Income Tax Ordinance 2001: collection of tax from company in liquidation

Income Tax Ordinance 2001: collection of tax from company in liquidation

The Federal Board of Revenue (FBR) has issued updates to the Income Tax Ordinance, 2001, emphasizing the joint responsibility of directors for the payment of taxes owed by a company, even if the said company is in a state of liquidation.

The amended Section 139 of the Income Tax Ordinance, 2001, lays out the regulations for the collection of taxes in the case of private companies and associations of persons. The key provision, Sub-Section (1), stipulates that in instances where tax payable by a private company, including one that has been wound up or gone into liquidation, cannot be recovered from the company, directors and significant shareholders bear joint and several liability for settling the outstanding tax.

The specific criteria for individuals falling under this liability include:

(a) Any director of the company, excluding an employed director.

(b) Any shareholder in the company owning not less than ten percent of the paid-up capital of the company.

This move aims to enhance accountability and ensure that tax liabilities do not go unaddressed, especially in cases where companies face financial distress or liquidation.

Sub-Section (2) outlines the process for directors who fulfill their joint liability by paying the tax. Such directors are entitled to recover the paid tax either from the company itself or seek reimbursement from other directors.

Similarly, Sub-Section (3) outlines the rights of shareholders who assume responsibility for paying the tax. They are entitled to recover the amount paid from the company or from any other shareholder who falls under the criteria mentioned in Sub-Section (1), in proportion to the shares owned by that shareholder.

Furthermore, Sub-Section (4) establishes that in cases where tax payable by a member of an association of persons cannot be recovered from the member, the association itself becomes liable for the member’s tax dues.

Sub-Section (5) ensures that the provisions of the Income Tax Ordinance, 2001, are applicable to any amount due under this section as if it were tax due under an assessment order, further reinforcing the legal standing of these regulations.

This amendment underscores the government’s commitment to ensuring the robustness of the tax collection system and preventing the evasion of tax liabilities, particularly in circumstances where companies are undergoing liquidation. The FBR’s move is expected to bring greater transparency and accountability to the corporate tax landscape in Pakistan.