to PE (received by NR through PE), with Comm. Approval -Representative (of NR, sec 172) e.g foreign actors/singers’ representative etc -N/R not chargeable to tax e.g under DTT or under ITO Exclusions from sub-Sec 2 of S152 (in other words exclusions from Sec 152 as (2) of 152 covers all transactions to NR other than specifically mentioned) -Deductions covered u/other Sections; Salary, dividend, prizes & winnings, commission payments -Amounts taxable to PE (received by NR through PE), with Comm. Approval -Representative (of NR, sec 172) e.g foreign actors/singers’ representative etc -N/R not chargeable to tax e.g under DTT or under ITO
Are there any exclsuions / exceptions available to N?R
- import of goods where title to the goods passes outside Pakistan and is not part of Cohesive arrangement 2. educational and medical expenses remitted in accordance with the regulations of the State Bank of Pakistan
Payment w/o tax deductions
Payer thinks payment to NR is not subject to tax When supply part of overall arrangement or Supply by local person/PE Import of goods whether or not title passes outside Pakistan;whether or not tilte passes in the name of associate/PE (when part of overall arrangement)
When to apply tax
Where payer wants to make payment without deduction of tax (e.g exclusions from 152 like exempt u/DTT or exempt u/ITO) (5) Where a person intends to make a payment to a non-resident person without deduction of tax under this section, other than payments liable to reduced rate under relevant agreement for avoidance of double taxation,] the person shall, before making the payment, furnish to the Commissioner a notice in writing setting out - (a) the name and address of the non-resident person; (b) the nature and amount of the payment and (c) such other particulars as may be prescribed. The Commissioner on receipt of notice shall, within thirty days, pass an order accepting the contention or making the order under sub-section. Where a person has notified the Commissioner of a payment under sub-section (5) and the Commissioner has reasonable grounds to believe that the non-resident person is chargeable to tax under this Ordinance in respect of the payment, the Commissioner may, by order in writing, direct the person making the payment to deduct tax from the payment in accordance with sub-section (2).
When to give notice (intimate) comissioner in connection wit
Payment related to sub sec 1A i.e. construction assembly installation Supervisery Payment is part of paymnent related to overall cohesive arrangement (NR & PE of NR) PE will take credit of withholding tax, against overall profit of the whole arrangement e.g contract of C,A, I+SS in the name of PE; NR also part of arrangement; part of contract payment is made to NR 20% of withholding tax to be deducted
Reduction in withholding tax amount
Comissioner May, when tax is not MTR, on Application for 1A (C,A,I,SS contract) or 2A (PE, payments) However both are MTR so practically only possible for PE that is a Company & is manufacturer (i.e. tax dedcuted is NTR/not MTR) This will be similar situation as Withholding Exemption (like S153) (where advance tax+tax deducted in last Q > expected tax liability for year)
Withholding Tax Exemption Certificate
Prescribed person will withhold 3 transactions -Sale of goods (except commercial importer) services execution of contracts (goods+services) Exemption -Commercial importer selling in same condition MTR, except Company PE which is manufacturer for sale of goods
What is withholding when making payment to PE Is there withh
as defined in sub-section (7) of section 153.
Who are prescribed persons for withholding when making payme
NR FTR - NR - Royalty, FFTS, FFODS, Capital gain on Govt bonds through PKR A/C MTR - NR - C,A, I, SS, Adv-TV, Adv-general,Insurance Re-insurance, NTR - All other than above PE NTR - Sale of goods by manufacturer PE which is legally a Co. MTR - All Other All MTR
RegimesWhen is Withholding from NRs Payments FTR, MTR, NTR
PoD received by Ind/AoP upto 36m - S7B - FTR All PoD subject to Withholding except exept 2nd sch PIV (like inter Co, SPV for Sukuk, Venture Capital Co.)
