Under the Income Tax Ordinance 2001 for Tax Year 2027, qualifying directors and shareholders may be held jointly and severally liable for unrecovered tax dues of private companies.
ISLAMABAD: The Federal Board of Revenue (FBR) has explained the provisions of Section 139 of the Income Tax Ordinance 2001, which sets out the circumstances in which directors, shareholders and members of associations of persons may become liable for unpaid tax obligations.
The FBR’s updated Income Tax Ordinance 2001, issued up to June 30, 2026, applies to Tax Year 2027, covering the period from July 1, 2026, to June 30, 2027.
Under Section 139(1), where tax payable by a private company cannot be recovered from the company, certain directors and shareholders may be held jointly and severally liable for the outstanding amount.
The provision also applies to a private company that has been wound up or entered liquidation.
Directors and shareholders’ liability
Under Section 139(1), liability may extend to any person who was, at any time during the relevant tax year:
• A director of the company, other than an employed director; or
• A shareholder owning at least 10 per cent of the company’s paid-up capital.
Such persons may be required to pay the tax due by the company when recovery from the company itself is unsuccessful.
Section 139 also provides recovery rights for individuals who pay tax under these provisions. Under sub-section (2), a director who pays the company’s tax may recover the amount from the company or claim a share from another director.
Similarly, under sub-section (3), a qualifying shareholder who pays the tax may recover it from the company or from another shareholder covered by the provision, in proportion to that shareholder’s ownership.
Tax liability of associations of persons
Section 139 also establishes rules for tax liabilities involving associations of persons (AOPs).
Under sub-section (4), if tax payable by a member on their share of an AOP’s income cannot be recovered from that member, the association becomes liable for the unpaid amount.
Conversely, under sub-section (5), where tax payable by an AOP cannot be recovered from the association, every person who was a member during the relevant tax year may be held jointly and severally liable for the association’s outstanding tax.
Sub-section (6) provides that a member who pays tax under this provision may recover the amount from the AOP or seek a share of the payment from another member.
Recovery under tax assessment rules
Section 139(7) states that the provisions of the Income Tax Ordinance apply to amounts due under this section as though they were tax payable under an assessment order.
The section therefore establishes a framework for recovering unpaid company and AOP tax liabilities from specified directors, shareholders or members when the relevant entity or individual cannot pay.
The extent of liability depends on the circumstances set out in the law, including the person’s role or membership during the relevant tax year and the failure to recover the tax from the company, association or member concerned.