General provisions for final tax regime have been issued by the Federal Board of Revenue (FBR) through an updated version of the Income Tax Ordinance, 2001.
These amendments were introduced through the Finance Act, 2021.
The changes, particularly in Section 8 of the ordinance, have a substantial impact on the general provisions for granting a final tax regime.
Section 8 of the Income Tax Ordinance, 2001, addresses various tax provisions imposed under Sections 5, 5AA, 6, 7, 7A, and 7B. The recent amendments bring some significant changes to the way taxes are imposed and managed in Pakistan.
One of the most notable aspects of the updated Section 8 is the introduction of the concept of final taxation on certain income. The tax imposed under Sections 5, 5AA, 6, 7, 7A, and 7B will be considered final, and as a result:
Income Not Chargeable to Tax Under Any Other Head: The income on which this tax is imposed will not be subject to tax under any other head of income when calculating the taxable income of the individual for a given tax year.
No Deduction Allowed: Under the new provisions, taxpayers will not be allowed to claim deductions for any expenses incurred in deriving the income on which final tax is imposed. This means that the taxable amount cannot be reduced by deductible allowances or offset by any losses.
Tax Credits Not Applicable: The tax payable by an individual under Section 5, 5A, 5AA, 6, 7, 7A, and 7B cannot be reduced by any tax credits allowed under the Income Tax Ordinance. This further reinforces the finality of the tax imposed.
Liability Discharge: The liability of a person under Section 5, 6, or 7 shall be considered discharged to the extent that tax has been paid or deducted at the source. For shipping and air transport income, this means compliance with section 143 or 144, and in all other cases, tax must be deducted at the source under Division III of Part V of Chapter X.
These amendments are designed to simplify the tax system, reduce the administrative burden on taxpayers, and streamline the process of calculating and paying taxes on certain types of income. It offers a more straightforward approach to taxation and encourages compliance with the tax regulations.
The changes also align with the government’s ongoing efforts to improve tax collection, reduce tax evasion, and enhance transparency in the tax system. By implementing a final tax regime on specific income sources, it becomes easier for both taxpayers and tax authorities to understand and manage tax liabilities.
The Finance Act, 2021, introduced these amendments as part of broader tax reforms in Pakistan. The ultimate goal is to create a more efficient and equitable tax system that fosters economic growth, encourages investment, and ensures that everyone pays their fair share of taxes.
It’s important for taxpayers to be aware of these changes and understand how they impact their financial obligations. Seeking guidance from tax professionals and staying informed about the evolving tax laws is crucial to ensure compliance with the amended provisions of the Income Tax Ordinance, 2001.
