This document outlines various aspects of Pakistan’s income tax law, including rates of advance tax, deduction of tax at source on different income types such as dividends, profit on debt, payments to non-residents, and exports. It defines key terms like “Approved Employment Pension or Annuity Scheme” and “small and medium enterprise”, and addresses tax on undistributed profits and tax on builders. The text details the heads of income, rules for deductions including depreciation and amortization, special provisions for banking companies, and regulations concerning capital gains. Furthermore, it covers tax procedures, encompassing filing of returns, assessments, audits, penalties for non-compliance, and the establishment of the Appellate Tribunal. Finally, the document includes various schedules specifying tax rates, exemptions, and rules for specific types of income and taxpayers.

Study Guide: Excerpts

I. Core Concepts

A. Assets

• Disposal and Acquisition of Assets (Section 75): Understand that “disposal” is defined in Section 75 and covers various ways an asset can cease to be owned. “Acquisition” occurs when ownership begins.
• Purchase of Assets Through Banking Channel (Section 75A): Note that there are specific rules for asset purchases made through banking channels.
• Cost (Section 76): “Cost” generally refers to the expenditure incurred to acquire or create an asset, including improvements. Special rules may apply to intangibles and apportionment.
• Consideration Received (Section 77): This is the total amount received for an asset upon disposal, including the fair market value of any non-cash consideration.
• Non-Arm’s Length Transactions (Section 78): Understand that transactions between associated persons may be treated differently than those between independent parties.
• Non-Recognition Rules (Section 79): Certain disposals or acquisitions may not trigger immediate tax consequences under specific non-recognition rules.

B. Persons

• Person (Section 80): This section defines who is considered a “person” under the ordinance, which is a fundamental concept for tax liability.
• Resident and Non-Resident Persons (Section 81): Differentiate between resident and non-resident persons, as residency status impacts tax obligations.
• Resident Individual (Section 82): Understand the criteria for an individual to be considered a resident for tax purposes.
• Resident Company (Section 83): Understand the criteria for a company to be considered a resident for tax purposes.
• Resident Association of Persons (Section 84): Understand the criteria for an association of persons to be considered a resident for tax purposes.
• Associates (Section 85): Grasp the definition of “associates,” as transactions between associates may be subject to specific tax rules.

C. Key Definitions (Chapter I – Preliminary)

• Assessment (Clause 5): Understand the various types of assessments under the ordinance, including original, amended, and penalty assessments, as well as demands for amounts due.
• Assets Management Company (Clause 5B): Know the definition of an “assets management company” as a registered entity under specific rules.
• Disposal (Clause 18): Reinforces the link to Section 75 for the definition of disposal.
• Distributor (Clause 18A): Understand the definition of a “distributor” in the context of goods supply.
• Dividend (Clause 19): Recognize the broad definition of “dividend,” which includes various distributions of a company’s accumulated profits and assets to its shareholders.
• New Industrial Undertaking (Chapter I): Understand the specific conditions that define a “new industrial undertaking,” particularly regarding prior land use, existing structures, and transfer of machinery.
• Officer of Inland Revenue (Clause 37): Know the different designations of officers authorized under the ordinance.
• Offshore Asset (Clause 38AA): Understand the definition of an “offshore asset” as any asset, gain, profit, income, or expenditure outside Pakistan.
• Offshore Evader (Clause 38AB): Understand the definition of an “offshore evader” as someone owning, possessing, or controlling undeclared offshore assets.
• Share (Clause 58): Understand the inclusive definition of “share,” which extends beyond traditional company shares to include modaraba certificates and beneficial interests in trusts.
• Shareholder (Clause 59): Understand the inclusive definition of “shareholder,” corresponding to the definition of “share.”
• Small and Medium Enterprise (Clause 59A): Know the criteria for classifying a person as a “small and medium enterprise” based on manufacturing activity and turnover.
• Unspecified Jurisdiction (Clause 73A): Understand that this refers to a jurisdiction not classified as a “specified jurisdiction.”
• Venture Capital Company/Fund (Clause 74): Understand that these terms have the same meanings as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
• Whistleblower (Clause 75): Understand that this term is defined in Section 227B.
• Structural Improvement (Chapter I): Recognize the types of constructions and developments considered “structural improvements” to immovable property.

D. Other Important Provisions

• Ordinance to Override Other Laws (Section 3): Understand the supremacy of this ordinance over other existing laws.
• Income from Lease (Section 14(3)): Recognize that lease payments received by specified financial institutions are treated as “Income from Business.”
• Profit on Debt (Section 16): Be aware of various scenarios where amounts paid are considered “profit on debt,” especially by financial institutions and the government.
• Capital Gains (Section 37): Understand that gains from the disposal of capital assets are generally taxable under the head “Capital Gains.”
• Losses (Section 38): Note the rules regarding the carry-forward of business losses, with specific provisions for banking companies.
• Exemption for New Industrial Undertakings (Section 49): Understand the conditions and duration of tax exemptions for certain new industrial undertakings, including those in renewable energy and shipbuilding.
• Definition of Disposal (Section 75): Focus on the various events that constitute a “disposal” of an asset, including sale, exchange, transfer, cancellation, and application to personal use.
• Cost of Depreciable Asset (Section 76(2)): Understand the general rule for determining the cost of a depreciable asset.
• Cost of Intangible (Section 76(11)): Understand the definition of “cost” specifically for intangible assets.
• Fair Market Value (Section 77(1)): Recognize that consideration received can include fair market value, especially for non-cash transactions.
• Deemed Acquisition at Fair Market Value (Section 79(1)): Understand situations where an asset is deemed to be acquired at its fair market value, such as distributions on liquidation or dissolution.
• Revocable Transfer (Section 85(8)(a)): Understand the conditions under which a transfer of an asset is considered “revocable,” impacting the concept of associates.
• Trusts and Welfare Institutions (Section 86): Be aware of the definitions of “trust,” “welfare institution,” and “not-for-profit company.”
• Investment in Newly Established Industrial Undertakings (Section 99): Understand the conditions and valuation rules for investments in new industrial undertakings, including exemptions for certain entities.
• Wealth Statement (Section 116): Note the requirement for filing a wealth statement for resident persons meeting certain criteria.
• Powers of the Commissioner (Section 122): Understand the Commissioner’s authority to amend assessments in specific circumstances.
• Withholding Tax (Section 147, 148, 153, 154): Be generally aware that these sections deal with various aspects of withholding tax on different types of payments and transactions (import, services, exports, etc.). Specific schedules (Second and Twelfth) detail exemptions and reduced rates.
• Collection of Tax at Source (Section 148, 153): Understand that tax is collected at the import stage (Section 148) and on certain services and contracts (Section 153).
• Appellate Tribunal (Section 130): Know the qualifications for judicial and accountant members of the Appellate Tribunal.
• Provision of Information (Section 165A): Understand the obligations of various entities to provide information to the tax authorities.
• Confidentiality (Section 216(3) and Section 99(8)): Be aware of provisions ensuring the confidentiality of certain information provided to tax authorities, particularly under voluntary declaration schemes.
• Savings Clause (Section 239): Understand that the repealed ordinance’s provisions may still apply to income years ending before June 30, 2002, for income computation and tax payable.
• First Schedule (Part I, Division VIII): Note that this schedule specifies tax rates for capital gains on the disposal of immovable property.
• Second Schedule (Parts I, II, III, IV): Recognize that this schedule lists various exemptions from income tax and specific treatments for certain income and transactions.
• Twelfth Schedule: Understand that this schedule lists goods subject to specific tax rates or exemptions, often related to imports.

II. Quiz

1. According to the provided text, what constitutes “consideration received” upon the disposal of an asset?
2. Briefly explain the difference between a “resident individual” and a “non-resident person” as defined in the excerpts.
3. List three items that are explicitly included in the definition of “dividend” according to the provided text.
4. What are the key conditions mentioned in the excerpts for an undertaking to be considered a “new industrial undertaking”?
5. Explain the concept of “disposal” of an asset as defined in Section 75, providing at least two examples from the text.
6. What is the significance of determining whether two persons are “associates” under Section 85?
7. According to the excerpts, what is the general rule for determining the “cost” of an intangible asset?
8. What are the different types of “assessment” mentioned in the provided definition?
9. State one specific scenario where an asset is “deemed” to be acquired at its fair market value according to Section 79(1).
10. Briefly describe the role and composition of the Appellate Tribunal as mentioned in the excerpts.

III. Quiz Answer Key

1. The “consideration received” is the total amount received for the asset, including the fair market value of any consideration received in kind, determined at the time of disposal, whichever is higher.
2. A “resident individual” is an individual who meets certain criteria related to their presence and stay in Pakistan during a tax year (as defined in Section 82, though the specifics are not fully detailed in the excerpt). A “non-resident person” is simply defined as a person who is not a resident person for that tax year.
3. Three items included in the definition of “dividend” are: any distribution of accumulated profits by a company to its shareholders entailing the release of assets; any distribution of debentures or deposit certificates by a company to its shareholders to the extent of accumulated profits; and any distribution to shareholders on a company’s liquidation attributable to accumulated profits before liquidation.
4. The key conditions for a “new industrial undertaking” include being set up on previously unutilized land free from prior work constraints, being built without modifying existing structures, and not being formed by splitting up an existing undertaking or transferring machinery from a pre-existing undertaking in Pakistan, and not being part of an expansion project.
5. “Disposal” in relation to an asset means it ceases to be owned by a person, as defined in Section 75. Examples from the text include the sale or exchange of an asset, or the cancellation or surrender of contractual rights related to an asset.
6. The significance of determining if two persons are “associates” is that transactions between them may be treated differently for tax purposes than transactions between unrelated parties, particularly concerning non-arm’s length transactions (Section 78).
7. The “cost” of an intangible asset is any expenditure incurred in acquiring or creating it, including any expenditure on improving or renewing the intangible.
8. The different types of “assessment” mentioned are: an assessment referred to in section 120; an assessment raised under section 121; an amended assessment under section 122; a demand for an amount due under sections 141, 142, 143 and 144; and an assessment of penalty under section 190.
9. One specific scenario where an asset is deemed to be acquired at its fair market value is a distribution of assets by a company to its shareholders on the liquidation of the company (where Section 79(1)(e) applies and the acquirer is a resident person).
10. The Appellate Tribunal has judicial members who must have experience as a District Judge or be qualified as a High Court Judge, and accountant members who are either senior Inland Revenue officers or have significant professional experience as chartered or cost and management accountants.

IV. Essay Format Questions

1. Discuss the importance of the definitions of “person,” “resident person,” and “non-resident person” in the context of tax liability under the ordinance, drawing upon the provided excerpts.
2. Analyze the broad scope of the definition of “dividend” as provided in the text, and explain why such a comprehensive definition might be necessary for effective tax administration.
3. Evaluate the significance of the concept of “disposal of assets” as defined in the ordinance, considering its implications for the computation of capital gains and other tax consequences.
4. Compare and contrast the definitions and implications of “cost” for tangible and intangible assets based on the information provided in the excerpts, and discuss any potential challenges in their determination.
5. Examine the concept of “associates” and “non-arm’s length transactions,” explaining why the relationship between transacting parties is a relevant consideration in tax law, based on the provided text.

V. Glossary of Key Terms

• Assessment: The process of officially determining the tax liability of a person, which can take various forms such as original, amended, or penalty assessments, as well as demands for amounts due.
• Assets Management Company: A company registered under the Assets Management Companies Rules, 1995.
• Associate: Two persons who have a relationship where one can reasonably be expected to act according to the intentions of the other, or both act according to a third person’s intentions, or where one sufficiently influences the other.
• Capital Asset: An asset held by a person, although the full definition and exclusions are not provided in these excerpts, it is implied to be something that can generate capital gains or losses upon disposal.
• Capital Gains: The profit or gain arising from the disposal of a capital asset, which is subject to tax under a specific head of income.
• Consideration Received: The total value received by a person upon the disposal of an asset, including cash and the fair market value of any non-cash benefits.
• Cost (of an asset): Generally, the expenditure incurred in acquiring or creating an asset, which may include improvements. Specific rules apply to different types of assets.
• Disposal: In relation to an asset, any event that causes a person to cease owning it, including sale, exchange, transfer, gift, cancellation, surrender, destruction, loss, or application to personal use.
• Distributor: A person appointed by a manufacturer, importer, or other person to purchase goods for further supply within a specified area.
• Dividend: A broad term including various distributions of a company’s accumulated profits and assets to its shareholders, such as cash distributions, debenture distributions, and distributions upon liquidation or capital reduction.
• Fair Market Value: The estimated value of an asset if it were sold on the open market between willing and knowledgeable buyers and sellers.
• Intangible: Non-physical assets such as patents, copyrights, trademarks, software, and contractual rights that provide a benefit for more than one year.
• New Industrial Undertaking: A specific type of industrial setup meeting stringent conditions related to prior land use, construction, and origin of machinery, often eligible for tax exemptions.
• Non-Arm’s Length Transaction: A transaction between associated persons where the terms and conditions may not reflect those that would exist between independent parties.
• Non-Resident Person: A person who does not meet the criteria to be classified as a resident person for a given tax year.
• Officer of Inland Revenue: Various officials appointed by the Board, such as Commissioner Inland Revenue, Inland Revenue Officer, and others, responsible for administering the ordinance.
• Offshore Asset: Any movable or immovable asset held, or any gain, profit, or income derived, or any expenditure incurred outside Pakistan.
• Person: A broadly defined term encompassing individuals, companies, associations of persons, and other entities subject to the ordinance.
• Resident Association of Persons: An association of persons that meets specific criteria related to control or management being situated within Pakistan.
• Resident Company: A company that is either incorporated in Pakistan or has its control and management wholly situated in Pakistan during the tax year.
• Resident Individual: An individual who meets certain criteria related to their physical presence and duration of stay in Pakistan during a tax year.
• Share: Includes traditional shares in a company, as well as modaraba certificates and the interest of a beneficiary in a trust (including units in a trust).
• Shareholder: Includes holders of traditional shares, modaraba certificate holders, unit holders of a unit trust, and beneficiaries of a trust.
• Small and Medium Enterprise (SME): A person engaged in manufacturing with a business turnover not exceeding two hundred and fifty million rupees in a tax year.
• Structural Improvement: Physical additions or modifications to immovable property, such as buildings, roads, bridges, and landscaping.
• Unspecified Jurisdiction: A jurisdiction that is not classified as a “specified jurisdiction” for certain purposes under the ordinance.

Briefing Document: Analysis of Excerpts

This briefing document provides a detailed review of the main themes, important ideas, and facts presented in the provided excerpts from “01.pdf.” The document is structured to highlight key definitions, provisions related to assets, persons, income heads (specifically capital gains), exemptions, procedural aspects, and other relevant clauses. Where appropriate, direct quotes from the source are included for clarity and accuracy.

Main Themes and Important Ideas

The excerpts cover a wide range of topics crucial to taxation, including:

• Definitions of Key Terms: The document meticulously defines numerous terms essential for understanding the tax ordinance, such as “assessment,” “assets management company,” “disposal,” “distributor,” “dividend,” “offshore asset,” “offshore evader,” “person,” “resident” and “non-resident” persons, “share,” “shareholder,” “small and medium enterprise,” “unspecified jurisdiction,” “Venture Capital Company,” “Venture Capital Fund,” and “whistleblower.”
• Treatment of Assets: A significant portion addresses the acquisition, disposal, cost, and consideration received for various types of assets, including both tangible and intangible assets. It also covers non-arm’s length transactions and non-recognition rules.
• Categorization of Persons: The document establishes clear definitions for “resident” and “non-resident” persons (individuals, companies, and associations of persons) and defines the concept of “associates.”
• Capital Gains Tax: Chapter V, Part V specifically deals with “Capital Gains,” outlining the chargeability of gains arising from the disposal of capital assets and providing a formula for their computation.
• Exemptions and Special Treatments: Several clauses detail exemptions from specific sections of the ordinance for certain entities, transactions, or goods, including provisions for tonnage tax on ships, income derived by specific financial institutions, and exemptions related to imports and exports under certain conditions.
• Procedural Aspects: The excerpts touch upon procedural elements like the appointment of judicial and accountant members to the Appellate Tribunal and the powers and obligations of various Inland Revenue officers.
• Confidentiality and Overriding Provisions: The document emphasizes the overriding nature of the ordinance over other laws and includes provisions for the confidentiality of information provided under specific sections (e.g., Section 111 related to undisclosed income and assets).

Detailed Review of Key Sections and Definitions

1. Definitions (Chapter I – Preliminary)

• “Assessment”: The definition of “assessment” is broad, encompassing various types of assessments, including those under sections 120, 121, 122, as well as demands for amounts due under sections 141-144, and penalty assessments under section 190. This highlights the comprehensive nature of the assessment process.
• Quote: “(5) “assessment” means – (a) an assessment referred to in section 120; (b) an assessment raised under section 121; (c) an amended assessment under section 122; (d) a demand for an amount due under sections 141, 142, 143 and 144; or (e) an assessment of penalty under section 190;”
• “Assets Management Company”: Defined as a company registered under the Assets Management Companies Rules, 1995.
• Quote: “(5B) “assets management company” means a company registered under the Assets Management companies Rules, 1995;”
• “Disposal”: In relation to an asset, it refers to a disposal as defined in section 75. Section 75 further clarifies this.
• Quote: “(18) “disposal” in relation to an asset, means a disposal as defined in section 75;”
• “Dividend”: The definition is inclusive, covering various distributions of accumulated profits, including those involving the release of company assets, distribution of debentures, distributions upon liquidation or capital reduction.
• Quote (partial): “(19) “dividend” includes — (a) any distribution by a company of accumulated profits to its shareholders, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets including money of the company;”
• “Offshore Asset” and “Offshore Evader”: These definitions target assets held and income derived outside Pakistan and individuals associated with such assets potentially for evasion purposes.
• Quote (partial): “(38AA) “offshore asset” in relation to a person, includes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan; (38AB) “offshore evader” means a person who owns, possesses, controls, or…”
• “Small and Medium Enterprise”: Defined based on engagement in manufacturing as per section 153(7)(iv) and a business turnover not exceeding two hundred and fifty million rupees in a tax year.
• Quote: “(59A) “small and medium enterprise” means a person who is engaged in manufacturing as defined in clause (iv) of sub-section (7) of section 153 of the Ordinance and his business turnover in a tax year does not exceed two hundred and fifty million rupees:”

2. Disposal and Acquisition of Assets (Part III ASSETS)

• Section 75 (“Disposal”): Defines various scenarios constituting the disposal of an asset, including sale, exchange, transfer, cancellation, redemption, relinquishment, destruction, loss, expiry, or surrender. Transmission by succession or will, and application of business assets to personal use are also treated as disposals.
• Section 76 (“Cost”): Outlines the determination of the cost of an asset, generally being the expenditure incurred in acquiring it. Special rules apply for intangible assets and situations where acquisition involves taxable or exempt amounts. Grants, subsidies, etc., are generally excluded from the cost unless taxable.
• Section 77 (“Consideration Received”): Specifies that the consideration received on disposal is the total amount received or the fair market value, whichever is higher, including the fair market value of any consideration received in kind.
• Section 78 (“Non-arm’s length transactions”): Covers disposals to associates and deems the consideration received to be the fair market value of the asset at the time of disposal. Exceptions apply for transfers due to death, gift to relatives, or certain trust/welfare institution scenarios.
• Quote (partial): “(1) Where a person disposes of an asset to an associate, the consideration received by the person shall be the fair market value of the asset at the time of the disposal.”

3. Provisions Governing Persons (Chapter V)

• Sections 81-84 (“Resident and Non-resident Persons”): Establish criteria for determining the residency status of individuals, companies, and associations of persons for a tax year. This is crucial for determining tax liabilities.
• Section 85 (“Associates”): Defines the circumstances under which two persons are considered associates, focusing on relationships of influence, common intentions, economic and financial dependence, and transactions with residents of zero taxation regimes. Specific relationships, such as employer-employee, are excluded solely on that basis.
• Quote (partial): “(1) Subject to sub-section (2), two persons shall be associates where – (i) the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person;”

4. Head of Income: Capital Gains (Part V)

• Section 37 (“Capital Gains”): States that gains arising from the disposal of a capital asset in a tax year are chargeable to tax under the head “Capital Gains,” unless specifically exempt. A formula (A – B) is provided for computation, where ‘A’ is the consideration received and ‘B’ is the cost of the asset. Special provisions exist for gains on the disposal of immovable property situated in Pakistan.
• Quote (partial): “(1) Subject to this Ordinance, a gain arising on the disposal of a capital asset by a person in a tax year, other than a gain that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Capital Gains”.”

5. Exemptions (Second Schedule)

The excerpts from the Second Schedule (Parts I and IV) list numerous exemptions from specific provisions of the ordinance. These include:

• Income of specific international financial institutions (e.g., International Islamic Trade Finance Corporation).
• Profits on certain foreign currency loans and Sukuk.
• Income of specific charitable and welfare organizations (e.g., National Memorial Bab-e-Pakistan Trust, The Citizens Foundation).
• Exemptions from withholding tax under section 150 for the Islamic Development Bank.
• Exemptions related to imports for specific purposes or entities (e.g., oxygen gas, anti-locust sprayers).
• Conditional exemptions for imports and exports within border sustenance markets.

6. Procedural Aspects (Chapter X & XIII)

• Section 228 (“Appellate Tribunal”): Outlines the qualifications for appointment as judicial and accountant members of the Appellate Tribunal, emphasizing experience as a District Judge or High Court advocate for judicial members, and specific qualifications in Inland Revenue service, chartered accountancy, cost and management accountancy for accountant members.
• Section 216 (“Confidentiality”): Generally mandates the confidentiality of information received by tax authorities but provides several exceptions for disclosure to other government departments or under specific legal obligations. However, Section 111(8) provides for confidentiality of particulars of persons making statements under that section regarding undisclosed income and assets.

7. Overriding Clause (Section 3)

• Quote: “3. Ordinance to override other laws.—The provisions of this Ordinance shall apply notwithstanding anything to the contrary contained in any other law for the time being in force.” This clause establishes the supremacy of this tax ordinance over any other existing laws.

Conclusion

The provided excerpts from “01.pdf” lay the groundwork for a comprehensive tax framework. They establish crucial definitions, detail the tax treatment of assets and various categories of persons, define the scope of capital gains tax, provide numerous specific exemptions, and outline certain procedural and confidentiality aspects. The overriding clause underscores the paramount importance of this ordinance in the legal landscape concerning taxation. A thorough understanding of these provisions is essential for compliance and effective application of the tax laws.

Ordinance FAQs: Assets, Persons, Assessment, and More

Frequently Asked Questions

1. What constitutes an “asset” under this ordinance, and what are some key rules regarding their disposal and acquisition? An “asset” is broadly defined within this ordinance, with specific sections detailing tangible and intangible assets. Disposal of an asset is defined in section 75 and includes various forms of transfer or cessation of ownership, as outlined in section 76, such as sale, exchange, or even the application of a business asset to personal use. Acquisition occurs when a person begins to own the asset or is granted any right to it. The ordinance also addresses the purchase of assets through banking channels (section 75A) and the determination of cost (section 76) and consideration received (section 77) upon disposal, including rules for non-arm’s length transactions (section 78) and non-recognition rules (section 79) in specific scenarios like business reorganizations. Intangibles, such as patents and copyrights, are also considered assets with their own rules for cost and usage (section 76(9)-(11)).

2. Who is considered a “person” under this ordinance, and what distinguishes a “resident person” from a “non-resident person”? The ordinance defines “person” in section 80, encompassing individuals, companies, and associations of persons, among others. The distinction between resident and non-resident persons is crucial for tax purposes and is outlined in section 81. An individual is considered a resident individual under specific conditions detailed in section 82, such as their physical presence in Pakistan for a certain period. Similarly, sections 83 and 84 define resident companies and resident associations of persons based on their place of control, management, or formation. A person is a resident person for a tax year if they fall under the definitions of a resident individual, resident company, or resident association of persons, or if they are the Federal Government. Any person not meeting these criteria is considered a non-resident person for that tax year.