What PoD is subject to specific Charging (FTR)andWhat PoD is
Ind/Aop - upto 36m - FTR, if deduction@source u/151 less thanchargeable u/7B. Tax payer himself will pay Ind/Aop above 36m - MTR Company - NTR
What is Nature of PoD Income TaxationInd/Aop - upto 36m
Deposit Accounts Loan by Co Bond/certificate/debenture/security/instrument
Transactions
Withholding - 15% general 10%-Ind/AoP where interest less than 500k Charging Co-NTR Ind/AoP, POD above 36m - Ind/AoP rates Other15%-20%; 5m, 5m-25m,25-36m
Rate
S-94 Main - Dividend paid by (Every means including Foreign Co.) Company - chargeability as per S5 S5 - Chargeability Gross amt x 7.5%;15%;25% where income exmpt due to law tax credits or losses S8 - FTR S150 - Withholding 7.5% & 15% S236S - Dividend in specie (assets instead of cash), WH rates same as S150 rates Section 39 - IFOS, although includes but no dividend u/39 even foreign covered u/s5, 8 so FTR S55 - Exempt income of Co. does not mean dividend exempt
What sections are related to Dividend Taxation
Foreign Dividend taxation same as as per Sec 5 & 8; FTR There is no dividend in IFOS category Recepient will have to pay himslef by applying rate to Gross amount
What is nature of Foreign DividendIFOS?
S236A Same rates as
What is taxation of Dividend in Specie (assets & not in cash
Taxed at higher rate 25%
What about taxation of dividend paid by Companies with exemp
(a) distribution by company of accumulated profits to its shareholders(b) any distribution of debentures, debenture-stock or deposit certificate to the extent to which the company possesses accumulated profits(c) any distribution on liquidation, to the extent of accumulated profits immediately before liquidation (d) any distribution on the reduction of its capital, to the extent of accumulated profits (e) any payment by a private company (Companies Ordinance, 1984 ) or trustof any sum ( by way of advanceor loan to a shareholder or any payment on behalf, or for the individual benefit, to the extent of accumulated profits;(f) remittance of after tax profit of a branch of a foreign company operating in Pakistan;] but does notinclude -(i) a distribution made in accordance with 45[sub-clause] (c) or (d) in respect of any share for full cashconsideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is notentitled in the event of liquidation to participate in the surplus assets;(ii) any advance or loan made to a shareholder by a company in the ordinary course of its business, where thelending of money is a substantial part of the business of the company; 46 any dividend paid by a company which is set off by the company against the whole or any part of any sumpreviously paid by it and treated as a dividend within the meaning of 47[sub-clause] (e) to the extent to which itis so set off; 48[and]49[(iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreigncompany, operating in Pakistan.]
What is included in Dividend
Almost everyone except Ind/Aop less than 100m (any preced year) Businesses which are prescibed persons irrespective of their legal status developer contractors AoP u/law exporter Consortium/JV
Who is required to deduct
Payment by Non-PP Goods - aggregate in FY (Jul-Jun) < 75k Services - aggregate in FY (Jul-Jun) < 30k
Exclsuions from W/H
Hybrid (Goods+Services) Turnkey Projects Sports contracts also included
What is Execution of Contracts
All Payments whether Full Partial Advance
What is amount subject to Withholding in case of partial or
When an agent pays to principal after deduction of his charges. Principal shall collect from Agent.
What is situation where withholding tax will be collected in
When an agent pays to principal after deduction of his charges. Principal shall collect from Agent.
How will be tax deduction applied where in an agency relatio
NTR - Manufacturer if Co. (whether lsited/unlisted); Trader (Listed Co. which is listed in Pakistanonly) for sales of goods NTR - Contract execution by Listed Co., which is Listed in Pakistan. Not foreign listed Co. Rest All MTR, whether Services, Sale of goods, EC There is no FTR ,
What is nute of nature of Taxation or Taxation System for Ta
Nothing
What is FTR under S153
No, Co. shouldbe listed in Pakistan
Is Foreign Listed Co. engaged in Trading Business NTR
Services are MTR in all cases
In which case Services are NTR or FTR
Only when NTR Regime So Sale of Goods - Manufacturer Co Sale of Goods - Trader - Listed Co EC - Listed Co
Inwhich Regimes, a taxpayer (whose tax has been deducted) ca
From Commercial importer/other selling goods in same condition (who paid u/148) Yarn Traders (special taxation) Security Deposit Refund Payment to construction contractor in kind by Fed Govt Purchase of assets under lease/buy back by Modaraba/FI When SPV makes payment (of recovered receivables) cto originator
What are situations where Payer will not deduct withholding
Gross sales (incl. ST, FED, Trade disc, comission, etc) including share of AoP.
