Advance tax not applicable on certain authorities

Advance tax not applicable on certain authorities

Section 236O of the Income Tax Ordinance, 2001 outlines specific authorities exempted from the obligation to pay advance tax.

The Federal Board of Revenue (FBR) continues to refine the taxation framework, and the latest amendment incorporated through the Finance Act, 2021, addresses the applicability of advance tax to certain entities and individuals.

Section 236O of the Income Tax Ordinance, 2001 reads as follows:

236O. Advance Tax under this Chapter – The advance tax under this chapter shall not be collected or deducted from:

(a) the Federal Government or a Provincial Government;

(b) a foreign diplomat or a diplomatic mission in Pakistan; or

(c) a person who produces a certificate from the Commissioner that his income during the tax year is exempt.

This provision exempts specific authorities and individuals from the obligation to pay advance tax under the relevant chapter. The entities or individuals falling under the following categories are not subjected to the collection or deduction of advance tax:

(a) Federal or Provincial Government: The central and provincial government bodies are exempted from advance tax obligations. This recognition of government entities ensures that public funds are not unnecessarily encumbered by advance tax requirements.

(b) Foreign Diplomats or Diplomatic Missions: Foreign diplomats and diplomatic missions operating within Pakistan are also relieved from the burden of advance tax. This exemption aligns with international norms and diplomatic conventions, acknowledging the unique status and privileges accorded to foreign diplomatic entities.

(c) Commissioner-Certified Income Exemption: Individuals who can produce a certificate from the Commissioner, affirming that their income during the tax year is exempt, are also exempted from the obligation to pay advance tax. This provision caters to cases where specific individuals may qualify for income exemption based on defined criteria.

While the amendment is generally viewed as a positive step toward ensuring the equitable application of tax obligations, concerns have been raised about the potential for misuse or misinterpretation. Critics argue that the criteria for income exemption should be clearly defined and communicated to prevent abuse of the provision.

Section 236O in the Income Tax Ordinance, 2001 demonstrates the FBR’s commitment to refining the tax framework to align with changing needs and international standards. By exempting certain authorities from the obligation to pay advance tax, the amendment ensures a fair and targeted application of tax requirements. As the FBR continues to evolve the taxation system, transparency, and clear communication will be essential to fostering trust and compliance among taxpayers.