3. What is the definition of “assessment” according to this ordinance, and what are some examples of different types of assessments? Section 80(5) defines “assessment” broadly to include various actions by tax authorities. These include assessments referred to in section 120 (likely original assessments), assessments raised under section 121 (potentially related to best judgment assessments), amended assessments under section 122 (revisions of previous assessments), a demand for an amount due under sections 141, 142, 143, and 144 (related to tax recovery), and an assessment of penalty under section 190. This comprehensive definition ensures that various actions by tax authorities to determine and demand tax liabilities are covered under the umbrella term “assessment.”

4. How does the ordinance define “disposal” of an asset, and what are some specific instances that are considered disposal? Section 80(18) refers to section 75 for the definition of “disposal.” Section 76 elaborates on what constitutes the disposal of an asset. This includes the sale, exchange, or transfer of ownership of the asset. Additionally, certain specific instances are treated as disposal, such as the cancellation, redemption, relinquishment, destruction, loss, expiry, or surrender of an asset (section 76(1)(b)). The transmission of an asset by succession or under a will is considered a disposal by the deceased (section 76(2)), and the application of a business asset to personal use is also treated as a disposal (section 76(3)). Even discarding a business asset or its ceasing to be used in business constitutes disposal (section 76(3A)), and the disposal of part of an asset is also included (section 76(4)).

5. What constitutes “dividend” income under this ordinance, and are there any exceptions or specific scenarios related to dividends? Section 80(19) provides a comprehensive definition of “dividend,” which extends beyond the common understanding of cash distributions from profits. It includes any distribution of accumulated profits to shareholders, whether capitalized or not, if it involves the release of company assets. It also encompasses the distribution of debentures or deposit certificates to the extent of accumulated profits, distributions upon liquidation attributable to accumulated profits, and distributions upon reduction of capital to the extent of accumulated profits. However, the definition excludes certain scenarios, such as the issue of bonus shares or fully paid-up shares out of capitalized profits (section 80(19)(i)), advances or loans made to a shareholder by a company in the ordinary course of its money-lending business (section 80(19)(ii)), and dividends set off against previously paid amounts treated as dividends (section 80(19)(iii)).

6. What is meant by “capital gains” under this ordinance, and how are they generally computed? Section 37(1) states that any gain arising on the disposal of a capital asset in a tax year, which is not exempt, is chargeable to tax under the head “Capital Gains.” Section 37(2) outlines the basic formula for computing this gain as the “consideration received” (A) minus the “cost” of the asset (B) (A – B). However, there are specific rules for immovable property situated in Pakistan, where the gain is chargeable at rates specified in the First Schedule (section 37(1A)). The ordinance also provides definitions for “debt securities” (section 37(3A)), which are treated as capital assets. The holding period of securities can also affect the tax rates applicable to capital gains, as indicated in the First Schedule.

7. What are some examples of “intangible” assets as defined in this ordinance, and how is their cost determined? Section 76(11) defines “intangible” assets broadly, including patents, inventions, designs, models, secret formulas or processes, copyrights, trademarks, scientific or technical knowledge, computer software, motion picture films, export quotas, franchises, licenses, intellectual property, other like property or rights, contractual rights, and any expenditure providing an advantage or benefit for more than one year (excluding depreciable assets or unimproved land). The “cost” of an intangible asset is defined as any expenditure incurred in acquiring or creating it, including any expenditure on improvements or renewals (section 76(11)). An intangible available for use on any day is treated as used on that day (section 76(10)).

8. What are some specific exemptions or special treatments mentioned in the provided excerpts that could affect the application of general tax rules? The excerpts mention several exemptions and special treatments. For instance, ships flying the Pakistan flag may be subject to tonnage tax instead of general income tax (section regarding tonnage tax). There are specific tax rates for gains on disposal of immovable property (section 37(1A)). Certain industrial undertakings set up by specific dates and engaged in renewable energy or shipbuilding may receive exemptions (section regarding exemptions for specific industrial undertakings). Profits earned on certain foreign currency deposits may be exempt under specific conditions (Second Schedule, Part I). Additionally, the import of certain essential goods like oxygen and related equipment during specific periods may be exempt from certain provisions (Second Schedule, Part IV). Furthermore, transactions involving Sukuk issued by specific entities may have special tax treatments or exemptions (Second Schedule, Part I, clause (72A) and others). These examples highlight that the general rules of the ordinance are subject to various specific exemptions and tailored treatments for particular sectors, activities, or entities.

Income Tax Ordinance 2001: Advance Tax Rates

The Income Tax Ordinance 2001 outlines various provisions for the collection of advance tax, specifying different rates depending on the nature of the transaction or income. Here is a discussion of these advance tax rates based on the provided sources:

Advance Tax on Imports (Section 148) The Collector of Customs is required to collect advance tax from every importer of goods at the rate specified in Part II of the First Schedule. The specific rates vary based on the category of the importer and the nature of the imported goods.

Advance Tax on Dividends (Section 150) Every person paying a dividend must deduct tax from the gross amount of the dividend paid or collect tax from the amount of dividend in specie at the rate specified in Division I of Part III of the First Schedule. The rate is 7.5% for dividends paid by Independent Power Producers under specific agreements and 15% in other cases, including mutual funds and Real Estate Investment Trusts (REITs). For collective investment schemes, REIT schemes, or mutual funds, different rates apply to filers and non-filers.

Advance Tax on Profit on Debt (Section 151) The payer of profit on debt must deduct tax at the rate specified in Division IA of Part III of the First Schedule. The general rate is 15%, but a rate of 15% also applies to profit on debt from mutual funds and REITs.

Advance Tax on Return on Investment in Sukuks (Section 5AA & Division IB of Part III) Tax is to be deducted from the gross amount of return on investment in sukuks at the rates specified in Division IB of Part III of the First Schedule. The rates are 25% for companies, 12.5% for individuals and associations of persons if the return is more than one million, and 10% if the return is less than one million.

Advance Tax on Payments to Non-residents (Section 152 & Division II of Part III) Tax is to be deducted from payments for advertisement services to a non-resident media person relaying from outside Pakistan at the rate specified in Division II of Part III of the First Schedule. The rate imposed under section 6 on payments to non-residents is 15% of the gross amount of royalty or fee for technical services and 10% in any other case. Specific rates also apply to payments mentioned in sub-sections (1D), (1DA), and (2A) of section 152, as detailed in Division II of Part III.

Advance Tax on Payments for Goods or Services (Section 153 & Division III of Part III) The rates of tax deduction vary depending on the nature of goods or services and the status of the recipient (company or other). For payments referred to in clause (a) of sub-section (1) of section 153, specific rates are mentioned. For services other than transport, the rates are 9% for companies and 11% for others. Payments to electronic and print media for advertising services are subject to a rate of 1.5%. Sportspersons receive payments with a deduction of 10%, while other companies face a 7.5% deduction.

Advance Tax on Export of Services (Section 154A & Division IVA of Part III) Authorized dealers in foreign exchange must deduct tax from foreign exchange proceeds on account of export of services at the rates specified in Division IVA of Part III of the First Schedule.

Advance Tax on Brokerage and Commission (Section 233 & Division II of Part IV) Advance tax on brokerage or commission is deducted by the principal (Federal Government, Provincial Government, Local Government, company, or an association of person or individual having a turnover of one hundred million rupees or more) to an agent at the rates specified in Division II of Part IV of the First Schedule. The rates are 10% for advertising agents, 8% for life insurance agents (where commission is less than Rs. 0.5 million per annum), and 12% for others.

Advance Tax on Motor Vehicles (Section 234 & Division III of Part IV) Any person collecting motor vehicle tax must also collect advance tax at the rates specified in Division III of Part IV of the First Schedule.

Advance Tax on Purchase, Registration, and Transfer of Motor Vehicles (Section 231B & Division VII of Part IV) Motor vehicle registering authorities collect advance tax at the time of registration or transfer of registration/ownership at the rates specified in Division VII of Part IV of the First Schedule. Manufacturers also collect advance tax at the time of sale of motor cars or jeeps at these specified rates. Leasing companies, scheduled banks, etc., collect advance tax at 4% of the value of the motor vehicle when leasing to persons not appearing on the active taxpayers’ list.

Advance Tax on Sale or Transfer of Immovable Property (Section 236C & Division X of Part IV) Any person responsible for registering, recording, or attesting the transfer of immovable property must collect advance tax from the seller or transferor at the rate specified in Division X of Part IV of the First Schedule. The rates vary based on the gross amount of consideration received: 3% if it does not exceed Rs. 50 million, 3.5% if it exceeds Rs. 50 million but not Rs. 100 million, and 4% if it exceeds Rs. 100 million. Special rates may apply to persons appearing on the active taxpayers’ list who have not filed their return by the due date.

Advance Tax on TV Plays and Advertisements (Section 236CA & Division XA of Part IV) Licensing authorities certifying foreign TV drama serials/plays or commercials starring foreign actors for screening on landing rights channels must collect advance tax at the rates specified in Division XA of Part IV of the First Schedule. The rates are fixed amounts per episode or per second.

Advance Tax on Functions and Gatherings (Section 236CB & Division XI of Part IV) Every prescribed person must collect advance tax at the rate of 10% (as specified in Division XI of Part IV of the First Schedule) on the total bill from a person arranging a function in various commercial venues.

Advance Tax on Sales to Distributors, Dealers, and Wholesalers (Section 236G & Division XIV of Part IV) Manufacturers or commercial importers must collect advance tax at the rates specified in Division XIV of Part IV of the First Schedule at the time of sale to distributors, dealers, and wholesalers. Different rates apply to fertilizers (0.7% for filers, 1.4% for non-filers) and other goods (0.1% for filers, 0.2% for non-filers).

Advance Tax on Sales to Retailers (Section 236H & Division XV of Part IV) Manufacturers, distributors, dealers, wholesalers, or commercial importers must collect advance tax at the rates specified in Division XV of Part IV of the First Schedule at the time of sale to retailers. The rate is 1% for electronics and 0.5% for others.

Advance Tax on Purchase of Immovable Property (Section 236K & Division XVIII of Part IV) Any person responsible for registering, recording, or attesting the transfer of immovable property must collect advance tax from the purchaser or transferee at the rate specified in Division XVIII of Part IV of the First Schedule. The rates vary based on the fair market value: 3% if it does not exceed Rs. 50 million, 3.5% if it exceeds Rs. 50 million but not Rs. 100 million, and 4% if it exceeds Rs. 100 million. Special rates may apply to persons appearing on the active taxpayers’ list who have not filed their return by the due date.

Advance Tax on Banking Transactions Otherwise Than Through Cash (Section 236P & Division XXI of Part IV) Every banking company must collect advance tax on transactions otherwise than through cash at the rate specified in Division XXI of Part IV of the First Schedule, where the sum total of payments exceeds fifty thousand rupees in a day. The rate is 0.6%.

Advance Tax on Rent of Machinery (Section 236Q & Division XXIII of Part IV) Every prescribed person making a payment for the rent of machinery to a resident person must deduct tax at the rate specified in Division XXIII of Part IV of the First Schedule. The rate is 10%. This tax is considered minimum tax.

Advance Tax on Education Related Expenses Remitted Abroad (Section 236R & Division XXIV of Part IV) Banks, financial institutions, foreign exchange companies, or any other person responsible for remitting foreign currency abroad must collect advance tax on the amount of education-related expenses remitted abroad at the rate specified in Division XXIV of Part IV of the First Schedule. The rate is 5% of the amount remitted.

Advance Tax on Amount Remitted Abroad Through Credit, Debit, or Prepaid Cards (Section 236Y & Division XXVII of Part IV) The rate of tax to be deducted under section 236Y on the gross amount remitted abroad through credit, debit, or prepaid cards is 5%, as specified in Division XXVII of Part IV of the First Schedule.

Advance Tax on Cash Withdrawal (Section 231AB) Every banking company must deduct advance adjustable tax at the rate of 0.6% of the cash withdrawal exceeding fifty thousand rupees in a day from a bank account.

Advance Tax on Transactions in Bank (Section 231AA & Division VIA of Part IV) Banking companies, non-banking financial institutions, exchange companies, or authorized dealers of foreign exchange collect advance tax at the time of sale against cash of various instruments or on receipt of cash on cancellation of such instruments, as well as on the transfer of any sum against cash through electronic modes. The rate is specified in Division VIA of Part IV of the First Schedule. This division was omitted by the Finance Act, 2021. However, prior to that, the rate was 0.6% where the sum total of payments for such transactions exceeded twenty-five thousand rupees in a day.

Collection of Tax by a Stock Exchange (Section 233A) A stock exchange registered in Pakistan collects tax on the purchase and sale of shares at the rates specified. The rate is 0.01% of the purchase value and 0.01% of the sale value.

Advance Tax on Telephone Users (Section 236 & Division V of Part IV) In the case of a telephone subscriber (other than mobile), where the monthly bill exceeds Rs. 1000, tax is collected at 10% of the exceeding amount of the bill, as per Division V of Part IV of the First Schedule.

Advance Tax on Cable Operators and Other Electronic Media (Section 236F & Division XIII of Part IV) Pakistan Electronic Media Regulatory Authority (PEMRA) collects advance tax at the time of issuance or renewal of licenses for distribution services at the rates specified in Division XIII of Part IV of the First Schedule.

Advance Tax on Electricity Consumption (Section 236N & Division XIX of Part IV) Electric power supply companies collect advance tax on electricity consumption at the rates specified in Division XIX of Part IV of the First Schedule. The rates vary for commercial and industrial consumers.

Advance Tax from Provincial Sales Tax Registered Person (Section 147A) Every provincial sales tax registered person is liable to pay adjustable advance tax at the rate of three percent of the turnover declared before the provincial revenue authority on a monthly basis.

Special Provisions for Non-Filers (Tenth Schedule) The Tenth Schedule outlines special provisions for persons not appearing on the active taxpayers’ list or those who have not filed their return by the due date. It generally prescribes hundred percent higher tax rates for tax collected or deducted that is a final tax. However, in some cases, specific higher rates are mentioned in the relevant Divisions of the First Schedule for non-filers, as seen in the rates for sales to distributors, dealers, and wholesalers, and for the purchase of immovable property. If the return is filed before the finalization of assessment, the excess tax collected based on the higher non-filer rate may be adjustable.

It’s important to note that these are just some of the advance tax rates mentioned in the provided excerpts, and the specific rates and applicability may depend on various conditions and amendments made over time. The First Schedule contains detailed tables specifying these rates.

Income Tax Ordinance 2001: Deduction of Tax at Source

The Income Tax Ordinance 2001 contains several provisions related to the deduction of tax at source, which is a mechanism for collecting income tax at the time certain payments are made. This ensures a regular flow of tax revenue and simplifies tax collection for various types of income.

General Principle:

Where income tax is to be deducted at source by virtue of any provision of the Ordinance, it shall be so deducted accordingly.

Specific Provisions for Deduction of Tax at Source:

The Ordinance outlines specific rules for deducting tax at source for different types of payments, including:

• Salary: Every person responsible for paying salary to an employee must deduct tax at the time of payment based on the employee’s estimated average rate of tax for the year. This involves adjusting for any tax withheld under other heads and admissible tax credits.
• Dividends: Every person paying a dividend must deduct tax from the gross amount at the specified rate.
• Profit on Debt: When profit on debt is paid, the payer must deduct tax from the gross amount after reducing any Zakat paid by the recipient. This tax is generally a minimum tax, except for companies or when the profit on debt is taxable under specific provisions. Special rules apply to return on investment in Sukuks.
• Payments to Non-Residents: Tax must be deducted from payments of royalty or fees for technical services, payments on execution of contracts, insurance or re-insurance premiums, and advertisement services to non-resident media persons. The tax deducted from certain payments to non-residents is a minimum tax.
• Payments for Goods, Services, and Contracts: Persons making payments for the sale of goods, rendering or providing services, or on the execution of contracts (other than for the sale of goods or services) are required to deduct tax from the gross amount payable. Specific rates apply and in many cases, the deducted tax is a final tax. This includes payments to resident persons or permanent establishments of non-resident persons for services like stitching, dying, printing, etc., by exporters. However, specific exemptions and conditions may apply, such as for public listed companies or certain types of services.
• Exports: Advance income tax may be deducted or collected on foreign exchange proceeds or export proceeds. Tax may also be collected on the export of goods by industrial undertakings in Export Processing Zones.
• Rent of Immovable Property: Every prescribed person paying rent of immovable property must deduct tax from the gross amount payable. This tax is a final tax.
• Prizes and Winnings: Tax must be deducted from prizes and winnings, and this is a final tax.
• Petroleum Products: Tax is to be collected on the sale of petroleum products, and this is a final tax.
• Advance Tax on Import: Advance tax is collected at the time of import of goods.
• Advance Tax on Purchase or Transfer of Immovable Property: Persons responsible for registering or attesting the transfer of immovable property must collect advance tax from the purchaser or transferee. This tax is generally adjustable.
• Advance Tax on Rent of Machinery: Prescribed persons making payments for the rent of machinery must deduct tax, which is a minimum tax.
• Service Charges or Commission to Global Money Transfer Operators: Exchange companies must deduct tax on payments of service charges or commission to global money transfer operators for facilitating outward remittances.

Time of Deduction:

Generally, tax should be deducted at the earlier of the time the amount is credited to the account of the recipient or the time the amount is actually paid. However, a specific rule applies to profit on debt, where deduction occurs at the time the amount is paid or credited, whichever is earlier.

Exemption or Lower Rate Certificates:

If the Commissioner is satisfied that an amount subject to deduction at source is exempt from tax, subject to a lower tax rate, or eligible for a 100% tax credit, they may issue an exemption or lower rate certificate upon written application. The Chief Commissioner also has the power to revise orders related to exemption or lower rate certificates.

Payment of Tax Collected or Deducted:

The tax collected or deducted must be paid to the Commissioner as per the prescribed procedure.

Failure to Deduct or Pay Tax:

If a person fails to collect or deduct tax as required, the Commissioner may order the recovery of the uncollected or undeducted amount from the person from whom it should have been collected or to whom the payment was made. Failure to deduct or pay can also lead to other legal actions, including liability for default surcharge. Furthermore, expenditure from which tax was required to be deducted but was not, may be disallowed as a deduction in computing income from business.

Certificate of Collection or Deduction:

Every person collecting or deducting tax must furnish a certificate to the person from whom the tax was collected or deducted.

Statements:

Persons deducting tax from salary are required to furnish an annual statement to the Commissioner. Prescribed persons collecting or deducting tax under various provisions must also e-file an annual statement.

Priority and Indemnity:

The amount required to be deducted at source is a first charge on the payment and must be deducted before any other deductions required by court order or other laws. A person who has deducted tax and remitted it to the Commissioner is treated as having paid that amount to the recipient for any claim by the recipient for the deducted tax.

Credit for Tax Collected or Deducted:

The amount of tax deducted or collected is generally treated as income of the recipient and as tax paid by the person from whom it was collected or deducted, allowing for a tax credit when computing the final tax liability.

Tax Collected or Deducted as Final Tax:

In certain instances, the tax collected or deducted at source is considered a final tax, meaning no further tax liability arises on that income. In such cases, the income is not included in the person’s taxable income, no deductions are allowed against it, and no tax credits can be claimed against this tax. No refund is allowed unless the tax deducted is in excess of the amount for which the taxpayer is chargeable. If all income of a person in a tax year is subject to final taxation, an assessment is treated as having been made.

Transactions Between Associates:

The Commissioner has the authority to adjust income, deductions, or tax credits in transactions between associates to reflect an arm’s length transaction, which could include adjustments related to deduction at source if the transactions are not conducted fairly.

Unexplained Income or Assets:

If a taxpayer cannot adequately explain the nature and source of certain credits, investments, or expenditures, these amounts may be included in their income and taxed. If such unexplained amounts relate to suppressed business income, they are chargeable under the head “Income from Business,” and in other cases, under “Income from Other Sources”.

Apportionment of Deductions:

Where an expenditure relates to the derivation of more than one head of income, or both taxable income and income subject to specific tax treatments, the expenditure must be appropriately apportioned. This principle would also apply to deductions related to income from which tax is deducted at source.

Rules to Prevent Double Deduction:

The Ordinance includes rules to prevent double derivation and double deductions, ensuring that an amount is not taxed twice based on it being both receivable and received. Similarly, deductions should not be allowed more than once.

Special Provisions for Banking Companies:

The Seventh Schedule contains specific provisions for the taxation of banking companies, including rules regarding deductions and provisions for advances. While these rules primarily focus on income computation, they may indirectly affect the overall tax liability against which tax deducted at source can be credited. Withholding tax provisions generally do not apply to a banking company as a recipient of the amount on which tax is deductible.

These provisions collectively establish a comprehensive framework for the deduction of tax at source under the Income Tax Ordinance 2001, aiming to broaden the tax base, ensure timely tax collection, and simplify the taxation process for various income streams.

Income Tax Ordinance 2001: Five Heads of Income

The Income Tax Ordinance 2001 classifies all income for the purpose of imposing tax and computing total income under the following five heads of income:

• Salary. This head is detailed in Part II of Chapter III, specifically Section 12. According to Section 12(1), any salary received by an employee in a tax year, other than salary exempt from tax, is chargeable to tax under this head in that year. Section 12(2) defines salary broadly to include any amount received by an employee from employment, whether of a revenue or capital nature. This includes pay, wages, allowances (with specific exceptions), perquisites, compensation for termination of employment, and amounts from provident or other funds under certain conditions. Section 13 further elaborates on the value of perquisites provided by an employer to an employee that are included in salary income. Employee share schemes are addressed in Section 14.
• Income from Property. This head is covered in Part III of Chapter III, particularly Section 15. Section 15(1) states that rent received or receivable by a person for a tax year, other than exempt rent, is chargeable to tax under this head. Section 15(2) defines “rent” as any amount received or receivable by the owner of land or a building for its use or occupation, including forfeited deposits. However, Section 15(3) clarifies that rent from the lease of a building together with plant and machinery is chargeable under the head “Income from Other Sources”. Section 15A specifies deductions allowed in computing income chargeable under this head, while Section 16 deals with non-adjustable amounts received in relation to buildings.
• Income from Business. This head is discussed in Part IV of Chapter III, starting with Section 18. Section 18(1) specifies various incomes chargeable under this head, including profits and gains of any business carried on in the year, income from trade or professional associations from sales or services to members, income from hire or lease of tangible movable property, the fair market value of benefits derived from business relationships, and management fees of management companies. Section 18(2) clarifies that profit on debt derived by a person whose business is to derive such income is taxed under this head, not “Income from Other Sources”. Section 19 addresses speculation business, treating it distinctly from other business. Division II of Part IV (Section 20 and 21) outlines general principles for deductions, while Division III (Sections 22 to 31) contains special provisions for deductions such as depreciation, initial allowance, and bad debts. Division IV (Sections 32 to 36) deals with tax accounting methods like cash-basis and accrual-basis accounting, as well as the treatment of stock-in-trade and long-term contracts.
• Capital Gains. This head is the subject of Part V of Chapter III, starting with Section 37. Section 37(1) states that any gain arising on the disposal of a capital asset is chargeable to tax under this head. Section 37A specifically deals with capital gains on the disposal of securities, and Section 38 allows for the deduction of losses in computing the amount chargeable under this head. Section 22(1) defines “capital asset” with reference to Section 37. The Eighth Schedule provides rules for the computation of capital gains on listed securities. Section 101A addresses gains on the disposal of assets outside Pakistan by non-resident companies.
• Income from Other Sources. This head is detailed in Part VI of Chapter III, beginning with Section 39. Section 39(1) acts as a residuary clause, stating that income of every kind received by a person in a tax year, if not included in any other head and not exempt, is chargeable to tax under this head. It specifically includes items like dividends, royalty, profit on debt, ground rent, rent from sub-lease, income from lease of building with plant and machinery, annuities, prizes and winnings, and income from the exploitation of property. Section 40 outlines the deductions allowed in computing income chargeable under this head, including Zakat paid on profit on debt.

