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Category: Definitions

  • ITO 2001 explains ‘fee for technical services’

    ITO 2001 explains ‘fee for technical services’

    Income Tax Ordinance, 2001 has explained the meaning of ‘fee for technical services’ rendered by non-resident persons to users in Pakistan.

    The Income Tax Ordinance, 2001 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR) explained the fee for offshore digital services as:

    “Fee for technical services” means any consideration, whether periodical or lump sum, for the rendering of any managerial, technical or consultancy services including the services of technical or other personnel, but does not include —

    (a) consideration for services rendered in relation to a construction, assembly or like project undertaken by the recipient; or

    (b) consideration which would be income of the recipient chargeable under the head “salary”.

    It also explained the following:

    ”Fee for offshore digital services” means any consideration for providing  or rendering services by a non-resident person for online advertising including digital advertising space, designing, creating, hosting or maintenance of websites, digital or cyber space for websites, advertising, e-mails, online computing, blogs, online content and online data, providing any facility or service for uploading, storing or distribution of digital content including digital text, digital audio or digital video, online collection or processing of data related to users in Pakistan, any facility for online sale of goods or services or any other online facility.

  • Fast moving consumer goods explained

    Fast moving consumer goods explained

    Income Tax Ordinance, 2001 has explained the meaning of ‘fast moving consumer goods’ for calculation and imposition of income tax.

    The Income Tax Ordinance, 2001 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR) explained it as:

    “Fast moving consumer goods” means consumer goods which are supplied in retail marketing as per daily demand of a consumer excluding durable goods.

    The income tax applied under Section 153 shall be:

    In the case of supplies made by the distributer of fast moving consumer goods,─

    (i) in case of a company, 2 percent of the gross amount payable; and

    (ii) in any other case, 2.5 percent of the gross amount payable.

  • ITO 2001 defines employee, employer

    ITO 2001 defines employee, employer

    Income Tax Ordinance (ITO), 2001 has explained the meaning of employee and employer for calculation and imposition of income tax.

    The Income Tax Ordinance, 2001 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR) explained the terms as:

    “Employee” means any individual engaged in employment;

    “Employer” means any person who engages and remunerates an employee;

    “Employment” includes –

    (a) a directorship or any other office involved in the management of a company;

    (b) a position entitling the holder to a fixed or ascertainable remuneration; or

    (c) the holding or acting in any public office.

  • Electronic record defined by ITO 2001

    Electronic record defined by ITO 2001

    Income Tax Ordinance (ITO), 2001 has defined ‘electronic record’ as electronic resources or information in electronic form.

    The Income Tax Ordinance, 2001 – updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR) – explained the following:

    “Electronic record” includes the contents of communications, transactions and procedures under this Ordinance, including attachments, annexes, enclosures, accounts, returns, statements, certificates, applications, forms, receipts, acknowledgements, notices, orders, judgments, approvals, notifications, circulars, rulings, documents and any other information associated with such communications, transactions and procedures, created, sent, forwarded, replied to, transmitted, distributed, broadcast, stored, held, copied, downloaded, displayed, viewed, read, or printed, by one or several electronic resources and any other information in electronic form;

     “Electronic resource” includes telecommunication systems, transmission devices, electronic video or audio equipment, encoding or decoding equipment, input, output or connecting devices, data processing or storage systems, computer systems, servers, networks and related computer programs, applications and software including databases, data warehouses and web portals as may be prescribed by the Board from time to time, for the purpose of creating electronic record;

     “Telecommunication system” includes a system for the conveyance, through the agency of electric, magnetic, electro-magnetic, electro-chemical or electro-mechanical energy, of speech, music and other sounds, visual images and signals serving for the impartation of any matter otherwise than in the form of sounds or visual images and also includes real time online sharing of any matter in manner and mode as may be prescribed by the Board from time to time.

  • Tax law defines dividend income

    Tax law defines dividend income

    Income Tax Ordinance, 2001 has defined types of income included in dividend distribution for the purpose of tax levy.

    The Income Tax Ordinance, 2001 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR), explained that dividend includes —

    (a) any distribution by a company of accumulated profits to its shareholders, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets including money of the company;

    (b) any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form, whether with or without profit, to the extent to which the company possesses accumulated profits whether capitalised or not;

    (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;

    (d) any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalised or not;  

    (e) any payment by a private company as defined in the Companies Ordinance, 1984 (XLVII of 1984)] or trust of any sum (whether as representing a part of the assets of the company or trust, or otherwise) by way of advance or loan to a shareholder or any payment by any such company or trust on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company or trust, in either case, possesses accumulated profits; or

     (f) remittance of after tax profit of a branch of a foreign company operating in Pakistan;

    but does not include —

    (i) a distribution made in accordance with sub-clause] (c) or (d) in respect of any share for full cash consideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled 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 the lending of money is a substantial part of the business of the company;

    (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause] (e) to the extent to which it is so set off; and

    (iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreign company, operating in Pakistan.

  • Wholesaler defined under Sales Tax Act

    Wholesaler defined under Sales Tax Act

    Sales Tax Act, 1990 has defined the word ‘wholesaler’ for the purpose of levying tax on supply of goods.