What is revenue when determining prescribe persons for Ind/A
Direct Exporter Indenting commission agent Local sales to exporter under Inland back-2-back LC Export by Ind. Undertaking to EPZ Indirect exporter (who has firm contractor) with direct exproter-registered u/DTRE
Which businesses does this Sec. apply
FTR unless Opt-out then - MTR/NTR
What is regime
Principlly - Export - FTR
What is Regime of Exporter who is Importer also FTRorMTR
NO, if firm export contract Yes, if no firm export contract
Will an exporter, who is importer also, will have to pay tax
Local sales Under International tender (For sales tax this will be local not export) Under an SRO, Option of manufacturerer, Local sale of manufacture, not more than 20% of total sales
Is there a way Local sales can be categorized/fall into Expo
Proceeds will be subject to 1% tax; FTR
What if Exporter receives advance payment or
Sales Tax IIIrd Schedule items (retail items) Value = Retail Price
Are there any imported items for which value (for tax applic
No
When is imports FTR regime
NTR - Goods taxed at 1%, 2% (lower rate, P1 12th Sch); imported by industrial undertaking; for own use MTR - All other
What are Regimes of Imports
if Taxed at 5.5% (PIII of XII Sc) ie. noramal items - MTR if Taxed at 1% or 2% (PI or PII of XII Sc) ie. specific listed items - NTR
Is Raw Material imported by Manufacturer
Resident - S153B - NTR - Rate 15% NR-S152-FTR - Rate - Rate Same rate - NTR & FTR
What if Royalty paid toNR&when to Resident
FTR - When local - S156; Prize Bond/Cross-word 15%, other 20% NTR - When foreign (as included in IFOS S39)
What is regime for Prizes & Winnings
Petrol pumps 156A – Final Tax, 12% Advertising (All)– S233 - When paid by Individual & Unregistered AoP, no WH; Minimum commission considered 15%; Calculation gross up Ex. Commission amount of advertising services by 85% and apply tax % to 15% of grossed up amount. A/85x15xtax rate (10%); Tax Deducted Minimum Tax Others -233, When paid by Individual & Unregistered AoP, no WH; General Rate 12%; Tax Deducted Minimum Tax
Commission IncomePetrol pump
Allowed as expense when For Retail goods (3rd Sch ST) - If dealer (other than under dealership agreement) is not on ATL, expense upto 0.2% of Gross allowed. Above DNA For Retail goods (3rd Sch ST) - If dealer (who is under dealership agreement) is not on ATL, amount=salesx10%x75%
Commission expens
Advertisement Services (Electronic & Print) u/S153 (whether amount collected by the agent or by the provider himself) – Rate 1.5% - MTR Advertisement Services (Other than Electronic & Print) u/S153 (whether amount collected by the agent or by the provider himself) – Rate 3% - MTR Advertising Commission (All types of adertising)– S233 - When paid by Individual & Unregistered AoP, no WH; Minimum commission considered 15%; Calculation gross up Ex. Commission amount of advertising services by 85% and apply tax % to 15% of grossed up amount. A/85x15xtax rate (10%); Tax Deducted Minimum Tax
How is Taxation of Advertising Services&Advertising Commiss
Dealers/Dist/Wholesaler Petroleum – 236HA – DODO & CODO-not on commission – FTR, 0.5% Others – 236G – Sectors (Steel, Cement, Sugar, Beverages, Fertilizers, Motorcycles) – NTR/adjustable – 0.1% general, Fertilizer 0.7% Specific industry Retailer-236H - Sectors (Electronics, Steel, Cement, Sugar, Beverages, Fertilizers, Motorcycles) – NTR/adjustable – 0.5% general, Electronics 1%
COLLECTION ON SALE
Dealers/Dist/WholesalerPetroleum – 236HA – DODO & CODO-not o
COLLECTION ON SALE
From Non-Active Tax payer; Resident; Fee less than 200k or Scholarship – NTR, adjustable
School Fee 236I – Whose kids fee subject to withholding tax
Withholding from Seller and Buyer of Property
Seller-236C – 1% of Consideration; Not applicable property holding>4 years; First sale by original allottee or dependent of Shaheed/Govt employee. MTR-if sales/purchase within same year otherwise NTR
Purchase – 236K– 1% of FMV; Not Govt scheme for expats. NTR/Adjustable
What does property mean/include, What does Auction mean/include, What is nature?