It’s important to note that Section 10 defines total income as the sum of income under all the heads of income chargeable to tax for the year, subject to the provisions of the Ordinance. Section 9 further defines taxable income as total income as reduced by deductible allowances under Part IX of Chapter III (which includes Zakat and contributions to approved pension funds) and any loss carried forward under Part VIII of the same chapter.

Furthermore, Section 67 provides rules for the apportionment of deductions when an expenditure relates to the derivation of income under more than one head. Section 73 includes rules to prevent double derivation and double deductions across these heads of income.

Taxable Income Computation: An Overview of Pakistan’s Ordinance

The computation of taxable income is a fundamental aspect of the Income Tax Ordinance 2001. According to Section 9, the taxable income of a person for a tax year is determined by reducing the total income by the total of any deductible allowances under Part IX of Chapter III and any loss carried forward under Part VIII of Chapter III. However, this reduction cannot result in taxable income falling below zero.

Total income is defined in Section 10 as the sum of a person’s income under all the heads of income for the year and the person’s income exempt from tax.

Section 11 specifies that for the purpose of imposing tax and computing total income, all income is classified under the following five heads of income:

• Salary
• Income from Property
• Income from Business
• Capital Gains
• Income from Other Sources

Section 11(2) further explains that, subject to the Ordinance, the income of a person under a head of income for a tax year is the total of the amounts derived by the person in that year that are chargeable to tax under that head, reduced by the total deductions allowed under this Ordinance to the person for the year under that head. For example, under the head “Salary,” salary received by an employee, other than exempt salary, is chargeable to tax. The computation of this income may involve including the value of perquisites and amounts from employee share schemes. Similarly, “Income from Property” includes rent received or receivable, with specific deductions allowed under Section 15A. “Income from Business” encompasses profits and gains of any business and allows deductions for expenditures incurred wholly and exclusively for the purposes of the business, as outlined in Division II and III of Part IV. “Capital Gains” refers to gains arising on the disposal of a capital asset, with rules for computation provided in Part V. Finally, “Income from Other Sources” acts as a residuary head for income not falling under the other heads, such as dividends and profit on debt, with specific deductions allowed under Section 40.

Section 11(3) states that if the total deductions allowed under a head of income exceed the total chargeable amounts under that head, the person is treated as sustaining a loss for that head. These losses are dealt with according to Part VIII of Chapter III, which allows for the carry forward and set-off of losses, particularly business losses, against income of subsequent years.

It is crucial to note that Section 4(4) specifies that certain classes of income may be subject to separate taxation or collection/deduction of tax as a final tax and are not included in the computation of taxable income under Section 9. For instance, Section 8(1)(a) clarifies that amounts subject to final tax under sections like 5, 5A, 5AA, 6, 7, 7A, 7B, and 7E are not chargeable to tax under any head of income when computing taxable income. An example is the presumptive income tax on shipping income of a resident person under Section 7A, where the provisions of other sections regarding heads of income do not apply to income accruing from gross receipts specified therein. Similarly, income subject to minimum tax under Section 113 may also have specific rules regarding its inclusion in taxable income.

Section 67 provides rules for the apportionment of expenditures, deductions, and allowances when they relate to the derivation of income under more than one head. This ensures that deductions are appropriately allocated.

The method of accounting regularly employed by a person also plays a role in computing income chargeable to tax, particularly under the head “Income from Business”. Companies generally use the accrual basis, while other persons may use cash or accrual basis, subject to specific rules and potential requirements prescribed by the Board. The method used affects when income is recognized and expenses are incurred for tax purposes.

Certain types of businesses or income are subject to specific computation rules outlined in the schedules to the Ordinance. For example, the Fourth Schedule provides rules for computing the profits and gains of insurance business.

The concept of imputable income, defined in Section 2(28A) as the income that would have resulted in the same tax had an amount not been subject to final tax, can also be relevant in understanding the overall tax liability, even though it might not directly form part of taxable income computed under Section 9 for amounts under final tax regimes.

In summary, the computation of taxable income involves several steps: determining the income under each of the five heads of income, subtracting allowable deductions under each head, summing these net amounts to arrive at total income, and then reducing total income by deductible allowances and carried forward losses. It is also crucial to identify any income that is subject to separate or final taxation, as this income is generally excluded from the standard taxable income computation.

Income Tax Ordinance 2001: Special Tax Provisions

Based on the excerpts from the Income Tax Ordinance 2001, there are several special tax provisions that apply to specific types of income, persons, or industries. These provisions often deviate from the general rules for computing taxable income and tax liability. Here’s a discussion of some of these special provisions:

Specific Taxes on Certain Types of Income:

• The Ordinance imposes specific taxes on certain types of income which are often treated as final tax and are not included in the computation of taxable income under the regular heads of income. These include:
• Tax on dividends under Section 5. The rates for this tax are specified in Division I of Part III of the First Schedule. Different rates may apply to individuals, associations of persons, and companies, as well as to different types of funds like stock funds and other funds.
• Tax on undistributed profits under Section 5A. Section 8(1) states that this tax is a final tax.
• Tax on return on investments in Sukuks under Section 5AA. This is also subject to specific rates in Division IIIB of Part I of the First Schedule and is a final tax under Section 8(1). Section 5AA(3) clarifies that this section does not apply to exempt Sukuks.
• Tax on certain payments to non-residents under Section 6. This tax on Pakistan-source royalty, fee for offshore digital services, fee for money transfer operations, card network services, payment gateway services, interbank financial telecommunication services, or fee for technical services is imposed at rates specified in Division IV of Part I of the First Schedule on the gross amounts. Section 8(1) specifies this as a final tax.
• Tax on shipping and air transport income of a non-resident person under Section 7. This is a final tax under Section 8(1) and the rate for shipping income is 8% of the gross amount.
• Tax on shipping of a resident person under Section 7A. This is also a final tax under Section 8(1).
• Tax on profit on debt under Section 7B. This tax has specific conditions and exemptions. Section 8(1) states it is a final tax. Clause (103) of Part IV of the Second Schedule provides that Section 7B does not apply to yield on certain savings certificates and accounts, provided tax is paid at regular rates.
• Tax on builders under Section 7C and Tax on developers under Section 7D. These are imposed on profits and gains from construction and sale of buildings at rates in Division VIIIA of Part I of the First Schedule. Section 8(1) specifies that the tax under Section 7E (Tax on deemed income) is a final tax. There are also special provisions relating to builders and developers under Section 100D and the Eleventh Schedule, allowing them to opt for project-based taxation. Clause (109A) and (110) of Part IV of the Second Schedule exempt withholding tax provisions in certain tribal areas until June 30, 2025.
• Tax on deemed income under Section 7E. This is imposed on the deemed income of certain persons owning immovable properties and is a final tax. Section 236C(2A) requires evidence of discharged tax liability under Section 7E before property transfer.
• Super tax for rehabilitation of temporary displaced persons (Section 4B) and Super tax on high earning persons (Section 4C) are also special taxes imposed at rates specified in the First Schedule.

Special Procedures for Specific Industries and Persons:

• Insurance business is subject to special provisions outlined in Part I of Chapter VI (Section 99) and the Fourth Schedule. Clause (6DA) of the Fourth Schedule makes Section 4C applicable to taxpayers under this schedule. Clause (6DB) makes Section 99D applicable.
• Oil, natural gas, and other mineral deposits have special provisions in Part II of Chapter VI (Section 100) and the Fifth Schedule. Clauses 4AA and 4AB of the Fifth Schedule make Sections 4B and 4C applicable, respectively. Clause 4AC makes Section 99D applicable.
• Banking business is governed by special provisions under Section 100A and the Seventh Schedule. The Seventh Schedule includes rules for calculating income, deductions, and specific tax treatments. Rules 7D, 7E, and 7F provide for reduced tax rates on additional advances for micro, small, and medium enterprises, low-cost housing, and farm credit, respectively. Clauses 6D and 7CA of the Seventh Schedule make Sections 4B and 4C applicable, and Clause 7CB makes Section 99D applicable.
• Special procedure for small traders and shopkeepers can be prescribed by the Board with approval of the Minister-in-charge under Section 99B.
• Special procedure for certain persons including small businesses, construction businesses, medical practitioners, hospitals, educational institutions, etc., can be prescribed under Section 99C.
• Additional tax on certain income, profits, and gains arising from windfall economic factors can be imposed on companies under Section 99D.
• Special provisions relating to persons not appearing in the active taxpayers’ list are outlined in Section 100BA and the Tenth Schedule, which prescribe higher rates of tax collection and deduction. Rule 10 of the Tenth Schedule lists sections where the provisions of this schedule do not apply. Section 169(4) allows adjustment of excess tax collected under the Tenth Schedule if a return is filed before finalization of assessment.
• Tax credit for charitable organizations is provided under Section 100C, allowing a 100% tax credit on certain incomes subject to conditions. However, surplus funds of non-profit organizations may be taxed at 10%.

Taxation of Non-Residents:

• Part III of Chapter VII (Sections 105 and onwards) deals specifically with the taxation of non-residents. This includes taxation of permanent establishments and rules regarding thin capitalization and restriction on the deduction of profit on debt payable to associated enterprises .

Minimum Tax and Alternative Corporate Tax:

• Chapter IX discusses Minimum Tax under Section 113, which imposes a minimum tax based on turnover. Explanation to Section 113(1) clarifies what is not included in “tax payable or paid” for this section. Clause (108) of Part IV of the Second Schedule exempts the Supreme Court of Pakistan – Diamer Bhasha & Mohmand Dams – Fund from Section 113.
• Alternative Corporate Tax under Section 113C requires companies to pay the higher of the corporate tax or the alternative corporate tax, which is based on accounting income. Clause (11D) of Part IV of the Second Schedule exempts LNG Terminal Operators and Owners from Section 113C.

Exemptions and Tax Concessions:

• The Second Schedule lists numerous exemptions and tax concessions based on income type, recipient, or specific conditions. These can include complete exemptions, reduced tax rates, or reductions in tax liability. Part IV of the Second Schedule provides exemptions from specific provisions of the Ordinance. For example, Clause (11B) and (11C) of Part IV state that Sections 150 and 151 do not apply to inter-corporate dividends and profit on debt within group companies entitled to group taxation, subject to filing of returns. Clause (47C) provides that Section 154(1) does not apply to exporters of cooking oil/vegetable ghee to Afghanistan under certain conditions. Clause (72AA) exempts Hajj Group Operators from Section 152 for Hajj operations. Clause (109A) and (110) provide exemptions from withholding tax provisions in certain tribal areas until June 2025. Clause (108) exempts the Diamer Bhasha & Mohmand Dams Fund from Sections 113 and 151. Clause (1A) of Part IV provides that Section 46(d) does not apply to certain Sukuk companies. Clause (4A) of Part IV exempts recoup of tax credit for National Power Parks Management Company under certain conditions. Clause (5) of Part IV exempts unexplained income under Section 111 under specific circumstances. Clause (9B) of Part I provides a 90% reduction in tax for low-cost housing projects approved by NAPHDA or under the Ehsaas Programme, with a condition on commencement date.
• Section 53 specifically refers to these exemptions and tax concessions in the Second Schedule. Section 54 mentions exemptions and tax provisions in other laws. Section 55 limits the extent of exemptions.

Tax Credits:

• Section 100C provides a tax credit for charitable organizations.
• Section 168 allows a tax credit for tax collected or deducted at source. This credit is applied according to Section 4(3).

Advance Tax and Deduction of Tax at Source (Withholding Tax):

• Part V of Chapter X and Chapter XII contain provisions for advance tax and deduction of tax at source (withholding tax). These provisions often have special rates and rules for different types of payments and transactions.
• Section 169 specifies cases where tax collected or deducted is treated as a final tax.
• The Tenth Schedule prescribes higher rates for withholding tax for persons not appearing on the active taxpayers’ list.
• Chapter XII includes transitional advance tax provisions for various transactions like cash withdrawals (Section 231AB), brokerage and commission (Section 233), sale/transfer of immovable property (Sections 236C and 236K), payments to media for advertising (Section 236F), sales to distributors/dealers/wholesalers (Section 236G), and bonus shares issued by companies (Section 236Z). Many of these sections specify whether the advance tax is adjustable or a final tax. For example, tax deducted under Section 236K(2) on purchase of immovable property is adjustable, while tax paid under Section 236Z on bonus shares is a final tax. Section 236O lists entities exempt from advance tax under Chapter XII.

These are some of the key special tax provisions found within the provided excerpts of the Income Tax Ordinance 2001. The Ordinance contains numerous specific rules and exceptions that modify the general principles of income taxation for particular circumstances.

Taxable Income Computation under the Income Tax Ordinance 2001

To briefly outline the computation of taxable income, we can refer to several provisions within the Income Tax Ordinance 2001.

The process starts with determining the total income of a person for a tax year, which is the sum of the person’s income under all the specified heads of income for that year. According to Section 11, these heads of income are: Salary, Income from Property, Income from Business, Capital Gains, and Income from Other Sources.

Section 20 clarifies that the income of a person under each of these heads is generally the total of the amounts derived by the person in that year that are chargeable to tax under that head, reduced by the total deductions, if any, allowed under the Ordinance for the year under that specific head. The computation of income under each head has its own specific rules, as detailed in Part II (Salary – Section 12), Part III (Income from Property – Section 15), Division I (Income from Business – Section 18), and Division V (Capital Gains – Section 37) of Chapter III, as well as Section 40 for Income from Other Sources.

Once the total income is calculated, the taxable income is determined under Section 9. Taxable income is defined as the total income of the person for the year reduced (but not below zero) by the total of any deductible allowances under Part IX of Chapter III of the Ordinance. Deductible allowances include items such as Zakat paid under the Zakat and Ushr Ordinance, 1980 (Section 60). The amount of these allowances may be subject to certain limits (Section 60(2)).

In summary, the computation of taxable income generally involves:

• Classifying all income under the specified heads of income.
• Calculating the income under each head by considering chargeable amounts and allowed deductions.
• Summing the income under all heads to arrive at the total income.
• Reducing the total income by the total of any deductible allowances allowed under Part IX of Chapter III, but not below zero, to arrive at the taxable income.

It’s important to note that there are special provisions within the Ordinance that may affect the computation of income for specific situations, such as final tax regimes under Section 8 for incomes taxed under Sections 5, 5A, 5AA, 6, 7, 7A, 7B and 7E, and special rules for entities like insurance businesses (Section 99 and the Fourth Schedule), banking businesses (Section 100A and the Seventh Schedule), and others. Additionally, Section 111 deals with unexplained income or assets, which is also relevant to the overall income assessment.

Special Tax Year: Definition and Regulations

The concept of a special tax year is defined within the Income Tax Ordinance 2001 as a specific accounting period used for income tax purposes that deviates from the standard normal tax year.

Here’s a breakdown of the key aspects of a special tax year according to the sources:

• Definition: A special tax year is a period of twelve months that does not end on the 30th day of June, which is the closing date for a normal tax year.
• Reasons for having a special tax year: A person may have a special tax year if their income year was different under the repealed Income Tax Ordinance, or if they are allowed by the Commissioner to use a twelve-month period different from the normal tax year. The Board may also permit a class of persons having a special tax year to use a normal tax year, or vice versa, through a notification in the official Gazette.
• Permission from the Commissioner: To use a special tax year, a person generally needs to apply in writing to the Commissioner. The Commissioner may approve this application, subject to certain conditions. Approval is granted only if the person has shown a compelling need to use a special year or to change their tax year.
• Denotation: A special tax year is denoted by the calendar year relevant to the normal tax year in which its closing date falls. For example, a special tax year ending on December 31st, 2024, would likely be denoted as the tax year 2025.
• Withdrawal of permission: The Commissioner retains the authority to withdraw the permission granted for the use of a special tax year by issuing a written notice to the person.
• Change in tax year and transitional year: When a person’s tax year changes (either to or from a special tax year, or from one special tax year to another), the period between the last full tax year and the commencement of the new tax year is treated as a separate tax year known as the “transitional year”.
• Inclusion in financial year references: In the Income Tax Ordinance 2001, any reference to a particular financial year is understood to include a special tax year or a transitional tax year that commences during that financial year.
• Review of Commissioner’s decision: If a person is dissatisfied with the Commissioner’s decision regarding their application for a special tax year or its withdrawal, they can challenge the decision through the appeal procedure outlined in Part III of Chapter X. They may also file a review application to the Board against an order of the Commissioner regarding the use of a special tax year.
• Special provisions: Certain sections of the Ordinance might have specific implications for those using a special tax year. For instance, in the context of default surcharge under section 205, the calculation period might be different for a person having a special tax year, starting from the first day of the fourth quarter of their special tax year.

In summary, a special tax year provides flexibility for taxpayers whose accounting periods do not align with the standard July-to-June fiscal year, subject to approval by the tax authorities based on a demonstrated need. It’s a defined twelve-month period with its own rules regarding commencement, denotation, changes, and potential implications under various provisions of the Income Tax Ordinance 2001.

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F.No.2(1)/2001—Pub.— The following Ordinance promulgated by the President is hereby published for general information:—

AN

ORDINANCE

To consolidate and amend the law relating to income tax

WHEREAS it is expedient to consolidate and amend the law relating to income tax and to provide for matters ancillary thereto or connected therewith;

WHEREAS the President is satisfied that circumstances exist which render it necessary to take immediate action;

NOW, THEREFORE, in pursuance of the Proclamation of Emergency of the fourteenth day of October, 1999, and the Provisional Constitution Order No. 1 of 1999, read with Provisional Constitutional Amendment Order No. 9 of 1999, and in exercise of all powers enabling him in that behalf, the President of the Islamic Republic of Pakistan is pleased to make and promulgate the following Ordinance:—

CHAPTER I

PRELIMINARY

• Short title, extent and commencement.—(1) This Ordinance may be called the Income Tax Ordinance, 2001.

1. It extends to the whole of Pakistan.

1. It shall come into force on such date as the Federal Government may, by notification in official Gazette, appoint^Ø.

• Definitions. — In this Ordinance, unless there is anything repugnant in the subject or context —

• “accumulated profits” in relation to ¹[distribution or payment of] a dividend, ²[include] —

^*Vide notification S.R.O.381(I)/2002 dated 15.06.2002 the Federal Government appointed the first day of July, 2002 on which the Ordinance shall come into force.

1. Inserted by the Finance Act, 2003.

• The word “includes” substituted by the Finance Act, 2005.

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1. any reserve made up wholly or partly of any allowance, deduction, or exemption admissible under this Ordinance;-

.9230

• for the purposes of ¹[sub-clauses (a), (b) and (e) of clause (19)”] all profits of the company including income and gains of a trust up to the date of such distribution or such payment, as the case may be; and

• for the purposes of ²[sub-clause (c) of clause (19)], includes all profits of the company including income and gains of a trust up to the date of its liquidation;

³[(1A) “active taxpayer’ list” means the list instituted by the Board under Section 181A and includes such list issued by the Azad Jammu and Kashmir Central Board of Revenue or Gilgit-Baltistan Council Board of Revenue;]

⁴[⁵(1B) “amalgamation” means the merger of one or more banking companies or non-banking financial institutions, ⁶[or insurance companies,] ⁷[or companies owning and managing industrial undertakings] ⁸[or companies engaged in providing services and not being a trading company or companies] in either case ⁹[at least one of them] being a public company, or a company incorporated under any law, other than ¹⁰[Companies Act, 2017 (XIX of 2017)], for the time being in force, (the company or companies which so merge being referred to as the “amalgamating company” or companies and the company with which they merge or which is formed as a result of merger, as the “amalgamated company”) in such manner that –

• the assets of the amalgamating company or companies immediately before the amalgamation become the assets of the amalgamated company by virtue of the amalgamation, otherwise than by purchase of such assets by the amalgamated

• Clauses (a), (d) and (e) of sub-section (20) substituted by the Finance Act, 2002.

• Clause (c) of sub-section (20) substituted by the Finance Act, 2002.

• Clause 1A inserted through Finance Act, 2019.

1. Inserted by the Finance Act, 2002.

⁵1A renumbered by 1B by the Finance Act, 2019.

1. Inserted by the Finance Act, 2004.

1. Inserted by the Finance Act, 2005. ⁸Inserted by the Finance Act, 2007.
2. Inserted by the Finance Act, 2005.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

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company or as a result of distribution of such assets to the amalgamated company after the winding up of the amalgamating company or companies; ¹[and]

• the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation ²[.]

³[  ]

⁴[(2)     “Appellate Tribunal” means the Appellate Tribunal Inland Revenue established under section 130;]

• “approved  gratuity fund”  means  a  gratuity fund  approved  by  the

Commissioner in accordance with Part III of the Sixth Schedule;

⁵[(3A)      “Approved Annuity Plan” means an Annuity Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Life Insurance Company registered with the SECP under Insurance Ordinance, 2000 (XXXIX of 2000);]

⁶[(3B)      “Approved Income Payment Plan” means an Income Payment Plan approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005 and offered by a Pension Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005;]

⁷[(3C)      “Approved Pension Fund” means Pension Fund approved by Securities and Exchange Commission of Pakistan (SECP) under Voluntary Pension System Rules, 2005, and managed by a Pension

1. Added by the Finance Act, 2005.

• The semi-colon and word “and” substituted by the Finance Act, 2005.

• Clause (c) omitted by the Finance Act, 2005. The omitted clause (c) read as follows: –

“(c)  the scheme of amalgamation is approved by the State Bank of Pakistan or by the Securities and Exchange Commission of Pakistan on or before thirtieth day of June, 2006;”

⁴ Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. Clause (2) before substitution by the Finance (Amendment) Ordinance, 2009 read as follows:

“(2) “Appellate Tribunal” means the Appellate Tribunal Inland Revenue established under section 130;”.

1. Inserted by the Finance Act, 2005.

1. Inserted by the Finance Act, 2005.

1. Inserted by the Finance Act, 2005.

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Fund Manager registered with the SECP under Voluntary Pension System Rules, 2005;]

¹[(3D)      “Approved Employment Pension or Annuity Scheme” means any employment related retirement scheme approved under this Ordinance, which makes periodical payment to a beneficiary i.e. pension or annuity such as approved superannuation fund, public sector pension scheme and Employees Old-Age Benefit Scheme;]

²[(3E)      “Approved Occupational Savings Scheme” means any approved gratuity fund or recognized provident fund;]

• “approved superannuation fund” means a superannuation fund, or any part of a superannuation fund, approved by the Commissioner in accordance with Part II of the Sixth Schedule;

³[(5)       “assessment” includes ⁴[provisional assessment,] re-assessment and amended assessment and the cognate expressions shall be construed accordingly;]

⁵[(5A)      “assessment year” means assessment year as defined in the repealed Ordinance;]

⁶[(5B)     “asset management company” means an asset management company as defined in the Non-Banking Finance Companies and Notified Entities Regulations, 2007;]

⁷[(5C)     “assets move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns,

¹Inserted by the Finance Act, 2006.

²Inserted by the Finance Act, 2006

• Clause (5) substituted by the Finance Act, 2002. The substituted clause read as follows:

“(5)“assessment” means –

1. an assessment referred to in section 120;
   1. an assessment raised under section 121;
   1. an amended assessment under section 122;

1. a demand for an amount due under sections 141, 142, 143 and 144; or
   1. an assessment of penalty under section 190;”.

⁴Inserted by the Finance Act, 2011.

