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Advance Tax Rates Under Income Tax Ordinance 2001

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Advance Tax Rates

Imports Advance tax rates on imports under Section 148 have been mentioned in Part II of the First Schedule of Income Tax Ordinance 2001. These rates are mentioned as given below: Persons importing goods mentioned in Part I of Twelfth Schedule           1% Persons importing goods mentioned in Part II of Twelfth … Read more

Presumptive Tax and Normal Tax Regimes Income Tax Ordinance 2001

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Normal and Presumptive Tax Regimes under Income Tax Ordinance, 2001

Introduction Presumptive tax and normal tax regimes have been introduced  by Federal Board of Revenue (FBR)   through  Income Tax Ordinance, 2001,  for collection of income tax in Pakistan. Normal Tax Regime According to Section 9 of the Income Tax Ordinance, 2001, “the taxable income of a person for a tax year shall be the total … Read more

Withholding Tax under Income Tax Ordinance, 2001

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Withholding Tax under Income Tax Ordinance 2001

 

Withholding Tax under Income Tax Ordinance 2001

Introduction

Withholding tax is a mode of collection of tax at the time of payment of an income by deducting tax from such payment or execution of a transaction by adding tax to the price.  This tax is taken into account while making a final assessment of a tax payer. This method is used by the tax collecting authority to discourage tax evasion at the time of filing return.

Withholding tax is just tax on income as defined in Section 2(64) of the Income Tax Ordinance, 2001 as given below:

“tax means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance”.

According to Section 4 of the Income Tax Ordinance 2001, withholding tax is charged, “collection of tax under Division II of Part V of Chapter X or deduction of tax under Division III of Part V of Chapter X”.

There is confusion among the public about withholding tax and income tax. It is normally considered that withholding tax is different from income tax. As a matter of fact all the taxes paid under Income Tax Ordinance, 2001 are regarded as income tax as defined in Section 2(64) and Section 4 of the Income Tax Ordinance, 2001. Withholding tax is paid by a person in advance before declaring income. It may be final, minimum and adjustable against the income tax payable at the time of filing of return of income or assessment of income.

Mode of Payment

The withholding tax is deducted or collected in the following modes:

  • Advance Tax:

    This tax is paid by a person on income in advance to the tax collecting authority under Section 147, 147A and 148.

  • Section 147

    A person will have to pay advance tax on the basis of tax paid in the last year.

  • Section 147A

    Every provincial sales tax registered person shall be liable to pay adjustable advance tax on monthly basis at the rate of three per cent of the turnover declared before the provincial revenue authority.

  • Section 148 This tax is collected by the Customs office at the time of import of goods.

  • Transitional Advance Tax

    This tax is collected in advance by relevant agency on behalf of the tax collecting authority such as electricity bills, telephone/mobile bill etc.

  • Tax Deducted at Source

The tax is deducted and paid at the stage when the income is earned i.e. payment is made.

Who is withholding agent?

The person responsible for deducting or withholding tax under Income Tax Ordinance, 2001, is commonly termed as ‘withholding agent’. Although withholding agent has not been specifically defined in the Income Tax Ordinance, 2001, however the term ‘prescribed person’ has been used in Income Tax Ordinance, 2001 for a person responsible to deduct/withhold tax on behalf of the tax collecting Authority-Federal Board of Revenue (FBR).  The ‘prescribed person’ has been defined in the Income Tax Ordinance, 2001 as under:

“(a) the Federal Government;
(b) a company;
(c) an association of persons constituted by, or under law;
(d) a non-profit organization;
(e) a foreign contractor or consultant;
(f) a consortium or joint venture;
(g) an exporter or an export house;

(h) an association of persons, having turnover of one hundred million rupees or above in 
any of the preceding tax years; 
(i) an individual, having turnover of one hundred million rupees or above in any of the preceding tax years;
(j) a person registered under the Sales Tax Act, 1990 having turnover of one hundred million rupees or more in any of the preceding tax years;
(k) a person deriving income from the business of construction and sale of residential, commercial or other buildings (builder); or
(l) a person deriving income from the business of development and sale of residential, commercial or other plots (developer).”

 

For applicability of the withholding tax one may refer to the relevant sections, rules and schedules of the Income Tax Law as discussed in other articles of this site.