    Sales Tax Act, 1990 – updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR) – explained the word ‘wholesaler’ as:

     “Wholesaler” includes a dealer and means any person who carries on, whether regularly or otherwise, the business of buying and  selling goods by wholesale or of supplying or distributing goods, directly or indirectly, by wholesale for cash or deferred payment or for commission or other valuable consideration or stores such goods belonging to others as an agent for the purpose of sale; and includes a person supplying taxable goods to a person who deducts income tax at source under the Income Tax Ordinance, 2001.

  • Value of supply defined for applying sales tax

    Value of supply defined for applying sales tax

    Sales Tax Act, 1990 has defined “value of supply” in respect of taxable supply, as the consideration in money including all federal and provincial duties and taxes, if any, which the supplier receives from the recipient for that supply.

    The Sales Tax Act, 1990 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR), explained the value of supply as

    “Value of supply” means:–

    (a) in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax:

    Provided that –

    (i) in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the open market price of the supply excluding the amount of tax;

    (ii) in case the supplier and recipient are associated persons and the supply is made for no consideration or for a consideration which is lower than the open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax; and

    (iii) in case a taxable supply is made to a consumer from general public on installment basis on a price inclusive of mark up or surcharge rendering it higher than open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax.

    (b) in case of trade discounts, the discounted price excluding the amount of tax; provided the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with the normal business practices;

    (c) in case where for any special nature of transaction it is difficult to ascertain the value of a supply, the open market price;

    (d) in case of imported goods excluding those as specified in the Third Schedule, the value determined under section 25 of the Customs Act, including the amount of customs-duties and central excise duty levied thereon;

    (e) in case where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the Inland Revenue constituted by the Commissioner;

    (f) in case of manufacture of goods belonging to another person, the actual consideration received by the manufacturer for the value addition carried out in relation to such goods;

    (g) in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax, which a supplier will charge at the time of making taxable supply by him, or such other price as the Board may, by a notification in the official Gazette, specify.

    (h) in case of supply of electricity by an independent power producer or WAPDA, the amount received on account of energy purchase price only; and the amount received on

    account of capacity purchase price, energy purchase price premium, excess bonus, supplemental charges etc. shall not be included in the value of supply;

    (i) in case of supply of electric power and gas by a distribution company, the total amount billed including price of electricity and natural gas, as the case may be, charges, rents, commissions and all duties and taxes local, provincial and federal but excluding the amount of late payment surcharge and the amount of sales tax; and

    (j) in case of registered person who is engaged in purchasing used vehicles from general public on which sales tax had already been paid at the time of import or manufacturing, and which are, later on, sold in the open market after making certain value addition, value of supply will be the difference between sale and purchase price of the said vehicle on the basis of the valuation method prescribed by the Board.

    Provided that, where the Board deems it necessary it may, by notification in the official Gazette, fix the value of any imported goods or taxable supplies or class of supplies and for that purpose fix different values for different classes or description of same type of imported goods or supplies:

    Provided further that where the value at which import or supply is made is higher than the value fixed by the Board, the value of goods shall, unless otherwise directed by the Board, be the value at which the import or supply is made.

  • Sales tax law explains ‘time of supply’

    Sales tax law explains ‘time of supply’

    Sales Tax Act, 1990 has explained ‘time of supply’ for collection of sales tax.

    The Sales Tax Act, 1990 [updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR)] explained the term as:

    “Time of supply”, in relation to,–

    (a) 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” “or the time when any payment is received by the supplier in respect of that supply, whichever is earlier;

    (b) a supply of goods under a hire purchase agreement, means the time at which the agreement is entered into; and

    (c) services, means the time at which the services are rendered or provided;

    Provided that in respect of sub clause ( a) ,(b) or (c), where any part payment is received, –

    (i) for the supply in a tax period, it shall be accounted for in the return for that tax period; and

    (ii) in respect of exempt supply, it shall be accounted for in the return for the tax period during which the exemption is withdrawn from such supply .

  • Who are Tier-1 retailers under Sales Tax Act?

    Who are Tier-1 retailers under Sales Tax Act?

    The term ‘Tier-1 retailer’ was introduced through Finance Act, 2017 by inserting relevant clause into Sales Tax Act, 1990.

    All Tier-1 retailers are required to integrate all their Point of Sales (POSs) with computerized system of the Federal Board of Revenue (FBR).

    The Sales Tax Act, 1990 (updated up to June 30, 2020 issued by the FBR), defined Tier-1 retailer as:

     “Tier-1 retailer” means a retailer falling in any one or more of the following categories, namely:-

    (a) a retailer operating as a unit of a national or international chain of stores;

    (b) a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks;

    (c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds Rupees twelve hundred thousand;

    (d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers”;

    (e) a retailer, whose shop measures one thousand square feet in area or more; and

    (f) any other person or class of persons as prescribed by the Board.”

  • What is tax fraud?

    What is tax fraud?

    Sales Tax Act, 1990 has defined ‘tax fraud’ as doing of any act knowingly without lawful excuse.

    The Sales Tax Act, 1990 [updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR)] explained ‘tax fraud’ as:

    “Tax fraud” means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused) –

    (i) doing of any act or causing to do any act; or

    (ii) omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act; or

    (iii) falsifying or causing falsification the sales tax invoices,

    in contravention of duties or obligations imposed under this Act or rules or instructions issued thereunder with the intention of understating the tax liability or underpaying the tax liability for two consecutive tax periods or overstating the entitlement to tax credit or tax refund to cause loss of tax.