⁵Inserted by the Finance Act, 2002

⁶Clause (5B) substituted by the Finance Act, 2008. The substituted clause (5B) read as follows:

“(5B) “assets management company” means a company registered under the Assets Management

companies Rules, 1995;”

• Clause (5C) inserted by Finance Act, 2019

4

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possesses, controls or is the beneficial owner of such offshore assets for the purpose of tax evasion;]

• “association of persons” means an association of persons as defined in section 80;

• “banking company” means a banking company as defined in the

Banking Companies Ordinance, 1962 (LVII of 1962) and includes anybody corporate which transacts the business of banking in Pakistan;

¹[(7A) “beneficial owner” means a natural person who –

• ultimately owns or controls a Company or association of persons, whether directly or indirectly, through at least twenty five percent shares or voting rights; or

• exercise ultimate effective control, through direct or indirect means, over the company or association of persons including control over the finances or decisions or other affairs of the company or association of persons;]

²[(8)      “Board” means the Central Board of Revenue established under the Central Board of Revenue Act, 1924 (IV of 1924), and on the commencement of Federal Board of Revenue Act, 2007, the Federal Board of Revenue established under section 3 thereof ³[and includes a Member of the Federal Board of Revenue to whom powers of the Board have been delegated under section 8 of the Federal Board of Revenue Act, 2007;];

• “bonus shares” includes bonus units in a unit trust;

• “business” includes any trade, commerce, manufacture, profession, vocation or adventure or concern in the nature of trade, commerce, manufacture, profession or vocation, but does not include employment;

⁴[(10A) “business bank account” means a bank account utilized by the taxpayer for business transaction declared to the Commissioner through original or modified registration form prescribed under section 181;]

(11)]     “capital asset” means a capital asset as defined in section 37;

• Clause (7A) Inserted by the Finance Act, 2022.

²Clauses (8), (9), (10) and (11) re-numbered as clauses (9), (10), (11) and (8) respectively by the Finance Act, 2014.

• Expression inserted by the Finance Act, 2024.

• Clause (10A) inserted by the Finance Act, 2021.

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¹[(11A)      “charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility;]

²[(11B)      “Chief Commissioner” means a person appointed as Chief Commissioner Inland Revenue under section 208 and includes a ³[Chief Investigator,] Regional Commissioner of Income Tax and a Director-General of Income Tax and Sales Tax;]

⁴[(11C) “Collective Investment Scheme” shall have the same meanings as are assigned under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]

• “company” means a company as defined in section 80;

⁵[(13)     “Commissioner” means a person appointed as Commissioner Inland Revenue under section 208 and includes any other authority vested with all or any of the powers and functions of the Commissioner;]

⁶[(13A)      “Commissioner (Appeals)” means a person appointed as Commissioner Inland Revenue (Appeals) under section 208;]

⁷[(13AA) concealment of income includes –

¹Inserted by the Finance Act, 2002.

² Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted clause (11B) read as follows:

“(11B) “Chief Commissioner” means a person appointed as Chief Commissioner Inland Revenue under section 208 and includes a Regional Commissioner of Income Tax and a Director-General of Income Tax and Sales Tax.”

• Expression inserted by the Finance Act, 2024. ⁴Inserted by the Finance Act, 2011.

⁵Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted Clause (13) read as follows:

“(13)    Commissioner” means a person appointed as Commissioner Inland Revenue under section 208, and includes any other authority vested with all or any of the powers and functions of the Commissioner;”.

⁶Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted Clause (13A) read as follows:

“(13A)  “Commissioner (Appeals)” means a person appointed as Commissioner Inland Revenue (Appeals) under section 208;

• New clause (13AA) inserted by the Finance Act, 2021.

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• the suppression of any item of receipt liable to tax in whole or in part, or failure to disclose income chargeable to tax;

• claiming any deduction or any expenditure not actually incurred;

1. any act referred to in sub-section (1) of section 111; and

• claiming of any income or receipt as exempt which is otherwise taxable.

Explanation.- For removal of doubt it is clarified that none of the aforementioned acts would constitute concealment of income unless it is proved that taxpayer has knowingly and willfully committed these acts;]

¹[²[(13AB)] “consumer goods” means goods that are consumed by the end consumer rather than used in the production of another good;”]

³[(13B)    “Contribution to an Approved Pension Fund” means contribution as defined in rule 2(j) of the Voluntary Pension System Rules, 2005⁴[ ];]

• “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1925 (VII of 1925) or under any other law for the time being in force in Pakistan for the registration of co-operative societies;

• “debt” means any amount owing, including accounts payable and the amounts owing under promissory notes, bills of exchange, debentures, securities, bonds or other financial instruments;

• “deductible allowance” means an allowance that is deductible from total income under Part IX of Chapter III;

• “depreciable asset” means a depreciable asset as defined in section 22;

⁵[17A. ”Developmental REIT Scheme” means Developmental REIT Scheme as defined under the Real Estate Investment Trust Regulations, 2015;]

⁶[(17B) “digital means” means digital payments and financial services including but not limited to— online portals or platforms for digital payments/receipts; online interbank fund transfer services; online bill

¹Inserted by the Finance Act, 2015

• Clause (13AA) re-numbered as clause (13AB) by the Finance Act, 2021.

1. Inserted by the Finance Act, 2005.

⁴The comma and words “, but not exceeding five hundred thousand rupees in a tax year” omitted by the Finance Act, 2006.

⁵Inserted by the Finance Act, 2015

• Clause (17B) Inserted through Finance (Supplementary) Act, 2022.

7

Chapter I – Preliminary__________________________________

or invoice presentment and payment services; over the Counter digital payment services or facilities; card payments using Point of Sale terminals, QR codes, mobile devices, ATMs, Kiosk or any other digital; payments enabled devices; or any other digital or online payment modes.]

• “disposal” in relation to an asset, means a disposal as defined in section 75;

¹[(18A) “distributor” means a person appointed by a manufacturer, importer or any other person for a specified area to purchase goods from him for further supply;]

• “dividend” includes —

1. any distribution by a company of accumulated profits to its shareholders, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets including money of the company;

1. any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form, whether with or without profit, ²[ ] to the extent to which the company possesses accumulated profits whether capitalised or not;

1. any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;

1. any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalised or not; ³[ ]

1. any payment by a private company ⁴[as defined in the ⁵[Companies Act, 2017 (XIX of 2017)] ] or trust of any sum (whether as representing a part of the assets of the company or trust, or otherwise) by way of advance or loan to a shareholder or any payment by any such company or trust on behalf, or for

• Clause (18A) Inserted by the Finance Act, 2022.

• The words “and any distribution to its shareholders of shares by way of bonus or bonus shares”, omitted by the Finance Act, 2002

³The word ‘or’ omitted by Finance Act, 2008.

1. Inserted by the Finance Act, 2003.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act,

2021.

8

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the individual benefit, of any such shareholder, to the extent to which the company or trust, in either case, possesses accumulated profits;¹[or]

²[(f)  ³[remittance of] after tax profit of a branch of a foreign company operating in Pakistan;]

but does not include —

1. a distribution made in accordance with ⁴[sub-clause] (c) or (d) in respect of any share for full cash consideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled in the event of liquidation to participate in the surplus assets;

1. any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; ⁵[ ]

1. any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of ⁶[sub-clause] (e) to the extent to which it is so set off;⁷[and]

⁸[(iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreign company, operating in Pakistan.]

⁹[(19A)                                                                                                                         “Eligible Person”, for the purpose of Voluntary Pension System Rules,

2005, means an individual Pakistani who ¹⁰[holds] a valid National Tax

¹The word ‘or’ added by the Finance Act, 2008.

²Inserted by the Finance Act, 2008.

³The word “any” substituted by the Finance Act, 2009.

• Substituted for “clause” by the Finance Act, 2002 ⁵The word “and” omitted by the Finance Act, 2009.

• The word “clause” substituted by the Finance Act, 2002 ⁷The word “and” inserted by the Finance Act, 2009.

⁸Added by the Finance Act, 2009.

1. Inserted by the Finance Act, 2005.

• The words “has obtained” substituted by the Finance Act, 2007.

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Number¹[or Computerized National Identity Card²[or National Identity Card for Overseas Pakistanis] issued by the National Database and Registration Authority] ³[ ]⁴[:]]

⁵[Provided that the total tax credit available for the contribution made to approved employment pension or annuity scheme and approved pension fund under Voluntary Pension System Rules, 2005, should not exceed the limit prescribed or specified in section 63.]

⁶[(19B)       The expressions “addressee”, “automated”, “electronic”, “electronic signature”, “information”, “information system”, “originator” and “transaction”, shall have the same meanings as are assigned to them in the Electronic Transactions Ordinance, 2002 (LI of 2002);]

⁷[(19C)       “electronic record” includes the contents of communications, transactions and procedures under this Ordinance, including attachments, annexes, enclosures, accounts, returns, statements, certificates, applications, forms, receipts, acknowledgements, notices, orders, judgments, approvals, notifications, circulars, rulings, documents and any other information associated with such communications, transactions and procedures, created, sent, forwarded, replied to, transmitted, distributed, broadcast, stored, held, copied, downloaded, displayed, viewed, read, or printed, by one or several electronic resources and any other information in electronic form;]

⁸[(19D) “electronic resource” includes telecommunication systems, transmission devices, electronic video or audio equipment, encoding or decoding equipment, input, output or connecting devices, data processing or storage systems, computer systems, servers, networks and related computer programs, applications and software including databases, data warehouses and web portals as may be prescribed by the Board from time to time, for the purpose of creating electronic record;]

1. Inserted by the Finance Act, 2007. ²Inserted by the Finance Act, 2008.

³The words “but does not include an individual who is entitled to benefit under any other approved employment pension or annuity scheme” omitted by the Finance Act, 2006.

⁴The semicolon substituted by the Finance Act, 2006.

⁵Inserted by the Finance Act, 2006.

1. Inserted by the Finance Act, 2008.

⁷New clause (19C) inserted by Finance Act, 2008.

⁸Inserted by the Finance Act, 2008.

Chapter I – Preliminary__________________________________

¹[(19E)       “telecommunication system” includes a system for the conveyance, through the agency of electric, magnetic, electro-magnetic, electro-chemical or electro-mechanical energy, of speech, music and other sounds, visual images and signals serving for the impartation of any matter otherwise than in the form of sounds or visual images and also includes real time online sharing of any matter in manner and mode as may be prescribed by the Board from time to time.]

• “employee” means any individual engaged in employment;

• “employer” means any person who engages and remunerates an employee;

• “employment” includes –

1. a directorship or any other office involved in the management of a company;

1. a position entitling the holder to a fixed or ascertainable remuneration; or

• the holding or acting in any public office;

²[(22A) “fast moving consumer goods” means consumer goods which are supplied in retail marketing as per daily demand of a consumer³[excluding durable goods].

⁴[(22AA) “fair market value” means value as provided in section 68;]

⁵[(22B) ”fee for offshore digital services” means any consideration for providing or rendering services by a non-resident person for online advertising including digital advertising space, designing, creating, hosting or maintenance of websites, digital or cyber space for websites, advertising, e-mails, online computing, blogs, online content and online data, providing any facility or service for uploading, storing or distribution of digital content including digital text, digital audio or digital video, online collection or processing of data related to users in Pakistan, any facility for online sale of goods or services or any other online facility.]

¹Inserted by the Finance Act, 2008.

²Inserted by the Finance Act 2015

³Inserted by the Finance Act 2017

• Clause (22AA) Inserted by the Finance Act, 2022. ⁵Inserted by the Finance Act 2018

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¹[(22C)    “FBR Refund Settlement Company Limited” means the company with this name as incorporated under the Companies Act, 2017 (XIX of 2017), for the purposes of settlement of income tax refund claims including payment by way of issuing refund bonds under section 171A;]

• “fee for technical services” means any consideration, whether periodical or lump sum, for the rendering of any managerial, technical or consultancy services including the services of technical or other personnel, but does not include —

• consideration for services rendered in relation to a construction, assembly or like project undertaken by the recipient; or

• consideration which would be income of the recipient chargeable under the head “Salary”;

²[  ]

• “financial institution” means an institution ³[as defined] under the ⁴[Companies Act, 2017 (XIX of 2017)] ] ⁵[ ];

• “finance society” includes a co-operative society which accepts money on deposit or otherwise for the purposes of advancing loans or making investments in the ordinary course of business;

• “firm” means a firm as defined in section 80;

• “foreign-source income” means foreign-source income as defined in sub-section (16) of section 101.

⁶[(27A)  “greenfield industrial undertaking” means –

(a)   a new industrial undertaking which is –

¹Clause (22C) Inserted by the Finance Act 2019

²Omitted by Finance Act 2019. The Omitted clause read as follow:

(23A) “filer” means a taxpayer whose name appears in the active taxpayers’ list issued by the Board ²[or Azad Jammu and Kashmir Council Board of Revenue or Gilgit-Baltistan Council Board of Revenue] from time to time or is holder of a taxpayer’s card;

• The word “notified” substituted by the Finance Act, 2005.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

• The words “by the Federal Government in the official Gazette as a financial institution” omitted by the

Finance Act, 2003.

• New clause (27A) inserted through Tax Laws (Second Amendment) Ordinance 2019 dated 26^th December, 2019

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• setup on land which has not previously been utilized for any commercial, industrial or manufacturing activity and is free from constraints imposed by any prior work;

• built without demolishing, revamping, renovating, upgrading, remodeling or modifying any existing structure, facility or plant;

• not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project;

• using any process or technology that has not earlier been used in Pakistan and is so approved by the Engineering Development Board; and

1. is approved by the Commissioner on an application made in the prescribed form and manner, accompanied by the prescribed documents and, such other documents as may be required by the Commissioner:

Provided that this definition shall be applicable from the 1st July, 2019 and onwards.]

• “House Building Finance Corporation” means the Corporation constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952);

¹[(28A)    “imputable income” in relation to an amount subject to final tax means the income which would have resulted in the same tax, had this amount not been subject to final tax;”]

²[(29)     “income” includes any amount chargeable to tax under this Ordinance, any amount subject to collection ³[or deduction] of tax under section 148, ⁴[150, 152(1), 153, 154, 156, 156A, 233, ⁵[ ] ] ⁶[,] sub-section (5)

¹Inserted by the Finance Act, 2015

• Clause (29) substituted by the Finance Act, 2002. The substituted clause read as follows:

“(29) “income” includes any amount chargeable to tax under this Ordinance, any amount subject to collection of tax under Division II of Part V of Chapter X, sub-section (5) of 234 Division III of

Chapter XII, and any loss of income;”

1. Inserted by the Finance Act, 2003.

• The figures, commas and word “153, 154 and 156,” substituted by the Finance Act, 2005.

• The expression “233A,” omitted by the Finance Act, 2021.

• The word “and” substituted by a comma by the Finance Act, 2014.

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of section 234 ¹[, section 236Z] ²[ ] ³[and] ⁴[any amount treated as income under any provision of this Ordinance] and any loss of income⁵[ ];

⁶[(29A)    “income year” means income year as defined in the repealed Ordinance;]

⁷[(29B)    “Individual Pension Account” means an account maintained by an eligible person with a Pension Fund Manager approved under the Voluntary Pension System Rules, 2005;]

⁸[(29C)    “Industrial undertaking” means —

1. an undertaking which is set up in Pakistan and which employs,—

• ten or more persons in Pakistan and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy; or

• twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of

• The expression “, section 236Z” inserted by the Finance Act, 2023.

²The word and figure “and 236M” substituted by a comma by the Finance Act, 2015

³The expression “, 236M and 236N,” substituted by the Finance Act, 2018

1. Inserted by the Finance Act, 2003.

⁵Omitted by the Finance Act, 2014. The omitted text read as follows:

“but does not include, in case of a shareholder of a company, the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to the shareholders with a view to increasing its paid up share capital.”

1. Inserted by the Finance Act, 2002.

1. Inserted by the Finance Act, 2005.

⁸Clause (29C) substituted by the Finance Act, 2010. The substituted clause (29C) read as follows:-

“(29C)      “Industrial undertaking” means –

1. an undertaking which is set up in Pakistan and which employs, (i) ten or more persons in Pakistan and involves the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy; or (ii) twenty or more persons in Pakistan and does not involve the use of electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal energy and which is engaged in,-

• the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition;
  • ship-building;

• generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or
  • the working of any mine, oil-well or any other source of mineral deposits; and

1. any other industrial undertaking which the Board may by notification in the official Gazette, specify;”.

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energy which is mechanically transmitted and is not generated by human or animal energy:

and which is engaged in,—

• the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

• ship-building; or

• generation, conversion, transmission or distribution of electrical energy, or the supply of hydraulic power; or

• the working of any mine, oil-well or any other source of mineral deposits; ¹[ ]

²[(aa) from the 1^st day of May, 2020, a person directly involved in the construction of buildings, roads, bridges and other such structures or the development of land, to the extent and for the purpose of import of plant and machinery to be utilized in such activity, subject to such conditions as may be notified by the Board;

(ab)

from the first day of July, 2020 a resident company engaged in the hotel business in Pakistan;] 3[and]

4[  ]

]

⁵[(c) telecommunication companies operating under the license of Pakistan Telecommunication Authority (PTA).;]

• “intangible” means an intangible as defined in section 24;

⁶[(30A)        “integrated enterprise” means a person integrated with the Board through approved fiscal electronic device and software, and who fulfills obligations and requirements for integration as may be prescribed;]

• The word “and” omitted through Finance Act, 2020 dated 30.06.2020.

• New sub-clauses inserted through Finance Act, 2020 dated 30^th June, 2020.

• The word “and” added by the Finance Act, 2021.

• Sub-clause (b) omitted by the Finance Act, 2021. Earlier this sub-clause was omitted through Tax Laws (Second Amendment) Ordinance, 2021. The omitted sub-clause read as follows:

“(b) any other industrial undertaking which the Board may by notification in the official gazette, specify.”

• Clause (c) added by the Finance Act, 2021.

• New sub-clause (30A) inserted through Finance Act, 2020 dated 30^th June, 2020

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¹[²[(30AA)] “investment company” means an investment company as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]

³[⁴[(30AB)] KIBOR means Karachi Inter Bank Offered Rate prevalent on the first day of each quarter of the financial year;]

⁵[(30AC)     “Iris” means a web based computer programme for operation and management of Inland Revenue taxes and laws administered by the Board;]

⁶[(30AD)     Information Technology (IT) services include ⁷[but not limited to] software development, software maintenance, system integration, web design, web development, web hosting and network design; and

(30AE)         IT enabled services include ⁸[but not limited to] inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, Human Resource (HR) services, telemedicine centers, data entry operations, cloud computing services, data storage services, locally produced television programs and insurance claims processing;]

⁹[(30B)    “leasing company” means a leasing company as defined in the Non-Banking Finance Companies and Notified Entities Regulation, 2007;]

¹⁰[(30C) “liaison office” means a place of business acting for the principal, head office or any entity of which it is a part, and

1. its activities do not result in deriving income in Pakistan; and

• Clause (30A) substituted  by the Finance Act, 2008. The substituted clause (30A) read as follows:

“ (30A) “investment company” means a company registered under the Investment Companies and

Investment Advisors Rules, 1971;”

• Clause (30A) renumbered as clause (30AA) through Finance Act, 2020 dated 30^th June, 2020

³Inserted by the Finance Act, 2009.

• Clause (30AA) renumbered as (30AB) through Finance Act, 2020 dated 30^th June, 2020

• New clause (30AC) inserted through Finance Act, 2020 dated 30^th June,2020

• Clauses (30AD) and (30AE) inserted by the Finance Act, 2021.

1. Inserted by the Finance Act, 2022.

1. Inserted by the Finance Act, 2022.

⁹Clause (30B) substituted by the Finance Act, 2008. The substituted clause (30B) read as follows:

“ (30B) “leasing company” means a company licensed under the Leasing Companies (Establishment and Regulation) Rules, 2000;

¹⁰Inserted by the Finance Act, 2017.

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• maintains itself out of any amount remitted from outside Pakistan received through normal banking channels.

Explanation,—  It is clarified that—

1. a place of business shall not be treated as liaison office if it engages in –

• commercial activities;
  • trading or industrial activities; or
  • the negotiation and conclusion of contracts;

• the activities shall be treated to be commercial activities, if these include—

• providing after sales services for goods or services; or

• marketing or promoting pharmaceutical and medical products or services;

• subject to clause (i), a place of business shall be treated as a liaison office, if it undertakes activities of—

1. an exploratory or preparatory nature, to investigate the possibilities of trading with, or in, Pakistan;

• exploring the possibility of joint collaboration and export promotion;

• promoting products where such products are yet to be supplied to, or sold in, Pakistan;

• promoting technical and financial collaborations between its principal and taxpayers in Pakistan; or

• provision of technical advice and assistance.]

• “liquidation” in relation to a company, includes the termination of a trust;

¹[(31A)  “Local Government”  shall  have the same meaning  for  respective provisions  and  Islamabad  Capital  Territory  as  contained  in  the

• Clause (31A) is substituted through Finance Act 2020 dated 30^th June, 2020 the substituted  clause

read as follows: “(31A)“Local Government” shall have the same meaning as defined in the

17

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Balochistan Local Government Act,2010 (V of 2010), the Khyber Pakhtunkhwa Local Government Act, 2013 (XXVIII of 2013), the Sindh Local Government Act, 2013 (XLII of 2013), the Islamabad Capital Territory Local Government Act, 2015 (X of 2015) and the Punjab Local Government Act, 2019(XIII of 2019)]

• “member” in relation to an association of persons, includes a partner in a firm;

• “minor child” means an individual who is under the age of eighteen years at the end of a tax year;

• “modaraba” means a modaraba as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

• “modaraba certificate” means a modaraba certificate as defined in the

Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980);

¹[(35A)    “Mutual Fund” means a mutual fund ²[registered or approved by the Securities and Exchange Commission of Pakistan];]

³[(35AA) “NCCPL” means National Clearing Company of Pakistan Limited, which is a company incorporated under the ⁴[Companies Act, 2017 (XIX of 2017)] and licensed as “Clearing House” by the Securities and

Exchange Commission of Pakistan,⁵[or any subsidiary of NCCPL notified by the Board for the purpose of this clause]

⁶[(35B)    “non-banking finance company” means an NBFC as defined in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;]

⁷[  ]

Punjab Local Government Ordinance, 2001 (XIII of 2001), the Sindh Local Government Ordinance, 2001 (XXVII of 2001), the NWFP Local Government Ordinance, 2001 (XIV of 2001) and the Balochistan Local Government Ordinance, 2001 (XVIII of 2001);”

1. Inserted by the Finance Act, 2002

• The words “set up by the Investment Corporation of Pakistan or by an investment company” substituted by the Finance Act, 2003.

³Inserted by the Finance Act, 2012.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

⁵Inserted by the Finance Act, 2017

⁶Clause (35B) substituted by the Finance Act, 2008. The substituted clause (35B) read as follows:

“ (35B) “non-banking finance company” means an institution notified under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.”

⁷Omitted by Finance Act, 2019. Omitted clause read as follow:

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¹[(36)       “non-profit organization” means any person other than an individual, which is —

• established for religious, educational, charitable, welfare ²[purposes for general public], or for the promotion of an amateur sport;

• formed and registered ³[by or] under any law as a non-profit organization;

1. approved by the Commissioner for specified period, on an application made by such person in the prescribed form and manner, accompanied by the prescribed documents and, on requisition, such other documents as may be required by the Commissioner;

and none of the assets of such person confers, or may confer, a private benefit to any other person;]

• “non-resident person” means a non-resident person as defined in Section 81;

• “non-resident taxpayer” means a taxpayer who is a non-resident person;

⁴[(38A)  “Officer  of  Inland  Revenue”  means  any  Additional  Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant

(35C)“non-filer” means a person who is not a filer;

• Clause (36) substituted by the Finance Act, 2002. The substituted clause (36) read as follows:

“(36)   “non-profit organization” means any person –

• established for religious, charitable or educational purposes, or for the promotion of amateur sport;

• which is registered under any law as a non-profit organization and in respect of which the Commissioner has issued a ruling certifying that the person is a non-profit organization for the purposes of this Ordinance; and

• none of the income or assets of the person confers, or may confer a private benefit on any other person”;.

• The expressions “or development purposes” substituted through Finance Act,2020 dated 30^th June, 2020

• Words “by or” inserted through Finance Act, 2020 dated 30^th June, 2020

⁴Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. The substituted clause (38A) read as follows:

“(38A)  “Officer of Inland Revenue” means any Additional Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officer, Special Officer Inland Revenue or any other officer however designated or appointed by the Board for the purposes of this Ordinance.”

