Section 86, updated up to June 30, 2021, reinforces the principle of taxation on the income of individuals shall be determined separately, ensuring equitable treatment within the taxation framework.
In a commitment to transparency and fairness in taxation, the Federal Board of Revenue (FBR) has maintained a fundamental principle through Section 86 of the Income Tax Ordinance, 2001.
The text of Section 86 of the Income Tax Ordinance, 2001 is succinct but significant:
“86. Principle of taxation of individuals.— Subject to this Ordinance, the taxable income of each individual shall be determined separately.”
This provision underscores the foundational principle of individualized tax determination, emphasizing that the taxable income of each individual is to be assessed independently, free from collective considerations.
The emphasis on separate determination recognizes the unique financial circumstances and income sources of each individual. Taxation is a complex area, and the Income Tax Ordinance, 2001 strives to provide a clear and individual-focused approach. This principle ensures that individuals are taxed based on their specific financial situations, preventing unfair burdens that might arise from a more generalized or collective approach.
While Section 86 is concise, its impact is substantial. It serves as a safeguard against potential discrepancies and ensures that the tax system remains sensitive to the diverse financial realities of the taxpayers. By determining taxable income separately for each individual, the ordinance promotes a more accurate representation of their financial capacity and, consequently, a fairer distribution of the tax burden.
Tax experts suggest that this individualized approach aligns with international best practices in taxation and contributes to a more efficient and just tax system. It recognizes that individuals may have different sources of income, deductions, and exemptions, and, therefore, their tax liabilities should be evaluated on a case-by-case basis.
In practical terms, this provision means that each taxpayer’s income, investments, and deductions are considered independently during the tax assessment process. It prevents situations where individuals with unique financial circumstances might be unfairly penalized or receive unwarranted benefits due to a one-size-fits-all approach.
The Finance Act, 2021, which brought amendments to the Income Tax Ordinance, 2001, did not alter the fundamental principle outlined in Section 86. The continuity of this provision reaffirms the government’s commitment to a tax system that is not only efficient but also sensitive to the individual financial nuances of its citizens.
Section 86 of the Income Tax Ordinance, 2001 plays a pivotal role in upholding the principle of individualized tax determination. By emphasizing the separate assessment of taxable income for each individual, the provision contributes to the overall fairness and accuracy of the taxation system. This commitment to individual-focused tax evaluation aligns with the broader goals of transparency and equity in fiscal policies, fostering a tax environment that respects the unique financial circumstances of each taxpayer.
