taxation ch 4 Flashcards
income includes:
a) Amount chargeable to tax under the Income Tax Ordinance, 2001
b) Amount subject to collection or deduction of tax under final tax regime
c) Amount treated as income under any provision of the Ordinance
d) All of the above
d) All of the above
A special tax year is denoted by the calendar year relevant to which tax year?
a) Special tax year
b) Normal tax year
c) Previous tax year
d) Next tax year
b) Normal tax year
How can a person change their tax year?
A person can apply to the Commissioner for a change of tax year from the normal tax year to a special tax year or vice versa. The Commissioner has the authority to grant or withdraw the change after considering feasibility. The order of the Commissioner takes effect from the specified date.
What is a transitional tax year?
A transitional tax year is the period between the end of the last tax year prior to a change in tax year and the date on which the changed tax year commences. It occurs when the tax year of a person changes due to an order by the Commissioner of Income Tax.
Define a resident company.
A company is considered a resident company if it is incorporated or formed by or under any law in force in Pakistan, or if the control and management of its affairs is situated wholly in Pakistan at any time in the year. It can also include Provincial Government or Local Government in Pakistan.
Explain the residential status of an individual for a tax year.
An individual is considered a resident individual for a tax year if they are present in Pakistan for a period of, or periods amounting to, 183 days or more in the tax year. They can also be a resident if they are an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year.
PPL is a company incorporated under the Companies Ordinance, 1984 and is not listed on any stock exchange in Pakistan. 59% of the shares in PPL are held by BBC Ltd, a company incorporated in the United Kingdom. The United Kingdom holds 97% of the shares in BBC Ltd.
PPL is not considered a public company for tax purposes because it is not listed on any stock exchange in Pakistan. Additionally, the majority of its shares (59%) are held by BBC Ltd, which is a foreign company.
The Provincial Government of NWFP holds 50% of the shares in ABC Ltd, a public company under the Companies Ordinance, 1984. ABC Ltd is not listed on any stock exchange in Pakistan.
ABC Ltd is considered a public company for tax purposes because it is incorporated under the Companies Ordinance, 1984, and the Provincial Government of NWFP holds 50% of its shares. The fact that it is not listed on any stock exchange does not affect its classification as a public company.
An association of persons includes:
a) A company
b) A firm
c) A Hindu undivided family
d) All of the above
d) All of the above
Explain the process of changing a tax year from normal to special or vice versa according to the Income Tax Ordinance, 2001.
To change a tax year from normal to special or vice versa, an individual may apply to the Commissioner. The Commissioner has the authority to grant or withdraw the change of tax year based on feasibility. If the change is granted, it takes effect from the specified date, being the first day of the special or normal tax year. If dissatisfied with the order, a person may file a review application with the Board.
Explain the process of changing a tax year from normal to special or vice versa according to the Income Tax Ordinance, 2001.
To change a tax year from normal to special or vice versa, an individual may apply to the Commissioner. The Commissioner has the authority to grant or withdraw the change of tax year based on feasibility. If the change is granted, it takes effect from the specified date, being the first day of the special or normal tax year. If dissatisfied with the order, a person may file a review application with the Board.
Define residential status for tax purposes. Explain the determination of residential status for a person according to the Income Tax Ordinance, 2001.
Residential status determines whether a person is taxable on worldwide income or only on Pakistan source income. According to the Income Tax Ordinance, 2001, a person is a resident in Pakistan for a tax year if they are a resident individual, resident company, resident association of persons, or the Federal Government. A person is a non-resident for a tax year if they do not fall under the category of a resident person.
Differentiate between Pakistan source of income and foreign source of income. How are they taxed for resident and non-resident persons?
Pakistan source of income refers to income generated within Pakistan, which is always taxable for both resident and non-resident persons. Foreign source of income refers to income generated outside Pakistan, which is taxable for resident persons and exempt for non-resident persons.
Explain the exceptions to the normal rule of taxation for residents. Provide examples of each exception.
The exceptions to the normal rule of taxation for residents are as follows:
1) Returning Expatriate:
Foreign source income of a citizen of Pakistan is exempt from tax in the year they become a resident and the following tax year, provided they were not a resident in any of the four preceding tax years.
2) Short-Term Resident:
The foreign-source income of an individual who is a resident solely due to employment and stays in Pakistan for less than three years is exempt, except for income derived from a business established in Pakistan or foreign-source income brought into Pakistan.
3) Foreign Source Salary:
Any foreign-source salary received by a resident individual is exempt from tax if the individual has paid foreign income tax on that salary.
4) Tax Treaty:
If a tax treaty exists between Pakistan and another country, it may override the local laws regarding taxation and provide exemptions for certain types of income.