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Commissioner Inland Revenue, Inland Revenue Officer, Inland Revenue Audit Officer,¹[District Taxation Officer Inland Revenue, Assistant Director Audit,]or any other officer however designated or appointed by the Board for the purposes of this Ordinance;]

²[(38AA) “offshore asset” in relation to a person, includes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan;

(38AB)   “offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioners.;

(38AC)   “offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;]

³[(38B) “online marketplace” means an information technology platform run by e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and a seller;]

• “Originator”  means  Originator  as  defined  in  the  Asset  Backed

Securitization Rules, 1999;

• “Pakistan-source income” means Pakistan-source income as defined in section 101;

⁴[(40A)    “Pension Fund Manager” means an asset management company registered under the Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003, or a life insurance company registered under Insurance Ordinance, 2000 (XXXIX of 2000), duly authorized by the Securities and Exchange Commission of Pakistan and approved under the Voluntary Pension System Rules, 2005, to manage the Approved Pension Fund;]

¹Inserted by the Finance Act, 2017

²New clauses (38AA), (38AB) & (38AC) inserted by Finance Act, 2019

³Inserted by the Finance Act, 2017

1. Inserted by the Finance Act, 2005.

Chapter I – Preliminary__________________________________

• “permanent establishment” in relation to a person, means a ¹[ ] ²[ ] place of business through which the business of the person is wholly or partly carried on, and includes –

1. a place of management, branch, office, factory or workshop, ³[premises for soliciting orders, warehouse, permanent sales exhibition or sales outlet,] other than a liaison office except where the office engages in the negotiation of contracts (other than contracts of purchase);

1. a mine, oil or gas well, quarry or any other place of extraction of natural resources;

⁴[(ba) an agricultural, pastoral or forestry property;]

⁵[(bb) virtual business presence in Pakistan including any business where transactions are conducted through internet or any other electronic medium, with or without having any physical presence;]

1. a building site, a construction, assembly or installation project or supervisory activities ⁶[connected] with such site or project ⁷[but only where such site, project and its ⁸[connected] supervisory activities continue for a period or periods aggregating more than ninety days within any twelve-months period] ;

• the furnishing of services, including consultancy services, by any person through employees or other personnel ⁹[or entity] engaged by the person for such purpose ¹⁰[ ];

1. a person  acting  in  Pakistan  on   behalf   of   the   person

(hereinafter referred to as the “agent ¹¹[”),] other than an agent

• The word “fixed” inserted by the Finance Act, 2006.

• The word “fixed” omitted by the Finance Act, 2023.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

• The sub-clause (bb) inserted by the Finance Act, 2023.

• The word “connect” substituted by the Finance Act, 2010.

1. Inserted by the Finance Act, 2006.

• The word “connect” substituted by the Finance Act, 2010.

• Words inserted by the Finance Act, 2023.

• The words “, but only where activities of that nature continue for the same or a connected project within Pakistan for a period or periods aggregating more than ninety days within any twelve-month period” omitted by the Finance Act, 2003.

• Comma substituted by the Finance Act, 2002

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of independent status acting in the ordinary course of business as such, if the agent –

¹[(i)     has and habitually exercises an authority to conclude contracts on behalf of the other person or habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the person and these contracts are─

1. in the name of the person; or

• for the transfer of the ownership of or for the granting of the right to use property owned by that enterprise or that the enterprise has the right to use; or

• for the provision of services by that person; or”]

• has no such authority, but habitually maintains a stock-in-trade or other merchandise from which the agent regularly delivers goods or merchandise on behalf of the other person; or

²[Explanation.—For removal of doubt, it is clarified that an agent of independent status acting in the ordinary course of business does not include a person acting exclusively or almost exclusively on behalf of the person to which it is an associate; or ”;]

1. any substantial equipment installed, or other asset or property capable of activity giving rise to income;

³[(g) a ⁴[ ] place of business that is used or maintained by a person if the person or an associate of a person carries on business at that place or at another place in Pakistan and ─

• that place or other place constitutes a permanent establishment of the person or an associate of the person under this sub-clause; or

¹Paragraph (i) substituted by Finance Act 2018, the substituted Paragraph (i) is read as under:

“has and habitually exercises an authority to conclude contracts on behalf of the other person;”

²Added by the Finance Act, 2018

³Added by the Finance Act, 2018

• The word “fixed” omitted by the Finance Act, 2023.

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• business carried on by the person or an associate of the person at the same place or at more than one place constitute complementary functions that are part of a cohesive business operation.

Explanation.— For the removal of doubt, it is clarified that ─

• the term ”cohesive business operation” includes an overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the person or the associates of the person; and

• supply of goods include the goods imported in the name of the associate or any other person, whether or not the title to the goods passes outside Pakistan.]

• “person” means a person as defined in section 80;

¹[(42A) “PMEX” means Pakistan Mercantile Exchange Limited a futures commodity exchange company incorporated under the ²[Companies Act, 2017 (XIX of 2017)] and is licensed and regulated by the Securities and Exchange Commission of Pakistan;”]

• “pre-commencement expenditure” means a pre-commencement expenditure as defined in section 25;

• “prescribed” means prescribed by rules made under this Ordinance;

³[(44A)    “principal officer” used with reference to a company or association of persons includes –

1. a director, a manager, secretary, agent, accountant or any similar officer; and

1. any person connected with the management or administration of the company or association of persons upon whom the Commissioner has served a notice of treating him as the principal officer thereof;]

• “private company” means a company that is not a public company;

¹Inserted by the Finance Act, 2015.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act,

2021.

1. Inserted by the Finance Act, 2003.

23

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¹[  ]

²[  ]

• “profit on a debt” ³[whether payable or receivable, means] —
  • any profit, yield, interest, discount, premium or other amount ⁴[,] owing under a debt, other than a return of capital; or

1. any service fee or other charge in respect of a debt, including any fee or charge incurred in respect of a credit facility which has not been utilized;

• “public company” means —

1. a company in which not less than fifty per cent of the shares are held by the Federal Government ⁵[or Provincial Government];

⁶[(ab)      a company in which ⁷[not less than fifty per cent of the] shares are held by a foreign Government, or a foreign company owned by a foreign Government ⁸[;]]

1. a company whose shares were traded on a registered stock exchange in Pakistan at any time in the tax year and which remained listed on that exchange ⁹[ ] at the end of that year; or

¹⁰[(c)   a unit trust whose units are widely available to the public and any other trust as defined in the Trusts Act, 1882 (II of 1882);]

¹Clause (45A) omitted by the Finance Act, 2008. The omitted clause (45A) read as follows:

“ (45A)“Private Equity and Venture Capital Fund” means a fund registered with the Securities and Exchange Commission of Pakistan under the Private Equity and Venture Capital Fund Rules,

2007;”

²Clause (45B) omitted by the Finance Act, 2008. The omitted clause (45B) read as follows:

“(45B) “Private Equity and Venture Capital Fund Management Company” means a company licensed by the Securities and Exchange Commission of Pakistan under the Private Equity and Venture Capital Fund Rules, 2007;”

• The word “means” substituted by the Finance Act, 2003.

• Comma inserted by the Finance Act, 2002.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2005.

• The full stop substituted by the Finance Act, 2005.

• The words “and was on the Central Depository System,” omitted by the Finance Act, 2002.

• Clause (c) substituted by the Finance Act, 2003. The substituted clause (c) read as follows:

“(c) a unit trust whose units are widely available to the public and any other public trust;”

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¹[(47A) “REIT Scheme” means a REIT Scheme as defined in the Real Estate Investment Trust Regulations, 2015;”]

²[(47B)     “Real Estate Investment Trust Management Company ³[RMC]means ⁴[RMC] as defined under the Real Estate Investment Trust Regulations, ⁵[2015];]

⁶[(47C)    “Rental REIT Scheme” means a Rental REIT Scheme as defined under the Real Estate Investment Trust Regulations, 2015;”]

• “recognised provident fund” means a provident fund recognised by the

Commissioner in accordance with Part I of the Sixth Schedule;

⁷[ ]

• “rent” means rent as defined in sub-section (2) of section 15 and includes an amount treated as rent under section 16;

⁸[(49A)    “repealed Ordinance” means Income Tax Ordinance, 1979 (XXXI of

1979);]

• “resident company” means a resident company as defined in section

83;

• “resident individual” means a resident individual as defined in section 82;

• “resident person” means a resident person as defined in section 81;

• “resident taxpayer” means a taxpayer who is a resident person;

¹Clause (47A) substituted by the Finance Act, 2015. The substituted clause read as follows:

“(47A)   “Real Estate Investment Trust (REIT) Scheme” means a REIT Scheme as defined in the

Real Estate Investment Trust Regulations, 2008;

²Clause (47B) substituted by the Finance Act, 2008. The substituted clause (47B) read as follows:

“(47B) “Real Estate Investment Trust Management Company” means a company licensed by the

Security and Exchange Commission of Pakistan under the Real Estate Investment Trust Rules, 2006.”

³Inserted by the Finance Act, 2015.

⁴Inserted by the Finance Act, 2015.

• The figure “2008” substituted by the Finance Act, 2015.

⁶Inserted by the Finance Act, 2015.

⁷Clause (48A) omitted by the Finance Act, 2010. The omitted clause (48A) read as follows:

“(48) “Regional Commissioner” means a person appointed as a Regional Commissioner of Income Tax under section 208 and includes a Director-General of Income Tax and Sales Tax.”

1. Inserted by the Finance Act, 2002

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(54)    ¹[“royalty”]means any amount paid or payable, however described or computed, whether periodical or a lump sum, as consideration for —

• the use of, or right to use any patent, invention, design or model, secret formula or process, trademark or other like property or right;

• the use of, or right to use any copyright of a literary, artistic or scientific work, including films or video tapes for use in connection with television or tapes in connection with radio broadcasting, but shall not include consideration for the sale, distribution or exhibition of cinematograph films;

• the receipt of, or right to receive, any visual images or sounds, or both, transmitted by satellite, cable, optic fibre or similar technology in connection with television, radio or internet broadcasting;

• the supply of any technical, industrial, commercial or scientific knowledge, experience or skill;

• the use of or right to use any industrial, commercial or scientific equipment;

• the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as mentioned in ²[sub-clauses] (a) through (e); ³[and]

• the disposal of any property or right referred to in ⁴[sub-clauses]

(a) through (e);

• “salary” means salary as defined in section 12;

• “Schedule” means a Schedule to this Ordinance;

• “securitization” means securitization as defined in the Asset Backed

Securitization Rules, 1999;

• The word “royalties” substituted by the Finance Act, 2002.

• The word “clauses” substituted by the Finance Act, 2002.

1. Added by the Finance Act,  2005.

• The word “clauses” substituted by the Finance Act, 2002

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• “share” in relation to a company, includes a modaraba certificate and the interest of a beneficiary in a trust (including units in a trust);

• “shareholder” in relation to a company, includes a modaraba certificate holder, ¹[a unit holder of a unit trust] and a beneficiary of a trust;

²[(59A) “small and medium enterprise” means a person who is engaged in manufacturing as defined in clause (iv) of sub-section (7) of section 153 of the Ordinance and his business turnover in a tax year does not exceed two hundred and fifty million rupees:

Provided that if annual business turnover of a small and medium enterprise exceeds two hundred and fifty million rupees, it shall not qualify as small and medium enterprise in the tax year in which annual turnover exceeds that turnover or any subsequent tax year.]

³[⁴[(59AB)] “Small Company” means a company registered on or after the first day of July, 2005, under the ⁵[Companies Act, 2017 (XIX of 2017)], which,—

• has paid up capital plus undistributed reserves not exceeding ⁶[fifty]million rupees;

⁷[(ia)     has employees not exceeding two hundred and fifty any time during the year;]

• has annual turnover not exceeding two hundred ⁸[and fifty] million rupees; ⁹[ ]

1. is not formed by the splitting up or the reconstitution of company already in existence;] ¹⁰[and]

¹¹[(iv)   is not a small and medium enterprise as defined in clause

(59A);]

1. Inserted for “, a unit holder of a unit trust” by the Finance Act, 2002

• New clause (59A) inserted by the Finance Act, 2021.

1. Inserted by the Finance Act, 2005.

• Clause (59A) re-numbered as clause (59AB) by the Finance ACT, 2021.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act,

2021.

⁶The word “twenty-five” substituted by the Finance Act, 2015

⁷Inserted by the Finance Act, 2007.

⁸Inserted by the Finance Act, 2007.

• The word “and “ omitted by the Finance Act, 2021.

• The word “and “ added by the Finance Act, 2021.

• New sub-clause (iv) added by the Finance Act, 2021.

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¹[(59B)     “Special Judge” means the Special Judge appointed under section 203;]

• “Special Purpose Vehicle” means a Special Purpose Vehicle as defined in the Asset Backed Securitization Rules, 1999;

²[(60A)    “specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under the Common Reporting Standard with Pakistan;]

• “speculation business” means a speculation business as defined in section 19;

³[(61A)     “stock fund” means a collective investment scheme or a mutual fund where the investible funds are invested by way of equity shares in companies, to the extent of more than seventy per cent of the investment;]

(62)    “stock-in-trade” means stock-in-trade as defined in section 35;

⁴[(62A)  “startup” means,—

1. a business of a resident individual, AOP or a company that commenced on or after first day of July, 2012 and the person is engaged in or intends to offer technology driven products or services to any sector of the economy provided that the person is registered with and duly certified by the Pakistan Software Export Board (PSEB) and has turnover of less than one hundred million in each of the last five tax years; or

1. any business of a person or class of persons, subject to the conditions as the ⁵[Board with the approval of Federal Minister-in-charge] may, by notification in the official Gazette, specify.;]

⁶[(62B) “Synchronized Withholding Administration and Payment System agent” or “SWAPS agent” means any person or class of persons notified by Board to collect or deduct withholding taxes through Synchronized Withholding Administration and Payment System;]

¹Inserted by the Finance Act, 2014.

²(60A)Inserted by the Finance Act, 2019

³Inserted by the Finance Act,  2014..

⁴Inserted by the Finance Act, 2017

• The words “Federal Government” substituted by the Finance Act, 2021.

1. Inserted by the Finance Act, 2022.

28

Chapter I – Preliminary__________________________________

• “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;

• “taxable income” means taxable income as defined in section 9;

¹[  ]

• “taxpayer” means any person who derives an amount chargeable to tax under this Ordinance, and includes —

1. any representative of a person who derives an amount chargeable to tax under this Ordinance;

1. any person who is required to deduct or collect tax under Part V of Chapter X ²[and Chapter XII;] or

1. any person required to furnish a return of income or pay tax

under this Ordinance;

³[(66A) “tax invoice” means an invoice as prescribed under the Income Tax Rules, 2002;]

• “tax treaty” means an agreement referred to in section 107;

• “tax year” means the tax year as defined in sub-section (1) of section 74 and, in relation to a person, includes a special year or a transitional year that the person is permitted to use under section 74;

• “total income” means total income as defined in section 10;

• “trust” means a “trust” as defined in section 80;

⁴[(70A) “turnover” means turnover as defined in sub-section (3) of section 113;]

• “underlying ownership” means an underlying ownership as defined in section 98;

• “units” means units in a unit trust;
• “unit trust” means a unit trust as defined in section 80; and

¹Clause (65) omitted by the Finance Act, 2010. The omitted Clause (65) read as follows:

“(65)    “taxation officer” means any Additional Commissioner of Income Tax, Deputy Commissioner of Income Tax, Assistant Commissioner of Income Tax, Income Tax Officer, Special Officer or any other officer however designated appointed by the Board for the purposes of this Ordinance;”

1. Inserted by the Finance Act, 2002

1. Inserted by the Finance Act, 2022. ⁴Inserted by the Finance Act, 2009.

29

Chapter I – Preliminary__________________________________

¹[(73A) “unspecified jurisdiction” means a jurisdiction which is not a specified jurisdictions.]

²[(74)     “Venture Capital Company” and “Venture Capital Fund” shall have the same meanings as are assigned to them under the ³[Non-Banking Finance ⁴[Companies] (Establishment and Regulation) Rules, 2003];

⁵[(75)     “whistleblower” means whistleblower as defined in section 227B;”]

• Ordinance to override other laws.—The provisions of this Ordinance shall apply notwithstanding anything to the contrary contained in any other law for the time being in force.

¹(73A) inserted through Finance Act, 2019.

1. Added by Finance Act, 2002

• The words, brackets, comma and figure “Venture Capital Company and Venture Capital Fund Rules, 2001” substituted by the Finance Act, 2004.

• The word “Company” substituted by the Finance Act, 2005.

1. Inserted by the Finance Act, 2015.

Chapter II – Charge of Tax_______________________________

CHAPTER II

CHARGE OF TAX

• Tax on taxable income.— (1) Subject to this Ordinance, income tax shall be imposed for each tax year, at the rate or rates specified in 1[Division I 2[ ] or II] of Part I of the First Schedule, as the case may be, on every person who has taxable income for the year.

• The income tax payable by a taxpayer for a tax year shall be computed by applying the rate or rates of tax applicable to the taxpayer under this Ordinance to the taxable income of the taxpayer for the year, and from the resulting amount shall be subtracted any tax credits allowed to the taxpayer for the year.

• Where a taxpayer is allowed more than one tax credit for a tax year, the credits shall be applied in the following order –

1. any foreign tax credit allowed under section 103; then
   1. any tax credit allowed under Part X of Chapter III; and then
   1. any tax credit allowed under sections 3[ ] 147 and 168.

• Certain classes of income (including the income of certain classes of persons) may be subject to –

• separate taxation as provided 4[under this chapter]; or

• 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 as a final tax on the income 5[of] the person.

1. Income referred to in sub-section (4) shall be subject to tax as provided for 6[under this chapter], or Part V of Chapter X, as the case may be, and shall not be included in the computation of taxable income in accordance with section 8 or 169, as the case may be.

¹The words and letters “Division I or II” substituted by the Finance Act, 2010.

²The expression “IB” omitted through Finance Act, 2020 dated 30^th June, 2020

• The figure and comma “140,” omitted by the Finance Act, 2003.

• The expression “in sections 5, 6 and 7” substituted by the Finance Act, 2022. ⁵The word “or” substituted by the Finance Act, 2010.
• The expression “in sections 5, 6 and 7” substituted by the Finance Act, 2022.

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Chapter II – Charge of Tax__________________________

¹[(6) Where, by virtue of any provision of this Ordinance, income tax is to be deducted at source or collected or paid in advance, it shall, as the case may be, be so deducted, collected or paid, accordingly ²[.] ]

³[  ]

⁴[(4AB) Subject to this Ordinance, a surcharge shall be payable by every individual and association of persons at the rate of ten percent of the income tax imposed under Division I of Part I of the First Schedule where the taxable income exceeds rupees ten million.]

⁵[4B. Super tax for rehabilitation of temporarily displaced persons.― (1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax years 2015 ⁶[and onwards], at the rates specified in Division IIA of Part I of the First Schedule, on income of every person specified in the said Division.

• For the purposes of this section, “income” shall be the sum of the

following:—

• profit on debt, dividend, capital gains, brokerage and commission;

• taxable income⁷[(other than brought forward depreciation and brought forward business losses)] under section (9) of this Ordinance, if not included in clause (i);

1. imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and

1. Added by the Finance Act,  2003.

• The semicolon substituted by the Finance Act, 2005.

³Omitted by the Finance Act, 2014. Section 4A was added by Income Tax (Amendment) Ordinance, dated 30.05.2011. Earlier the identical section 4A was added by Income Tax (Amendment) Ordinance, dated 16.03.2011. The omitted section 4A read as follows: —

“4A Surcharge. — (1) Subject to this Ordinance, a surcharge shall be payable by every taxpayer at the rate of fifteen per cent of the income tax payable under this Ordinance including the tax payable under Part V of Chapter X of Chapter XIII, as the case may be, for the period commencing from the promulgation of this Ordinance, till the 30^th June, 2011.

• Surcharge shall be paid, collected, educated and deposited at the same time and in the same manner as the tax is paid, collected, deducted and deposited under this Ordinance including Chapter X or XII as the case may be:

Provided that this surcharge shall not be payable for the tax year 2010 and prior tax years and shall be applicable, subject to the provisions of sub-section (1), for the tax year 2011 only.”

• Section (4AB) inserted by the Finance Act, 2024. ⁵Inserted by the Finance Act, 2015.

⁶The “expression” “to 2020” substituted by “and onwards” through Finance Supplementary (Second Amendment) Act, 2019.

⁷Inserted by the Finance Act, 2016.

32

Chapter II – Charge of Tax__________________________

1. income computed, ¹[other than brought forward depreciation, brought forward amortization and brought forward business lossess] under Fourth, Fifth, Seventh and Eighth Schedules.

• The super tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.

• Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance.

• Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super tax payable under subsection (1) and the provisions of Part IV,X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of super tax as these apply to the collection of tax under the Ordinance.

• The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]

²[4C. Super tax on high earning persons.― (1) A super tax shall be imposed for tax year 2022 and onwards at the rates specified in Division IIB of Part I of the First Schedule, on income of every person:

Provided that this section shall not apply to a banking company for tax year 2022.

• For the purposes of this section, “income” shall be the sum of the following:—

• profit on debt, dividend, capital gains, brokerage and commission;

• taxable income (other than brought forward depreciation and brought forward business losses) under section 9 of the Ordinance, excluding amounts specified in clause (i);

1. imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and

1. income computed, other than brought forward depreciation, brought forward amortization and brought forward business losses under Fourth, Fifth ³[, Seventh and Eighth] Schedules.

¹Inserted by the Finance Act, 2019.

1. Inserted by the Finance Act, 2022.

• The words “and Seventh” substituted by the Finance Act, 2023.

33

Chapter II – Charge of Tax__________________________

• The tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.

• Where the tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the tax payable, and shall serve upon the person, a notice of demand specifying the tax payable and within the time specified under section 137 of the Ordinance.

• Where the tax is not paid by a person liable to pay it, the Commissioner shall recover the tax payable under sub-section (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of tax as these apply to the collection of tax under the Ordinance.

¹[(5A) The provisions of section 147 shall apply on tax payable under this section.]

• The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]

• Tax on dividends.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a ²[ ] company ³[or treated as dividend under clause (19) of section 2].

• The tax imposed under sub-section (1) on a person who receives a dividend shall be computed by applying the relevant rate of tax to the gross amount of the dividend.

• This section shall not apply to a dividend that is exempt from tax under this Ordinance.

• The sub-section (5A) inserted by the Finance Act, 2023. ²The word “resident” omitted by the Finance Act, 2003.

³Inserted by the Finance Act, 2009.

34

Chapter II – Charge of Tax__________________________

¹[5A. Tax on undistributed profits.—(1) For tax ²[years 2017 to 2019], a tax shall be imposed at the rate of ³[five] percent of its accounting profit before tax on every public company, other than a scheduled bank or a modaraba, that derives profit for a tax year but does not distribute at least ⁴[twenty] percent of its after tax profits within six months of the end of the tax year through cash ⁵[ ]:

Provided that for tax year 2017, bonus shares or cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of a return.

• The provisions of sub-section (1) shall not apply to—

1. a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and

1. a company in which not less than fifty percent shares are held by the Government.]

⁶[5AA. Tax on return on investments in sukuks.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIB of Part I of the First

• section 5A substituted by the Finance Act, 2017. The substituted section read as follows:-

“5A. Tax on undistributed reserves.—(1) Subject to this Ordinance, a tax shall be imposed at the rate of ten percent, on every public company other than a scheduled bank or a modaraba, that derives profits for a tax year but does not distribute cash dividends within six months of the end of the said tax year or distributes dividends to such an extent that its reserves, after such distribution, are in excess of hundred percent of its paid up capital, so much of its reserves as exceed hundred per cent of its paid up capital shall be treated as income of the said company:

Provided that for tax year 2015, cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of return for tax year 2015.