Property includes intangibles, lease of rights e.g license of mines, rayt bajri, 3G/4G, Toll collection, etc. Auction includes public auction or secret tender. FTR- Lease of toll collection, Others -NTR/adjustable
Rates for imports
Manufacturer - General 5.5% - MTR
Manufacturer - PI of 12 Sch 1% - NTR
Manufacturer - PII of 12 Sch 2% - NTR
Commercial Importer - 5.5%-MTR
Rates
- Goods
- Normal - 4%,4.5%
- FMCG-2%,2.5%
- Service
- Co -8%
- Ind/AoP-10%
- Contracts
- Co-7%
- Ind/AoP-7.5%
- Sports Person-10%
Rates - Exports
General - 1%
Foreign Indenting Commission - 5%
Why
Salary, Dividend, Commission & Prizes are excluded from S152 &
What about their taxation? Exempt
Salary, Dividend, Commissio & Prizes are exempt from S152 however covered u/relevant sections and taxed their
Dividend - S5 - covers all dividends including foreign Co. (No dividend u/IFOS S39) - FTR
Foreign Prize & Winnings - Sec39 - IFOS - NTR (local P&W-FTR)
Commission-MTR
Foreign source Salary of residnt- Exempt if paid foreign tax or citizen leaves Pakistan during tax year and remains aborad
What if payer fails to deduct W/H tax from interest expense?
- Interest on bank loan
- inter corporate interest when group taxation
- interest paid to special purpose vehicle
- interest paid to venture capital company
- Interest payment on security issued to non resident by resident with FBR approval
- Profit on debt to International Finance Corporate (IFC) (Worldbank group)
- Foreign payment of interest in respect of (project finance foreign loan) private loan, approved by FBR
What if payer fails to deduct W/H tax while making payment of invoice for local purchases?
Follwoings do not require deduction of WHT, hence allowed;
WH not required to be deducted from Invoice of local goods purchase, hence allowed as expense;
- Purchases from large import house
- Purchases from large trade house
- Purchase of renewable sources of energy goods e.g solar even locally manufactured
- Payment for food to hotels & restaurants when payment in cash
- Purchase worth less than 75k in FY
- Purchase of (food items) unprocessed zinda murghi ya anday from poultry farm/industrial undertaking
What if payer fails to deduct W/H tax while making payment of invoice for local services?
Follwoings do not require deduction of WHT, hence allowed;
- accommodation (or food) or both by hotels and restaurants, if payment in cash.
- Purchase equal/less than 25k in FY
- Carriage of goods (karai di gaddi), ek phayra saal wich
- Insurance premium
- Claims payment by insurance
What if payer fails to deduct W/H tax while making payment of invoice for local contract?
Payment for contract value equal/less than 25k in FY,
Expense is allowed as deduction…..No tension
What if Employers fails to deduct W/H tax from salary?
Will the Salary Expense be allowed as deduction?
no tax deduction is required in case salary is below the taxable limit of Rs.600,000
What if payer fails to deduct W/H tax from interest expense?
- Interest on bank loan
- inter corporate interest when group taxation
- interest paid to special purpose vehicle
- interest paid to venture capital company
- Interest payment on security issued to non resident by resident with FBR approval
- Profit on debt to International Finance Corporate (IFC) (Worldbank group)
- Foreign payment of interest in respect of (project finance foreign loan) private loan, approved by FBR
What if payer fails to deduct W/H tax from foreign payment (Non-resident)?
Follwoings do not require deduction of WHT, hence allowed;
Payment against import when title passes outside Pakistan
Educational Exp (SBP guidelines)
Medical Exp (SBP guidelines)
What if payer fails to deduct W/H tax while making payment of rent?
Follwoings do not require deduction of WHT, hence allowed;
When Tenent is individual / AOP and gross rent 1.5M in a year
When landlord/owner is Ind/AoP and rent less than 200k in a year
Karayadar - Ind/Aop 1.5M karaya
Malik-Ind/Aop 200k karaya
What if payer fails to deduct W/H tax while making payment of Prize/Wining Money?
Expense will be DNA/Disallowed
What if payer fails to deduct W/H tax while making payment of invoice for comission/brokerage?
Follwoings do not require deduction of WHT, hence allowed;
Broker or Comm. Agent
is Ind/Unregistered AoP
Dalal Ind/Unreg. AoP - No tension