• The provisions of sub-section (1) shall not apply to—

1. a public company which distributes profit equal to either forty per cent of its after tax profits or fifty per cent of its paid up capital, whichever is less, within six months of the end of the tax year;

1. a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and
   1. a company in which not less than fifty percent shares are held by the Government.

• For the purpose of this section, ‘reserve‘ includes amounts setaside out of revenue or other surpluses excluding capital reserves, share premium reserves and reserves required to be created under any law, rules or regulations.”]

• The “expression” “year 2017 and onwards” substituted by “years 2017 to 2019” through Finance Supplementary (Second Amendment) Act, 2019

⁵The word “seven and half” substituted by the Finance Act, 2018

⁴The word “forty” substituted by the Finance Act, 2018

⁵The word “or bonus shares” omitted by the Finance Act, 2018

⁶Inserted by the Presidential Order No. F.2(1)/2016-Pub dated 31.08.2016.

35

Chapter II – Charge of Tax__________________________

Schedule, on every person who receives a return on investment in sukuks from a special purpose vehicle¹[, or a company].

• The tax imposed under sub-section (1) on a person who receives a return on investment in sukuks shall be computed by applying the relevant rate of tax to the gross amount of the return on investment in sukuks.

• This section shall not apply to a return on investment in sukuks that is exempt from tax under this Ordinance.”]

• Tax on certain payments to non-residents.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IV of Part I of the First Schedule, on every non-resident person who receives any Pakistan-source royalty ²[, fee for offshore digital services ³[, fee for money transfer operations, card network services, payment gateway services, interbank financial telecommunication services] ] or fee for technical services.

• The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross ⁴[amounts of receipts mentioned in sub-section (1)].

• This section shall not apply to —

1. any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;

1. any fee ⁵[ ] where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the non-resident person; or

1. any royalty or fee for technical services that is exempt from tax under this Ordinance.

¹Inserted by the Finance Act, 2017

²Inserted by the Finance Act, 2018

• The expression inserted by the Finance Act, 2022.

• The expression “amount of the royalty ⁴[,free for offshore digital services] or fee for technical services” substituted by the Finance Act, 2022.

• The expression “for technical services ⁵[or fee for offshore digital services” omitted by the Finance Act, 2022.

36

Chapter II – Charge of Tax__________________________

1. Any Pakistani-source royalty ¹[ ²[or fee] received by a non-resident person to which this section does not apply by virtue of clause (a) or (b) of sub-section (3) shall be treated as income from business attributable to the permanent establishment in Pakistan of the person.

• Tax on shipping and air transport income of a non-resident person.—

• Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division V of Part I of the First Schedule, on every non-resident person carrying on the business of operating ships or aircrafts as the owner or charterer thereof in respect of –

• the gross amount received or receivable (whether in or out of Pakistan) for the carriage of passengers, livestock, mail or goods embarked in Pakistan; and

• the gross amount received or receivable in Pakistan for the carriage of passengers, livestock, mail or goods embarked outside Pakistan.

• The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amount referred to in sub-section (1).

• This section shall not apply to any amounts exempt from tax under this Ordinance.

³[7A. Tax on shipping of a resident person.—(1) In the case of any resident person engaged in the business of shipping, a presumptive income tax shall be charged in the following manner, namely:—

• ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft purchased or bare-boat chartered and flying Pakistan flag shall pay tonnage tax of an amount equivalent to one US $ per gross registered tonnage per annum; ⁴[ ]

• ships, vessels and all floating crafts including tugs, dredgers, survey vessels and other specialized craft not registered in Pakistan and hired under any charter other than bare-boat charter shall pay tonnage tax of an amount equivalent to fifteen

¹Inserted by the Finance Act, 2018

• The expression “, fee for offshore digital services] or fee for technical services” substituted by the Finance Act, 2022.

³Inserted by the Finance Act, 2015

⁴The word “and” omitted through Finance Act, 2020 dated 30^th June, 2020

37

Chapter II – Charge of Tax__________________________

US cents per ton of gross registered tonnage per chartered voyage provided that such tax shall not exceed one US $ per ton of gross registered tonnage per annum:

Explanation.—For the purpose of this section, the expression “equivalent amount” means the rupee equivalent of a US dollar according to the exchange rate prevalent on the first day of December in the case of a company and the first day of September in other cases in the relevant assessment year ¹[;and

1. A Pakistan resident ship owning company registered with the Securities and Exchange Commission of Pakistan after the 15^th day of November, 2019 and having its own sea worthy vessel registered under Pakistan Flag shall pay tonnage tax of an amount equivalent to seventy five US Cents per ton of gross registered tonnage per annum.]

• The provisions of this section shall not be applicable after the 30^thJune, ²[2030].”]

³[7B. Tax on profit on debt.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIA of Part I of the First Schedule, on every person, other than a company, who receives a profit on debt from any person mentioned in clauses (a) to (d) of sub-section (1)of section 151.

• The tax imposed under sub-section (1) on a person, other than a company, who receives a profit on debt shall be computed by applying the relevant rate of tax to the gross amount of the profit on debt.

⁴[(3)      This section shall not apply to a profit on debt that –

1. is exempt from tax under this Ordinance; or

• exceeds ⁵[five] million Rupees.]

⁶[7C. Tax on builders.— (1) Subject to this Ordinance, a tax shall be imposed on the profits and gains of a person deriving income from the business of

• Full stop at the end substituted by sami-colon and the word “and” thereafter new clause “(c)” shall be added namely through Finance Act, 2020 dated 30^th June, 2020
• The word 2020 substituted by 2030 through Finance Act 2020 dated 30^th June, 2020

³Inserted by the Finance Act, 2015

⁴Sub clause 3 of 7B substituted by Finance Act, 2019, substituted clause read as follow:

“(3) This section shall not apply to a profit on debt that is exempt from tax under this Ordinance.”

• The words “thirty six” substituted by the Finance Act, 2021.

1. Inserted by the Finance Act, 2016.

38

Chapter II – Charge of Tax__________________________

construction and sale of residential, commercial or other buildings at the rates specified in Division VIIIA of Part I of the First Schedule.

• The tax imposed under sub-section (1) shall be computed by applying the relevant rate of tax to the area of the residential, commercial or other building being constructed for sale.

• The Board may prescribe:

• the mode and manner for payment and collection of tax under this section;

• the authorities granting approval for computation and payment plan of tax; and

• responsibilities and powers of the authorities approving, suspending and cancelling no objection certificate to sell and the matters connected and ancillary thereto.

¹[(4) This section shall apply to projects undertaken for construction and sale of residential and commercial buildings initiated and approved.─

• during tax year 2017 only;

• for which payment under rule 13S of the Income Tax Rules, 2002 has been made by the developer during tax year 2017; and

• the Chief Commissioner has issued online schedule of advance tax installments to be paid by the developer in accordance with rule 13U of the Income Tax Rules, 2002.]

²[7D. Tax on developers.—(1) Subject to this Ordinance, a tax shall be imposed on the profits and gains of a person deriving income from the business of development and sale of residential, commercial or other plots at the rates specified in Division VIIIB of Part I of the First Schedule.

• The tax imposed under sub-section (1) shall be computed by applying the relevant rate of tax to the area of the residential, commercial or other plots for sale.

• The Board may prescribe:

• the mode and manner for payment and collection of tax under this section;

¹Section 4 substituted by the Finance Act, 2017. The substituted section read as follows:

“This section shall apply to business or projects undertaken for construction and sale of residential, commercial or other buildings initiated and approved after the 1^st July, 2016.”]

1. Inserted by the Finance Act, 2016.

39

Chapter II – Charge of Tax__________________________

• the authorities granting approval for computation and payment plan of tax; and

• responsibilities and powers of the authorities approving, suspending and cancelling no objection certificate to sell and the matters connected and ancillary thereto.

¹[(4) This section shall apply to projects undertaken for development and sale of residential and commercial plots initiated and approved.─

• during tax year 2017 only;

• for which payment under rule 13S of the Income Tax Rules, 2002 has been made by the developer during tax year 2017; and

• the Chief Commissioner has issued online schedule of advance tax installments to be paid by the developer in accordance with rule 13ZB of the Income Tax Rules, 2002.”;

²[7E. Tax on deemed income.- (1) For tax year 2022 and onwards, a tax shall be imposed at the rates specified in Division VIIIC of Part-I of the First Schedule on the income specified in this section.

1. A resident person shall be treated to have derived, as income chargeable to tax under this section, an amount equal to five percent of the fair market value of capital assets situated in Pakistan held on the last day of tax year excluding the following, namely:–

• one capital asset owned by the resident person;

• self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year;

• self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse and land annexed thereto;

• capital asset allotted to –

1. a Shaheed or dependents of a shaheed belonging to Pakistan Armed Forces;

¹Section 4 substituted by the Finance Act, 2017. The substituted section read as follows:

“This section shall apply to projects undertaken for development and sale of residential, commercial or other plots initiated and approved after the 1^st July, 2016.”

• Section 7E inserted by the Finance Act, 2022.

Chapter II – Charge of Tax__________________________

1. a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government;

1. a war wounded person while in service of Pakistan armed forces or Federal or provincial government; and

1. an ex-serviceman and serving personal of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;

1. any property from which income is chargeable to tax under the Ordinance and tax leviable is paid thereon;

• capital asset in the first tax year of acquisition where tax under section 236K has been paid;

• where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a), (b), (c), (d), (e) and (f) does not exceed Rupees twenty-five million;

• capital assets owned by a provincial government or a local government; or

• capital assets owned by a local authority, a development authority, builders and developers for land development and construction, subject to the condition that such persons are registered with Directorate General of Designated Non-Financial Businesses and Professions ¹[:

Provided that the exclusions mentioned at clauses (a), (e), (f) and (g) of this sub-section shall not apply in case of a person not appearing in the active taxpayers’ list, other than persons covered in rule 2 of the Tenth Schedule.]

(3) The Federal Government may include or exclude any person or property for the purpose of this section.

(4)       In this section–

(a)       “capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include

–

¹  The full stop substituted with colon and new proviso added by the Finance Act, 2023.

41

Chapter II – Charge of Tax__________________________

1. any stock-in-trade, consumable stores or raw materials held for the purpose of business;

1. any shares, stocks or securities;

1. any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortization deduction under section 24; or

1. any movable asset not mentioned in clauses (i), (ii) or (iii);

• “farmhouse” means a house constructed on a total minimum area of 2000 square yards with a minimum covered area of 5000 square feet used as a single dwelling unit with or without an annex:

Provided that where there are more than one dwelling units in a compound and the average area of the compound is more than 2000 square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse.

¹[7F. Tax on builders and developers. – (1) A tax shall be imposed at the rate specified in Division I or II of Part-I of the First Schedule on the taxable profit of every person deriving income from the business of –

• construction and sale of residential, commercial or other buildings;

• development and sale of residential commercial or other plots; or

1. activities as mentioned in (a) and (b) above.

• For the purpose of this section, taxable profit shall be –

• ten percent of gross receipts in respect of activities specified in clause

(a) of sub-section (1);

• fifteen percent of gross receipts in respect of activities specified in clause (b) of sub-section (1); and

• twelve percent of gross receipts in respect of activities specified in clause (c) of sub-section (1).

Explanation.- For the removal of doubt, it is clarified that the provisions of this section shall only apply in respect of income accruing from gross receipts from activities specified in sub-section (1) and shall not be applicable to income or incomes from any other source or under any head of income.

• Section 7F inserted by the Finance Act, 2024.

42

Chapter II – Charge of Tax__________________________

• Where a taxpayer, while explaining the nature and source of the amount credited or the investment made, money or valuable article owned or the funds from which the expenditure was made, takes into account any source of income which is subject to tax under this section, the taxpayer shall not be allowed to take credit of any sum as is in excess of taxable profit:

Provided that where taxable income under section 9 is more than the taxable profit under this section, taxpayer shall be entitled to take credit of such taxable income subject to the payment of tax at the rate specified in Division I or II of Part-I of First Schedule.

• The provisions of this section shall not apply to a builder or developer established by an Act of the Parliament or a Provincial Assembly or by a Presidential Order and who is engaged in activities for the benefit of its employees or otherwise including activities for the planning and development of and for providing 97 and regulating housing and ancillary facilities in a specified or notified area.]

• General provisions relating to taxes imposed under sections ¹[ ²[5, 5A, 5AA, 6, 7, 7A, 7B and 7E].– (1)-Subject to this Ordinance, the tax imposed under Sections ³[5, 5A, 5AA, 6, 7, 7A, 7B and 7E] shall be a final tax on the amount in respect of which the tax is imposed and—

• such amount shall not be chargeable to tax under any head of income in computing the taxable income of the person who derives it for any tax year;

• no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the amount;

• the amount shall not be reduced by —

1. any deductible allowance; or

• the set off of any loss;

• the tax payable by a person under⁴[section] 5, ⁵[5A,⁶[“, 5AA”] 6, 7, ⁷[7A, 7B and 7E] shall not be reduced by any tax credits allowed under this Ordinance; and

• The expression “5, 6 and 7” substituted by the Finance Act, 2021.

• The expression “5, 5AA, 6, 7, 7A and 7B” substituted by the Finance Act, 2022.

• The expression ”5, ³[ ] ³[ ] ³[“, 5AA”] 6, 7, 7A ³[and 7B]”” substituted by the Finance Act, 2022. ⁴The word “sections” substituted by the word “section”by the Finance Act, 2014.

⁵The word and figure “6 or 7” substituted by the Finance Act, 2015.

1. Inserted by the Presidential Order No.F.2(1)/2016-Pub dated 31.08.2016.

• The expression “7A and 7B” substituted by the Finance Act, 2022.

43

Chapter II – Charge of Tax__________________________

• the liability of a person under¹[section] 5, 6 or 7 shall be discharged to the extent that —

1. in the case of shipping and air transport income, the tax has been paid in accordance with section 143 or 144, as the case may be; or

1. in any other case, the tax payable has been deducted at source under Division III of Part V of Chapter X ²[.]

³[  ]

¹The word “sections” substituted by the word “section”by the Finance Act, 2014.

• Colon substituted by the Finance Act, 2013.

• Proviso omitted by the Finance Act, 2013. The omitted proviso read as follows:

“Provided that the provision of this section shall not apply to dividend received by a company.”

44

Chapter III – Tax on Taxable Income_______________________

CHAPTER III

TAX ON TAXABLE INCOME

PART I

COMPUTATION OF TAXABLE INCOME

• Taxable income.—The taxable income of a person for a tax year shall be the total income 1[under clause (a) of section 10] of the person for the year reduced (but not below zero) by the total of any deductible allowances under Part IX of this Chapter of the person for the year.

• Total Income.— The total income of a person for a tax year shall be the sum of the 2[—]

3[(a)    person’s income under all heads of income for the year; and]

4[(b)   person’s income exempt from tax under any of the provisions of this Ordinance.]

• Heads of income.— (1) For the purposes of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely: —

• Salary;

5[(b)	Income from Property;]
6[(c)	Income from Business;]
7[(d)	Capital Gains; and]
8[(e)	Income from Other Sources.]

¹Inserted by the Finance Act, 2012.

²The words “person’s income under each of the heads of income for the year” substituted by the Finance Act, 2012.

³Inserted by the Finance Act, 2012.

⁴Inserted by the Finance Act, 2012.

• Clause (b) substituted by the Finance Act, 2002. The substituted clause (b) read as follows: “(b) income from property;”
• Clause (c) substituted by the Finance Act, 2002. The substituted clause (c) read as follows:

“(c)    income from business;”

• Clause (d) substituted by the Finance Act, 2002. The substituted clause (d) read as follows: “(d) capital gains; and”
• Clause (e) substituted by the Finance Act, 2002. The substituted clause (e) read as follows:

“(e)    income from other sources.”

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• Subject to this Ordinance, the income of a person under a head of income for a tax year shall be the total of the amounts derived by the person in that year that are chargeable to tax under the head as reduced by the total deductions, if any, allowed under this Ordinance to the person for the year under that head.

• Subject to this Ordinance, where the total deductions allowed under this Ordinance to a person for a tax year under a head of income exceed the total of the amounts derived by the person in that year that are chargeable to tax under that head, the person shall be treated as sustaining a loss for that head for that year of an amount equal to the excess.

1. A loss for a head of income for a tax year shall be dealt with in accordance with Part VIII of this Chapter.

• The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income.

• The income of a non-resident person under a head of income shall be computed by taking into account only amounts that are Pakistan-source income.

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PART II

HEAD OF INCOME: SALARY

• Salary.— (1) Any salary received by an employee in a tax year, other than salary that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Salary”.

• Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including —

1. any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions)¹[;]

²[  ]

1. any perquisite, whether convertible to money or not;

• the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee’s duties of employment.

³[Explanation.– For removal of doubt, it is clarified that the allowance solely expended in the performance of employee’s duty does not include –

1. allowance which is paid in monthly salary on fixed basis or percentage of salary; or

1. allowance which is not wholly, exclusively, necessarily or actually spent on behalf of the employer;]

• the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties of employment;

¹Semi-colon substituted by the Finance Act, 2015.

• Omitted by the Finance Act, 2015. The omitted proviso read as follows:-

Provided that any bonus paid or payable to corporate employees receiving salary income of one million rupees or more (excluding bonus) in tax year 2010, shall be chargeable to tax at the rate provided in paragraph (2) of Division I of Part I of the First Schedule;

• Explanation added by the Finance Act, 2021.

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• the amount of any profits in lieu of, or in addition to, salary or wages, including any amount received —

1. as consideration for a person’s agreement to enter into an employment relationship;

1. as consideration for an employee’s agreement to any conditions of employment or any changes to the employee’s conditions of employment;

• on termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments;

• from a provident or other fund, to the extent to which the amount is not a repayment of contributions made by the employee to the fund in respect of which the employee was not entitled to a deduction; and

1. as consideration for an employee’s agreement to a restrictive covenant in respect of any past, present or prospective employment;

1. any pension or annuity, or any supplement to a pension or annuity; and

1. any amount chargeable to tax as “Salary” under section 14.

• Where an employer agrees to pay the tax chargeable on an employee’s salary, the amount of the employee’s income chargeable under the head “Salary” shall be grossed up by the amount of tax payable by the employer.

• No deduction shall be allowed for any expenditure incurred by an employee in deriving amounts chargeable to tax under the head “Salary”.

• For the purposes of this Ordinance, an amount or perquisite shall be treated as received by an employee from any employment regardless of whether the amount or perquisite is paid or provided —

• by the employee’s employer, an associate of the employer, or by a third party under an arrangement with the employer or an associate of the employer;

• by a past employer or a prospective employer; or

• to the employee or to an associate of the employee ¹[or to a third party under an agreement with the employee or an associate of the employee.]

1. Inserted by the Finance Act, 2002

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1. An employee who has received an amount referred to in sub-clause

• of clause (e) of sub-section (2) in a tax year may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rate computed in accordance with the following formula, namely: —

A/B%

where —

1. is the total tax paid or payable by the employee on the employee’s total taxable income for the three preceding tax years; and

1. is the employee’s total taxable income for the three preceding tax years.

• Where —

1. any amount chargeable under the head “Salary” is paid to an employee in arrears; and

1. as a result the employee is chargeable at higher rates of tax than would have been applicable if the amount had been paid to the employee in the tax year in which the services were rendered,

the employee may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rates of tax that would have been applicable if the salary had been paid to the employee in the tax year in which the services were rendered.

1. An election under sub-section (6) or (7) shall be made by the due date for furnishing the employee’s return of income or employer certificate, as the case may be, for the tax year in which the amount was received or by such later date as the Commissioner may allow.

• Value of perquisites.— (1) For the purposes of computing the income of an employee for a tax year chargeable to tax under the head “Salary”, the value of any perquisite provided by an employer to the employee in that year that is included in the employee’s salary under section 12 shall be determined in accordance with this section.

• This section shall not apply to any amount referred to in clause (c) or

(d) of sub-section (2) of section 12.

¹(3) Where, in a tax year, a motor vehicle is provided by an employer to an employee wholly or partly for the private use of the employee, the amount

¹Substituted by the Finance Ordinance, 2002. The substituted sub-section (3) read as follows:-

“ (3) Subject to sub-section (4), where, in a tax year, a motor vehicle is provided by an employer to an employee wholly or partly for the private use of the employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount computed in accordance with the following formula, namely:-

(A*B)-C

Where,

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Chapter III – Tax on Taxable Income ______________________

chargeable to tax to the employee under the head “Salary” for that year shall include an amount computed as may be prescribed.]

¹[  ]

• Where, in a tax year, the services of a housekeeper, driver, gardener or other domestic assistant is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the total salary paid to the domestic assistant ²[such house keeper, driver, gardener or other domestic assistant] in that year for services rendered to the employee, as reduced by any payment made ³[to the employer]for such services.

• Where, in a tax year, utilities are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the utilities provided, as reduced by any payment made by the employee for the utilities.

⁴[(7) Where a loan is made, on or after the 1^st day of July, 2002, by an employer to an employee and either no profit on loan is payable by the employee or the rate of profit on loan is less than the benchmark rate, the amount chargeable to tax to the employee under the head “Salary” for a tax year shall include an amount equal to—

• the profit on loan computed at the benchmark rate, where no profit on loan is payable by the employee, or

• the difference between the amount of profit on loan paid by the employee in that tax year and the amount of profit on loan computed at the benchmark rate, as the case may be⁵[:] ]

1. is the cost to the employer of acquiring the motor vehicle or, if the vehicle is leased by the employer, the fair market value of the vehicle at the commencement of the lease;

1. is-
   1. where the vehicle is wholly for private use, fifteen per cent;
   1. where the vehicle is only partly for private use, seven and a half per cent; and

1. is any payment made by the employee for the use of the motor vehicle or for its running costs.”
2. Sub-section (4) omitted by the Finance Act, 2002. The omitted sub-section (4) read as follows:

“(4) Where a motor vehicle referred to in sub-section (3) is available to more than one employee for a tax year, the amount chargeable to tax under the head “Salary” for each such employee for that year shall be the amount determined under sub-section (3) divided by the number of employees permitted to use the vehicle.”

• The words “domestic assistant” substituted by the Finance Act, 2002

• The words  “by the employee” substituted by the Finance Act, 2002

• Sub-section (7) substituted by the Finance Act, 2002. The substituted sub-section (7) read as follows:

“(7) Where, in a tax year, a loan is made by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the difference between the profit paid by the employee on the loan in the tax year, if any, and the profit which would have been paid by the employee on the loan for the year if the loan had been made at the benchmark rate for that year.”

⁵Full stop substituted by the Finance Act, 2010.

Chapter III – Tax on Taxable Income ______________________

¹[Provided that this sub-section shall not apply to such benefit arising to an employee due to waiver of interest by such employee on his account with the employer²[:] ]

³[Provided further that this sub-section shall not apply to loans not exceeding ⁴[one million]rupees.]

• For the purposes of this Ordinance not including sub-section (7), where the employee uses a loan referred to in sub-section (7) wholly or partly for the acquisition of ⁵[any asset or property]producing income chargeable to tax under any head of income, the employee shall be treated as having paid an amount as profit equal to the benchmark rate on the loan or that part of the loan used to acquire ⁶[ ][asset or property.]

• Where, in a tax year, an obligation of an employee to pay or repay an amount owing by the employee to the employer is waived by the employer, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount so waived.

• Where, in a tax year, an obligation of an employee to pay or repay an amount ⁷[owing]by the employee to another person is paid by the employer, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount so paid.

• Where, in a tax year, property is transferred or services are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the property or services determined at the time the property is transferred or the services are provided, as reduced by any payment made by the employee for the property or services.

¹Added by the Finance Act, 2010.

²Full stop substituted by the Finance Act, 2012.

³Added by the Finance Act, 2012.

⁴The word “five hundred thousand” substituted by Finance Act, 2017

• The word “property” substituted by the Finance Act, 2002 ⁶The word “the” omitted by the Finance Act, 2014

• The word “owed” substituted by the Finance Act, 2002

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¹[(12) Where, in the tax year, accommodation or housing is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include an amount computed as may be prescribed.]

• Where, in a tax year, an employer has provided an employee with a perquisite which is not covered by sub-sections (3) through (12), the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the perquisite, ²[except where the rules, if any, provide otherwise,] determined at the time it is provided, as reduced by any payment made by the employee for the perquisite.

³[(14) In this section,—

• “benchmark rate” means —-

• for the tax year commencing on the first day of July, 2002, a rate of five per cent per annum; and

• for the tax years next following the tax year referred to in sub-clause (i), the rate for each successive year taken at one per cent above the rate applicable for the immediately preceding tax year, but not exceeding ⁴[ten per cent per annum] in respect of any tax year;

• “services” includes the provision of any facility; and

• “utilities” includes electricity, gas, water and telephone.]

• Sub-section (12) substituted by the Finance Act, 2002. The substituted sub-section (12) read as follows:

“(12) Where, in a tax year, accommodation or housing is provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include –

• where the employer or an associate owns the accommodation or housing, the

fair market rent of the accommodation or housing; or

1. in any other case, the rent paid by the employer for the accommodation or housing, as reduced by any payment made by the employee for the accommodation or housing.”

²Inserted by the Finance Act, 2002

• Sub-section (14) substituted by the Finance Act, 2002. The substituted sub-section (14) read as follows:

“(14)   In this section, –

“benchmark rate” means the State Bank of Pakistan discount rate at the commencement of the tax year;

“services” includes the making available of any facility; and “utilities” includes electricity, gas, water and telephone.”

⁴The words “such rate, if any, as the Federal. Government may, by notification, specify” substituted by the Finance Act, 2012

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Chapter III – Tax on Taxable Income ______________________

• Employee share schemes.— (1) The value of a right or option to acquire shares under an employee share scheme granted to an employee shall not be chargeable to tax.

• Subject to sub-section (3), where, in a tax year, an employee is issued with shares under an employee share scheme including as a result of the exercise of an option or right to acquire the shares, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the shares determined at the date of issue, as reduced by any consideration given by the employee for the shares including any amount given as consideration for the grant of a right or option to acquire the shares.

• Where shares issued to an employee under an employee share scheme are subject to a restriction on the transfer of the shares —

• no amount shall be chargeable to tax to the employee under the head “Salary” until the earlier of —

• the time the employee has a free right to transfer the shares; or

• the time the employee disposes of the shares; and

• the amount chargeable to tax to the employee shall be the fair market value of the shares at the time the employee has a free right to transfer the shares or disposes of the shares, as the case may be, as reduced by any consideration given by the employee for the shares including any amount given as consideration for the grant of a right or option to acquire the shares.

• For purposes of this Ordinance, where sub-section (2) or (3) applies, the cost of the shares to the employee shall be the sum of —

• the consideration, if any, given by the employee for the shares;

• the consideration, if any, given by the employee for the grant of any right or option to acquire the shares; and

• the amount chargeable to tax under the head “Salary” under those sub-sections.

• Where, in a tax year, an employee disposes of a right or option to acquire shares under an employee share scheme, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the amount of any gain made on the disposal computed in accordance with the following formula, namely:—

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Chapter III – Tax on Taxable Income ______________________

A—B

where —

1. is the consideration received for the disposal of the right or option; and

1. is the employee’s cost in respect of the right or option.

1. In this sub-section, “employee share scheme” means any agreement or arrangement under which a company may issue shares in the company to —

1. an employee of the company or an employee of an associated company; or

• the trustee of a trust and under the trust deed the trustee may transfer the shares to an employee of the company or an employee of an associated company.

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Chapter III – Tax on Taxable Income ______________________

PART III

HEAD OF INCOME: INCOME FROM PROPERTY

1. Income from property.— (1) The rent received or receivable by a person ¹[for] a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Property”.

• Subject to sub-section (3), “rent” means any amount received or receivable by the owner of land or a building as consideration for the use or occupation of, or the right to use or occupy, the land or building, and includes any forfeited deposit paid under a contract for the sale of land or a building.

• This section shall not apply to any rent received or receivable by any person in respect of the lease of a building together with plant and machinery and such rent shall be chargeable to tax under the head “Income from Other Sources”.

²[(3A) Where any amount is included in rent received or receivable by any person for the provision of amenities, utilities or any other service connected with the renting of the building, such amount shall be chargeable to tax under the head “Income from Other Sources”.]

• Subject to sub-section (5), where the rent received or receivable by a person is less than the fair market rent for the property, the person shall be treated as having derived the fair market rent for the period the property is let on rent in the tax year.

• Sub-section (4) shall not apply where the fair market rent is included in the income of the lessee chargeable to tax under the head “Salary”.

³[  ]

⁴[  ]

⁵[  ]

• Substituted for the word “in” by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

• Sub-section (6) omitted by the Finance Act, 2013. The omitted sub-section (6) read as follows:

“(6)      Income under this section shall be liable to tax at the rate specified in Division VI of Part I of the First Schedule.”

⁴Sub-section (7) omitted by the Finance Act, 2013. The omitted sub-section (6) read as follows:

“(7)      the provisions of sub-section (1), shall not apply in respect of a taxpayer who—

1. is an individual or association of persons;

• derives income chargeable to tax under this section not exceeding Rs. 150,000 in a tax year; and
• does not derive taxable income under any other head.”
• Clause (6) inserted by the Finance Act, 2016.

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¹[  ]

²[    ]

³[   ]

⁴[15A. Deductions in computing income chargeable under the head “Income from Property”.— (1) In computing the income of a ⁵[ ] ⁶[person] chargeable to tax under the head “Income from Property” for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:-

1. In respect of repairs to a building, an allowance equal to one-fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction allowed under this section;

1. any premium paid or payable by the ⁷[ ] ⁸[person] in the year to insure the building against the risk of damage or destruction;

1. any local rate, tax, charge or cess in respect of the property or the rent from the property paid or payable by the ⁹[ ] ¹⁰[person] to any local authority or government in the year, not being any tax payable under this Ordinance;

1. any ground rent paid or payable by the ¹¹[ ] ¹²[person] in the year in respect of the property;

1. any profit paid or payable by the ¹³[ ] ¹⁴[person] in the year on any money borrowed including by way of mortgage, to acquire, construct, renovate, extend or reconstruct the property;

• Clause (6) omitted by the Finance Act, 2021. The omitted clause read as follows:

“(6)      Income under this section derived by an individual or an association of persons shall be liable to tax at the rate specified in Division VIA of Part I of the First Schedule.”

• Clause (7) inserted by the Finance Act, 2016.

• Clause (7) omitted by the Finance Act, 2021. The omitted clause read as follows:

“(7)    The provisions of sub-section (1), shall not apply in respect of an individual or association of persons who derive income chargeable to tax under this section not exceeding two hundred thousand rupees in a tax year and does not derive taxable income under any other head.”

⁴Inserted by the Finance Act, 2013.

• The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

⁷The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

⁹The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

¹¹The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

• The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

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• where the property has been acquired, constructed, renovated, extended, or reconstructed by the ¹[ ] ²[person] with capital contributed by the House Building Finance Corporation or a scheduled bank under a scheme of investment in property on the basis of sharing the rent made by the Corporation or bank, the share in rent and share towards appreciation in the value of property (excluding the return of capital, if any) from the property paid or payable by the ³[ ] ⁴[person] to the said Corporation or the bank in the year under that scheme;

• where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such mortgage or charge;

⁵[(h)    any expenditure, not exceeding ⁶[four] per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section, paid or payable by the ⁷[ ] ⁸[person] in the year wholly and exclusively for the purpose of deriving rent chargeable to tax under the head, “Income from Property” including administration and collection charges;”]

1. any expenditure paid or payable by the ⁹[ ] ¹⁰[person] in the tax year for legal services acquired to defend the ¹¹[ ] ¹²[persons]’s title to the property or any suit connected with the property in a court; and

• where there are reasonable grounds for believing that any unpaid rent in respect of the property is irrecoverable, an allowance equal to the unpaid rent where—

• the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property and the defaulting tenant is not in occupation of any other property of the ¹³[ ] ¹⁴[person];

¹The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

³The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

⁵Clause (h) substituted by the Finance Act, 2015. The substituted (h) read as follows:-

“(h)   any expenditure (not exceeding six per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section) paid or payable by the person in the year for the purpose of collecting the rent due in respect of the property;”

⁶The word “six” substituted by “four” through Finance Act, 2020 dated 30^th June, 2020

⁷The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

⁹The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

¹¹The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

¹³The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

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• the ¹[ ] ²[persons] has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or has reasonable grounds to believe that legal proceedings would be useless; and

• the unpaid rent has been included in the income of the ³[ ] ⁴[persons] chargeable to tax under the head “Income from Property” for the tax year in which the rent was due and tax has been duly paid on such income.

• Where any unpaid rent allowed as a deduction under clause (j) of sub-section (1) is wholly or partly recovered, the amount recovered shall be chargeable to tax in the tax year in which it is recovered.

• Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable to tax under the head “Income from Property” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Property” in the first tax year following the end of the three years.

• Where an unpaid liability is chargeable to tax as a result of the application of sub-section (3) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

1. Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in computing the income of the person chargeable to tax under any other head of income.

• The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to tax under the head “Income from Business”.]

⁵[  ]

⁶[  ]

¹The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

³The word “person” substituted by the Finance Act, 2016.

• The word “company” substituted by the Finance Act, 2021.

• New sub-section (7) added by Finance Act, 2019

• Sub-section (7) omitted by the Finance Act, 2021. The omitted sub-section read as follows:

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Chapter III – Tax on Taxable Income ______________________

• Non-adjustable amounts received in relation to buildings.— (1) Where the owner of a building receives from a tenant an amount which is not adjustable against the rent payable by the tenant, the amount shall be treated as rent chargeable to tax under the head “Income from Property” in the tax year in which it was received and the following nine tax years in equal proportion.

• Where an amount (hereinafter referred to as the “earlier amount”) referred to in sub-section (1) is refunded by the owner to the tenant on termination of the tenancy before the expiry of ten years, no portion of the amount shall be allocated to the tax year in which it is refunded or to any subsequent tax year except as provided for in sub-section (3).

• Where the circumstances specified in sub-section (2) occur and the owner lets out the building or part thereof to another person (hereinafter referred to as the “succeeding tenant”) and receives from the succeeding tenant any amount (hereinafter referred to as the “succeeding amount”) which is not adjustable against the rent payable by the succeeding tenant, the succeeding amount as reduced by such portion of the earlier amount as was charged to tax shall be treated as rent chargeable to tax under the head “Income from Property” as specified in sub-section (1).

¹[  ]

“(7)   Notwithstanding sub-section (6) of section 15, the provisions of this section shall apply to an individual or an association of persons,⁶[ ] who opts to pay tax at the rate specified in Division I of Part I of the First Schedule.”

• Section 17 omitted by the Finance Act, 2006. The omitted section 17 read as follows:

“17. Deductions in computing income chargeable under the head “Income from Property”.- (1) In computing the income of a person chargeable to tax under the head “Income fromProperty” for a tax year, a deduction shall be allowed for the following expenditures or allowances, namely:–

1. In respect of repairs to a building, an allowance equal to one-fifth of the rent chargeable to tax in respect of the building for the year, computed before any deduction allowed under this section;
2. any premium paid or payable by the person in the year to insure the building against the risk of damage or destruction;

1. any local rate, tax, charge, or cess in respect of the property or the rent from the property paid or payable by the person to any local authority or government in the year, not being any tax payable under this Ordinance;
2. any ground rent paid or payable by the person in the year in respect of the property;

1. any profit paid or payable by the person in the year on any money borrowed including by way of mortgage, to acquire, construct, renovate, extend, or reconstruct the property;

• where the property has been acquired, constructed, renovated, extended, or reconstructed by the person with capital contributed by the House Building Finance Corporation or a scheduled bank under a scheme of investment in property on the basis of sharing the rent made by the Corporation or bank, the share in rent and share towards appreciation in the value of property (excluding the return of capital, if any) from the property paid or payable by the person to the

said Corporation or the bank in the year under that scheme;

(fa) where the property is subject to mortgage or other capital charge, the amount of profit or interest paid on such mortgage or charge;

1. any expenditure (not exceeding six per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section) paid or payable by the person in the year for the purpose of collecting the rent due in respect of the property;

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PART IV

HEAD OF INCOME: INCOME FROM BUSINESS

Division I

Income from Business

1. Income from business.— (1) The following incomes of a person for a tax year, other than income exempt from tax under this Ordinance, shall be chargeable to tax under the head “Income from Business” —

• the profits and gains of any business carried on by a person at any time in the year;

• any income derived by any trade, professional or similar association from the sale of goods or provision of services to its members ¹[.

Explanation.– For the removal of doubt, it is clarified that income derived by co-operative societies from the sale of goods, immoveable property or provision of services to its members is

1. any expenditure paid or payable by the person in the tax year for legal services acquired to defend the person’s title to the property or any suit connected with the property in a Court; and

• where there are reasonable grounds for believing that any unpaid rent in respect of the property is irrecoverable, an allowance equal to the unpaid rent where –

• the tenancy was bona fide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property, and the defaulting tenant is not in occupation of any other property of the person;

• the person has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or has reasonable grounds to believe that legal proceedings would be useless; and

• the unpaid rent has been included in the income of the person chargeable to tax under the head “Income from Property” for the tax year in which the rent was due and tax has been duly paid on such income.

• Where any unpaid rent allowed as a deduction under clause (i) of sub-section (1) is wholly or partly recovered, the amount recovered shall be chargeable to tax in the tax year in which it is recovered.

• Where a person has been allowed a deduction for any expenditure incurred in deriving rent chargeable to tax under the head “Income from Property” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Property” in the first tax year following the end of the three years.

• Where an unpaid liability is chargeable to tax as a result of the application of sub-section

(3) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

1. Any expenditure allowed to a person under this section as a deduction shall not be allowed as a deduction in computing the income of the person chargeable to tax under any other head of income.

• The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of a person chargeable to tax under the head “Income from Business”.”
• Semi colon substituted and Explanation added by the Finance Act, 2021.

Chapter III – Tax on Taxable Income ______________________

and has always been chargeable to tax under the provisions of this Ordinance;]

1. any income from the hire or lease of tangible movable property;

• the fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship¹[.]

²[Explanation. — For the purposes of this clause, it is declared that the word ‘benefit’ includes any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan Banking Policy Department’s Circular No.29 of 2002 or in any other scheme issued by the State Bank of Pakistan;]

1. any management fee derived by a management company (including a modaraba ³[management company] ).]

4[Explanation.—For the removal of doubt it is clarified that income subject to taxation under sections 5A, 5AA, 6, 7 and 7A shall not be chargeable to tax under this section.”]

1. Any profit on debt derived by a person where the person’s business is to derive such income shall be chargeable to tax under the head “Income from Business” and not under the head “Income from Other Sources”.

⁵[(3) Where a ⁶[lessor], being a scheduled bank or an investment bank or a development finance institution or a modaraba or a leasing company has leased out any asset, whether owned by it or not, to another person, any amount paid or payable by the said person in connection with the lease of said asset shall be treated as the income of the said ⁷[lessor] and shall be chargeable to tax under the head “Income from Business”.]

⁸[(4) Any amount received by a banking company or a non-banking finance company, where such amount represents distribution by a mutual fund ⁹[or a

¹The semi-colon and the word “and” substituted by the Finance Act, 2011.

²Inserted by the Finance Act, 2011.

1. Inserted by the Finance Act, 2002

1. Added by the Finance Act, 2018

1. Added by the Finance Act, 2003.

⁶The word “lesser” substituted by the word “lessor”  by the Finance Act, 2014.

⁷The word “lesser”  substituted by the word “lessor”  by the Finance Act, 2014.

⁸Added by the Finance Act, 2003.

⁹Inserted by the Finance Act, 2007.

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Private Equity and Venture Capital Fund] out of its income from profit on debt, shall be chargeable to tax under the head “Income from Business” and not under the head “Income from Other Sources”.]

• Speculation business.— (1) Where a person carries on a speculation business –

• that business shall be treated as distinct and separate from any other business carried on ¹[by]the person;

• this Part shall apply separately to the speculation business and the other business of the person; b head “Income from Business” for that year; and

1. any loss of the person arising from the speculation business sustained for a tax year computed in accordance with this Part shall be dealt with under section 58.

1. In this section, “speculation business” means any business in which a contract for the purchase and sale of any commodity (including ²[stocks] and shares) is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity, but does not include a business in which —

1. a contract in respect of raw materials or merchandise is entered into by a person in the course of a manufacturing or mercantile business to guard against loss through future price fluctuations for the purpose of fulfilling the person’s other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold;

1. a contract in respect of stocks and shares is entered into by a dealer or investor therein to guard against loss in the person’s holding of stocks and shares through price fluctuations; or

1. a contract is entered into by a member of a forward market or stock exchange in the course of any transaction in the nature of jobbing ³[arbitrage] to guard against any loss which may arise in the ordinary course of the person’s business as such member.

¹Inserted by the Finance Act, 2002

• The word “stock” substituted by the Finance Act, 2005.

• The word “arbitrate” substituted by the Finance Act, 2005.

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Division II

Deductions: General Principles

• Deductions in computing income chargeable under the head “Income from Business”.— (1) Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from Business” for a tax year, a deduction shall be allowed for any expenditure incurred by the person in the year ¹[wholly and exclusively for the purposes of business].

²[(1A) Subject to this Ordinance, where animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, ³[a deduction shall be allowed equal to] the difference between the actual cost to the taxpayer of the animals and the amount, if any, realized in respect of the carcasses or animals.]

• Subject to this Ordinance, where the expenditure referred to in sub-section (1) is incurred in acquiring a depreciable asset or an intangible with a useful life of more than one year or is pre-commencement expenditure, the person must depreciate or amortise the expenditure in accordance with sections 22, 23, 24 and 25.

⁴[(3) Subject to this Ordinance, where any expenditure is incurred by an amalgamated company on legal and financial advisory services and other administrative cost relating to planning and implementation of amalgamation, a deduction shall be allowed for such expenditure.]

• Deductions not allowed.— Except as otherwise provided in this Ordinance, no deduction shall be allowed in computing the income of a person under the head “Income from Business” for —

1. any cess, rate or tax paid or payable by the person in Pakistan or a foreign country that is levied on the profits or gains of the business or assessed as a percentage or otherwise on the basis of such profits or gains;

1. any amount of tax deducted under Division III of Part V of Chapter X from an amount derived by the person;

• The words “to the extent the expenditure is incurred in deriving income from business chargeable to tax” substituted by the Finance Act, 2004.

²Inserted by the Finance Act, 2009.

1. Inserted by the Finance Act, 2021.

1. Added by the Finance Act, 2002

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¹[(c) any expenditure from which the person is required to deduct or collect tax under Part V of Chapter X or Chapter XII, unless the person has paid or deducted and paid the tax as required by Division IV of Part V of Chapter X:

Provided that disallowance in respect of purchases of raw materials and finished goods under this clause shall not exceed twenty per cent of purchases of raw materials and finished goods:

Provided further that recovery of any amount of tax under sections 161 or 162 shall be considered as tax paid.]

²[(ca) any amount of commission paid or payable in respect of supply of products listed in the Third Schedule of the Sales Tax Act, 1990, where the amount of commission paid or payable exceeds 0.2 percent of gross amount of supplies thereof unless the person to whom commission is paid or payable, as the case may be, is appearing in the active taxpayer list under this Ordinance;]

1. any entertainment expenditure in excess of such limits ³[or in violation of such conditions] as may be prescribed;

1. any contribution made by the person to a fund that is not a recognized provident fund⁴[,]⁵[approved pension fund], approved superannuation fund or approved gratuity fund;

⁶[(ea) an amount in excess of fifty percent of contribution made by a person to an approved gratuity fund, an approved pension fund or an approved superannuation fund.]

1. any contribution made by the person to any provident or other fund established for the benefit of employees of the person, unless the person has made effective arrangements to secure that tax is deducted under section 149 from any payments made by the fund in respect of which the recipient is chargeable to tax under the head “Salary”;

¹Clause (c) substituted by the Finance Act, 2016. The substituted clause (c) read as follows:

“(c) any salary, rent, brokerage or commission, profit on debt, payment to non-resident, payment for services or fee paid by the person from which the person is required to deduct tax under Division III of Part V of Chapter X or section 233 of chapter XII, ¹[unless] the person has ¹[paid or] deducted and paid the tax as required by Division IV of Part V of Chapter X”

²New clause (ca) inserted by Finance Act, 2019.

1. Inserted by the Finance Act, 2003. ⁴Inserted by Finance Act, 2014.

1. Inserted by the Finance Act, 2005.

• Clause (ea) inserted by the Finance Act, 2022.

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1. any fine or penalty paid or payable by the person for the violation of any law, rule or regulation;

1. any personal expenditures incurred by the person;

1. any amount carried to a reserve fund or capitalised in any way;

1. any profit on debt, brokerage, commission, salary or other remuneration paid by an association of persons to a member of the association;

	1[  ]
2[(l)	any expenditure for a transaction, paid or payable under a single account
	head which, in aggregate, exceeds 3[two hundred and fifty]  thousand
	rupees, made other than by a crossed cheque drawn on a bank or by
	crossed bank draft or crossed pay order or any other crossed banking

instrument showing transfer of amount from the business bank account of the taxpayer:

Provided that online transfer of payment from the business account of the payer to the business account of payee as well as payments through credit card shall be treated as transactions through the banking channel, subject to the condition that such transactions are verifiable from the bank statements of the respective payer and the payee:

Provided further that this clause shall not apply in the case of —

• expenditures  not  exceeding  ⁴[twenty-five]  thousand

rupees;

• expenditures on account of —

• utility bills;

• freight charges;

• Clause (k) omitted by the Finance Act, 2006. The omitted clause (k) read as follows:

“(k) any expenditure paid or payable by an employer on the provision of perquisites and allowances to an employee where the sum of the value of the perquisites computed under section 13 and the amount of the allowances exceeds fifty per cent of the employee’s salary for a tax year (excluding the value of the perquisites or amount of the allowances);”

• Clause (l) substituted by the Finance Act, 2006. The substituted clause (l) read as follows:

“(l)  any expenditure paid or payable under a single account head which, in aggregate, exceeds fifty thousand rupees made other than by a crossed bank cheque or crossed bank draft, except expenditures not exceeding ten thousand rupees or on account of freight charges, travel fare, postage, utilities or payment of taxes, duties, fee, fines or any other statutory obligation;”

• Expression substituted through Finance Act, 2020 dated 30^th June, 2020

• Expression substituted through Finance Act, 2020 dated 30^th June, 2020

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• travel fare;

• postage; and

• payment of taxes, duties, fee, fines or any other statutory obligation ¹[:]]

²[Provided further also that this clause shall not apply to a company from the date clause (la) has been made effective through the notification issued by the Board.

(la)    any expenditure by a taxpayer being a company for a transaction, paid or payable under a single account head which, in aggregate, exceeds rupees two hundred and fifty thousand, made other than by digital means from business bank account of the taxpayer notified to the Commissioner under section 114A:

Provided that this clause shall not apply in the case of-

• expenditures not exceeding Rupees twenty-five thousand; and
• expenditures on account of —
  • utility bills;

• freight charges;
  • travel fare;
  • postage; and

• payment of taxes, duties, fee, fines or any other statutory obligation:

Provided further that this clause shall be effective from such date as the Board may notify.]

1. any salary paid or payable exceeding ³[ ] ⁴[thirty-two thousand rupees per month to an individual] other than by a crossed cheque or direct transfer of funds to the employee’s bank account ⁵[or through digital means]; ⁶[ ]

• Semi colon substituted by the Finance Act, 2022.

1. Inserted by the Finance Act, 2022.

• The word “fifteen” substituted by the Finance Act, 2020 dated 30^th June, 2020.

• The expression “twenty-five thousand rupees per month” substituted by the Finance Act,

2023.

1. Inserted by the Finance Act, 2022.

• The word “and” omitted by the Finance Act, 2016.

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• except as provided in Division III of this Part, any expenditure paid or

payable of a capital nature; ¹[  ]

²[“(o)      any expenditure in respect of sales promotion, advertisement and publicity in excess of ³[ten] per cent of turnover incurred by pharmaceutical manufacturers ⁴[;]”]

⁵[(p)     any expenditure on account of utility bill in excess of such limits and in violation of such conditions as may be prescribed; and

1. any expenditure attributable to sales made to persons required to be registered but not registered under the Sales Tax Act, 1990 by an industrial undertaking computed according to the following formula, namely:-

(A/B) x C

Where—

1. is the total amount of deductions claimed under this Part;

1. is the turnover for the tax year; and

1. is the total amount of sales exclusive of sales tax and federal excise duty to persons required to be registered but not registered under the Sales Tax, 1990 where sales equal or exceed rupees one hundred million per person:

Provided that disallowance of expenditure under this clause shall not exceed ten percent of total deductions claimed under this Part:

Provided further that the Board may, by notification in the official Gazette, exempt persons or classes of persons from this clause subject to such conditions and limitations as may be specified therein:

Provided also that this clause shall come into force with effect from the first day of October, 2020.]

⁶[(r)    any expenditure attributable to sales claimed by any person who is required to integrate but fails to integrate his business with the Board through approved fiscal electronic device and software:

Provided that disallowance of expenditure under this clause shall not exceed eight percent of the allowable deduction.]

¹The word “and” omitted by the Finance Act, 2020 dated 30^th June, 2020.

²Inserted by the Finance Act, 2016

³The word “five” substituted by the Finance Act, 2017

• Full stop substituted by semi colon through Finance Act, 2020 dated 30^th June, 2020

• New clauses (p) and (q) added through Finance Act, 2020 dated 30^th June, 2020

1. Inserted by the Finance Act, 2022.

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Division III

Deductions: Special Provisions

• Depreciation.— (1) Subject to this section, a person shall be allowed a deduction for the depreciation of the person’s depreciable assets used in the person’s business in the tax year.

• Subject to ¹[sub-section] (3) ²[ ], the depreciation deduction for a tax year shall be computed by applying the rate specified in Part I of the Third Schedule against the written down value of the asset at the beginning of the year ³[:]

⁴[  ]

• Where a depreciable asset is used in a tax year partly in deriving income from business chargeable to tax and partly for another use, the deduction allowed under this section for that year shall be restricted to the fair proportional part of the amount that would be allowed if the asset ⁵[was] wholly used to ⁶[derive] income from business chargeable to tax.

⁷[  ]

• The written down value of a depreciable asset of a person at the beginning of the tax year shall be —

• where the asset was acquired in the tax year, the cost of the asset to the person as reduced by any initial allowance in respect of the asset under section 23; or

• The word “sub-sections” substituted by the Finance Act, 2005.

• The word, brackets and figure “and (4)” omitted by Finance Act, 2004.

• Full stop substituted by colon and thereafter the new proviso added through Finance Act, 2020 dated 30^th June, 2020

• Proviso omitted by the Finance Act, 2022. The omitted proviso read as follows:

“Provided that where a depreciable asset is used in the person’s business for the first time in a tax year commencing on or after the 1^st day of July, 2020, the depreciation deduction shall be reduced by fifty percent.”

⁵The word “were” substituted by the Finance Act, 2010.

• The word “derived” substituted by the Finance Act, 2003.

• Sub-section (4) omitted by the Finance Act, 2004. The omitted sub-section (4) reads as follows:

“(4) Where a depreciable asset is not used for the whole of the tax year in deriving income from business chargeable to tax, the deduction allowed under this section shall be computed according to the following formula, namely:–

A x B/C

where –

1. is the amount of depreciation computed under sub-section (2) or (3), as the case may be;

1. is the number of months in the tax year the asset is used in deriving income from business chargeable to tax; and

1. is the number of months in the tax year.”

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1. in any other case, the cost of the asset to the person as reduced by the total depreciation deductions (including any initial allowance under section 23) allowed to the person in respect of the asset in previous tax years.

¹[“Explanation,- For the removal of doubt, it is clarified that where any building, furniture, plant or machinery is used for the purposes of business during any tax year for which the income from such business is exempt, depreciation admissible under sub-section (1) shall be treated to have been allowed in respect of the said tax year and after expiration of the exemption period, written down value of such assets shall be determined after reducing total depreciation deductions (including any initial allowance under section 23) in accordance with clauses (a) and (b) of this sub-section.”]

• Where sub-section (3) applies to a depreciable asset for a tax year, the written down value of the asset shall be computed on the basis that the asset has been solely used to derive income from business chargeable to tax.

• The total deductions allowed to a person during the period of ownership of a depreciable asset under this section and section 23 shall not exceed the cost of the asset.

• Where, in any tax year, a person disposes of a depreciable asset, no depreciation deduction shall be allowed under this section for that year and —

1. if the consideration received exceeds the written down value of the asset at the time of disposal, the excess shall be chargeable to tax in that year under the head “Income from Business”; or

1. if the consideration received is less than the written down value of the asset at the time of disposal, the difference shall be allowed as a deduction in computing the person’s income chargeable under the head “Income from Business” for that year ²[:]

³[ ]

• Where sub-section (3) applies, the written down value of the asset for the purposes of sub-section (8) shall be increased by the amount that is not allowed as a deduction as a result of the application of sub-section (3).

1. Inserted by the Finance Act, 2016.

• Full stop substituted by colon and thereafter the new proviso added through Finance Act, 2020 dated 30^th June, 2020

• Proviso omitted by the Finance Act, 2022. The omitted proviso read as follows:

“Provided that where a depreciable asset is used in the person’s business for the first time in a tax year commencing on or after the 1^st day of July, 2020, depreciation deduction equal to fifty percent of the rate specified in Part I of the Third Schedule shall be allowed in the year of disposal.”.

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• Where clause (a) of sub-section (13) applies, the ¹[consideration received on disposal] of the passenger transport vehicle for the purposes of sub-section (8) shall be computed according to the following formula —

A x B/C

where –

1. is the ²[amount] received on disposal of the vehicle;

1. is the amount referred to in clause (a) of sub-section (13); and

1. is the actual cost of acquiring the vehicle.

• Subject to sub-sections (13) and (14), the rules in Part III of Chapter IV shall apply in determining the cost and consideration received in respect of a depreciable asset for the purposes of this section.

³[(12) The depreciation deductions allowed to a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution and leased to another person shall be deductible only against the lease rental income derived in respect of such assets.]

• For the purposes of this section, —

• the cost of a depreciable asset being a passenger transport vehicle not plying for hire shall not exceed ⁴[seven and a half] million rupees;

⁵[  ]

• the cost of immovable property or a structural improvement to immovable property shall not include the cost of the land;

• The words “written down value” substituted by the Finance Act, 2004.

• The word “consideration” substituted by the Finance Act, 2004.

• Sub-section (12) substituted by the Finance Act, 2002. The substituted sub-section (12)  read as

follows:

“(12) The depreciation deductions allowed to a leasing company in respect of assets owned by the company and leased to another person shall be deductible only against the lease rental income derived in respect of such assets.”

• The expression “⁴[two]⁴[and half]” substituted by the Finance Act, 2022.

⁵Proviso omitted by the Finance Act, 2009. The omitted proviso read as follows:

“Provided that the prescribed limit of one million rupees shall not apply to passenger transport vehicles, not plying for hire, acquired on or after the first day of July, 2005.”

Chapter III – Tax on Taxable Income ______________________

¹[(c)     any asset owned by a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution and leased to another person is treated as used in the leasing company or the investment bank or the modaraba or the scheduled bank or the development finance institution’s business; and]

• where the consideration received on the disposal of immovable property exceeds the cost of the property, the consideration received shall be treated as the cost of the property.

• Where a depreciable asset that has been used by a person in Pakistan is exported or transferred out of Pakistan, the person shall be treated as having disposed of the asset at the time of the export or transfer for a consideration received equal to the cost of the asset.

1. In this section, —

“depreciable asset” means any tangible movable property, immovable property (other than unimproved land), or structural improvement to immovable property, owned by a person that —

• has a normal useful life exceeding one year;

1. is likely to lose value as a result of normal wear and tear, or obsolescence; and

1. is used wholly or partly by the person in deriving income from business chargeable to tax,

but shall not include any tangible movable property, immovable property, or structural improvement to immovable property in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the property or improvement in the tax year in which the property is acquired or improvement made by the person; and

“structural improvement” in relation to immovable property, includes any building, road, driveway, car park, railway line, pipeline, bridge, tunnel, airport runway, canal, dock, wharf, retaining wall, fence, power lines, water or sewerage pipes, drainage, landscaping or dam²[:]

¹Clause (c) substituted by the Finance Act, 2002. The substituted clause read as follows:

“(c)     an asset owned by a financial institution or leasing company and leased to another person is treated as used in the financial institution or leasing company’s business; and”.

²Fullstop substituted by Finance Act, 2017.

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¹[“Provided that where a depreciable asset is jointly owned by a taxpayer and an Islamic financial institution licensed by the State Bank of Pakistan or Securities and Exchange Commission of Pakistan, as the case may be, pursuant to an arrangement of Musharika financing or diminishing Musharika financing, the depreciable asset shall be treated to be wholly owned by the taxpayer.”;]

1. Initial allowance.—(1) A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed a deduction

(hereinafter referred to as an “initial allowance”) computed in accordance with sub-section (2), provided the asset is ²[used by the person for the purposes of his business for the first time or the tax year in which commercial production is commenced, whichever is later].

• The amount of the initial allowance of a person shall be computed by applying the rate specified in Part II of the Third Schedule against the cost of the asset.

• The rules in section 76 shall apply in determining the cost of an eligible depreciable asset for the purposes of this section.

³[(4) A deduction allowed under this section to a leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or the investment bank or the modaraba or the scheduled bank or the development finance institution and leased to another person shall be deducted only against the leased rental income derived in respect of such assets.]

1. In this section, “eligible depreciable asset” means a depreciable asset

⁴[  ] other than —

1. any road transport vehicle unless the vehicle is plying for hire;

1. any furniture, including fittings;

1. any plant or machinery⁵[that has been used previously in Pakistan]; ⁶[ ]

¹Added by the Finance Act, 2017.

²Substituted for “wholly and exclusively used by the person in deriving income from business chargeable to tax” by Finance Act,2004 dated June 24,2004 w.e.f July 1,2004

• Sub-section (4) substituted by the Finance Act, 2002. The substituted sub-section (4) read as follows:

“(4) A deduction allowed under this section to a leasing company in respect of assets owned by the company and leased to another person shall be deductible only against the lease rental income derived in respect of such assets.”

• The words and comma “that is plant and machinery,” omitted by the Finance Act, 2003. ⁵The words “that is acquired second hand” substituted by the Finance Act.2003

• The word “or” omitted by the Finance Act, 2022.

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1. any plant or machinery in relation to which a deduction has been allowed under another section of this Ordinance for the entire cost of the asset in the tax year in which the asset is acquired ¹[; or

1. immovable property or structural improvement to the immovable property.]

²[ ]

³[  ]

⁴[23B. Accelerated depreciation to alternate energy projects.— (1) Any plant, machinery and equipments installed for generation of alternate energy by an industrial undertaking set up anywhere in Pakistan and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under section 23, at the rate specified in Part II of the Third Schedule against the cost of the eligible depreciation assets put to use after first day of July, 2009.

• The provisions of section 23 except sub-sections (1) and (2) thereof, shall mutatis mutandis apply.]

1. Intangibles.—(1) A person shall be allowed an amortisation deduction in accordance with this section in a tax year for the cost of the person’s intangibles–

• that are wholly or partly used by the person in the tax year in deriving income from business chargeable to tax; and

• that have a normal useful life exceeding one year.

• No deduction shall be allowed under this section where a deduction has been allowed under another section of this Ordinance for the entire cost of the intangible in the tax year in which the intangible is acquired.

• The full stop substituted with semi colon and the word “or” and thereafter clause (e) added by the Finance Act, 2022.

²Inserted by the Finance Act, 2008.

• Section 23A omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws

(Second Amendment) Ordinance, 2021. The omitted section read as follows:

“23A. First Year Allowance.— (1) Plant, machinery and equipment installed by any industrial undertaking set up in specified rural and under developed areas ³[or engaged in the manufacturing of cellular mobile phones and qualifying for exemption under clause (126N) of Part I of the Second Schedule] and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under section 23 at the rate specified in Part II of the Third Schedule against the cost of the “eligible depreciable assets” put to use after July 1, 2008.

(2) The provisions of section 23 except sub-sections (1) and (2) thereof, shall mutatis mutandis

apply.

• The Federal Government may notify “specified areas” for the purposes of sub-section (1).] ⁴Inserted by the Finance Act, 2009.

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• Subject to sub-section (7), the amortization deduction of a person for a tax year shall be computed according to the following formula, namely:—

A

B

where —

1. is the cost of the intangible; and

1. is the normal useful life of the intangible in whole years.

¹[(4) An intangible that does not have an ascertainable useful life shall be treated as if it had a normal useful life of twenty-five years.]

• Where an intangible is used in a tax year partly in deriving income from business chargeable to tax and partly for another use, the deduction allowed under this section for that year shall be restricted to the fair proportional part of the amount that would be allowed if the intangible were wholly used to derive income from business chargeable to tax.

• Where an intangible is not used for the whole of the tax year in deriving income from business chargeable to tax, the deduction allowed under this section shall be computed according to the following formula, namely: —

A x B/C

where —

1. is the amount of ²[amortization] computed under sub-section (3) or (5), as the case may be;

1. is the number of days in the tax year the intangible is used in deriving income from business chargeable to tax; and

1. is the number of days in the tax year.

• The total deductions allowed to a person under this section in the current tax year and all previous tax years in respect of an intangible shall not exceed the cost of the intangible.

1. In sub-section 4 of section 24 is substituted by the Finance Act, 2019, the substituted sub-section read as follow:
   1. An intangible —

• with a normal useful life of more than ten years; or
  • that does not have an ascertainable useful life,

shall be treated as if it had a normal useful life of ten years.

• The word “depreciation” substituted by the Finance Act, 2002

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• Where, in any tax year, a person disposes of an intangible, no amortisation deduction shall be allowed under this section for that year and —

1. if the consideration received by the person exceeds the written down value of the intangible at the time of disposal, the excess shall be income of the person chargeable to tax in that year under the head “Income from Business”; or

1. if the consideration received is less than the written down value of the intangible at the time of disposal, the difference shall be allowed as a deduction in computing the person’s income chargeable under the head “Income from Business” in that year.

• For the purposes of sub-section (8) —

• the written down value of an intangible at the time of disposal shall be the cost of the intangible reduced by the total deductions allowed to the person under this section in respect of the intangible or, where the intangible is not wholly used to derive income chargeable to tax, the amount that would be allowed under this section if the intangible were wholly so used; and

• the consideration received on disposal of an intangible shall be determined in accordance with section 77.

• For the purposes of this section, an intangible that is available for use on a day (including a non-working day) is treated as used on that day.

1. In this section, —

“cost” in relation to an intangible, means any expenditure incurred in acquiring or creating the intangible, including any expenditure incurred in improving or renewing the intangible; and

“intangible” means any patent, invention, design or model, secret formula or process, copyright ¹[, trade mark, scientific or technical knowledge, computer software, motion picture film, export quotas, franchise, licence, intellectual property], or other like property or right, contractual rights and any expenditure that provides an advantage or benefit for a period of more than one year (other than expenditure incurred to acquire a depreciable asset or unimproved land, ²[but shall

1. Inserted by the Finance Act, 2003.

²The words Inserted by the Finance Act, 2019.

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Chapter III – Tax on Taxable Income ______________________

not include self-generated goodwill or any adjustment arising on account of accounting treatment in the manner as may be prescribed]

• Pre-commencement expenditure.—(1) A person shall be allowed a deduction for any pre-commencement expenditure in accordance with this section.

• Pre-commencement expenditure shall be amortized on a straight-line basis at the rate specified in Part III of the Third Schedule.

• The total deductions allowed under this section in the current tax year and all previous tax years in respect of an amount of pre-commencement expenditure shall not exceed the amount of the expenditure.

• No deduction shall be allowed under this section where a deduction has been allowed under another section of this Ordinance for the entire amount of the pre-commencement expenditure in the tax year in which it is incurred.

1. In this section, “pre-commencement expenditure” means any expenditure incurred before the commencement of a business wholly and exclusively to derive income chargeable to tax, including the cost of feasibility studies, construction of prototypes, and trial production activities, but shall not include any expenditure which is incurred in acquiring land, or which is depreciated or amortised under section 22 or 24.

• Scientific research expenditure.— (1) A person shall be allowed a deduction for scientific research expenditure incurred in Pakistan in a tax year wholly and exclusively for the purpose of deriving income from business chargeable to tax.

1. In this section —

“scientific research” means any ¹[activity] ²[undertaken in Pakistan] in the fields of natural or applied science for the development of human knowledge;

“scientific research expenditure” means any expenditure incurred by a person on scientific research ³[undertaken in Pakistan] for the purposes of developing the person’s business, including any contribution to a scientific research institution to undertake scientific research for the purposes of the person’s business, other than expenditure incurred –

1. in the acquisition of any depreciable asset or intangible;

• The word  “activities” substituted by the Finance Act, 2002

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

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Chapter III – Tax on Taxable Income ______________________

1. in the acquisition of immovable property; or

• for the purpose of ascertaining the existence, location, extent or quality of a natural deposit; and

“scientific research institution” means any institution certified by the ¹[Board] as conducting scientific research in Pakistan.

• Employee training and facilities.— A person shall be allowed a deduction for any expenditure (other than capital expenditure) incurred in a tax year in respect of—

1. any educational institution or hospital in Pakistan established for the benefit of the person’s employees and their dependents;

1. any institute in Pakistan established for the training of industrial workers recognized, aided, or run by the Federal Government ²[or a Provincial Government] or a ³[Local Government]; or
   1. the training of any person, being a citizen of Pakistan, in connection with a scheme approved by the ⁴[Board] for the purposes of this section.

• Profit on debt, financial costs and lease payments.— (1) Subject to this Ordinance, a deduction shall be allowed for a tax year for —

1. any profit on debt incurred by a person in the tax year to the extent that the proceeds or benefit of the debt have been used by the person ⁵[for the purposes of business];

1. any lease rental incurred by a person in the tax year to a scheduled bank, financial institution, an approved modaraba, an approved leasing company or a Special Purpose Vehicle on behalf of the Originator for an asset used by the person ⁶[for the purposes of business] ⁷[:]

¹The words “Central Board of Revenue” substituted by the Finance Act, 2007.

²Inserted by the Finance Act, 2003.

³The words “local authority” substituted by the Finance Act, 2008.

⁴The words “Central Board of Revenue” substituted by the Finance Act, 2007.

• The words “in deriving income chargeable to tax under the head “Income from Business” substituted by the Finance Act, 2004.

• The words “in deriving income chargeable to tax under the head “Income from Business” substituted by the Finance Act, 2004.

• Sami colon substituted by colon and thereafter the new proviso added through Finance Act, 2020 dated 30^th June, 2020

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¹[Provided that for the purpose of determining the deduction on account of lease rentals the cost of a passenger transport vehicle not paying for hire to the extent of principal amount shall not exceed two and a half million rupees;]

1. any amount incurred by a person in the tax year to a modaraba or a participation term certificate holder for any funds borrowed and used by the person ²[for the purposes of business];

1. any amount incurred by a scheduled bank in the tax year to a person maintaining a profit or loss sharing account or a deposit with the bank as a distribution of profits by the bank in respect of the account or deposit;

1. any  amount  incurred   by  the  House   Building   Finance

Corporation (hereinafter referred to as “the Corporation”) constituted under the House Building Finance Corporation Act, 1952 (XVIII of 1952), in the tax year to the State Bank of

Pakistan (hereinafter referred to as “the Bank”) as the share of the Bank in the profits derived by the Corporation on its investment in property made under a scheme of partnership in profit and loss, where the investment is provided by the Bank under the House Building Finance Corporation (Issue and Redemption of Certificates) Regulations, 1982;

1. any amount incurred by the National Development Leasing

Corporation Limited (hereinafter referred to as “the Corporation”) in the tax year to the State Bank of Pakistan (hereinafter referred to as “the Bank”) as the share of the Bank in the profits derived by the Corporation on its leasing operations financed out of a credit line provided by the Bank on a profit and loss sharing basis;

1. any amount incurred by the ³[Small and Medium Enterprises

Bank (hereinafter referred to as “the SME Bank”)]in the tax year to the State Bank of Pakistan (hereinafter referred to as the “Bank”) as the share of the Bank in the profits derived by the ⁴[SME Bank] on investments made in small business out of a credit line provided by the Bank on a profit and loss sharing basis;

• Proviso added through Finance Act, 2020 dated 30^th June, 2020

• The words “in deriving income chargeable to tax under the head “Income from Business” substituted by the Finance Act, 2004.

³The words “Small Business Finance Corporation (hereinafter referred to as “the Corporation”)” substituted by the Finance Act, 2009.

⁴The word “Corporation” substituted by the Finance Act, 2011.

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Chapter III – Tax on Taxable Income ______________________

1. any amount incurred by a person in the tax year to a banking company under a scheme of musharika representing the bank’s share in the profits of the musharika;

1. any amount incurred by a person in the tax year to a certificate holder under a musharika scheme approved by the Securities and Exchange Commission and Religious Board formed under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980) representing the certificate holder’s share in the profits of the musharika; or

• the financial cost of the securitization of receivables incurred by an Originator in the tax year from a Special Purpose Vehicle being the difference between the amount received by the Originator and the amount of receivables securitized from a Special Purpose Vehicle.

• Notwithstanding any other provision in this Ordinance, where any assets are transferred by an Originator, as a consequence of securitisation¹[“or issuance of sukuks”], to a Special Purpose Vehicle, it shall be treated as a financing transaction irrespective of the method of accounting adopted by the Originator.

1. In this section, —

“approved leasing company” means a leasing company approved by the ²[Board] for the purposes of clause (b) of sub-section (1); and

“approved modaraba” means a modaraba approved by the ³[Board] for the purposes of clause (b) of sub-section (1).

• Bad debts.— (1) A person shall be allowed a deduction for a bad debt in a tax year if the following conditions are satisfied, namely:—

• the amount of the debt was –

• previously included in the person’s income from business chargeable to tax; or

1. in respect of money lent by a financial institution in deriving income from business chargeable to tax;

1. Inserted by the Presidential Order No.F.2(1)/2016-Pub dated 31.08.2016.

²The words “Central Board of Revenue” substituted by the Finance Act, 2007.

³The words “Central Board of Revenue” substituted by the Finance Act, 2007.

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• the debt or part of the debt is written off in the accounts of the person in the tax year; and

• there are reasonable grounds for believing that the debt is irrecoverable.

• The amount of the deduction allowed to a person under this section for a tax year shall not exceed the amount of the debt written off in the accounts of the person in the tax year.

• Where a person has been allowed a deduction in a tax year for a bad debt and in a subsequent tax year the person receives in cash or kind any amount in respect of that debt, the following rules shall apply, namely:–

• where the amount received exceeds the difference between the whole of such bad debt and the amount previously allowed as a deduction under this section, the excess shall be included in the person’s income under the head “Income from Business” for the tax year in which it was received; or

• where the amount received is less than the difference between the whole of such bad debt and the amount allowed as a deduction under this section, the shortfall shall be allowed as a bad debt deduction in computing the person’s income under the head “Income from Business” for the tax year in which it was received.

¹[29A. Provision regarding consumer loans.— (1) A ²[ ] ³[non-banking finance company or the House Building Finance Corporation] shall be allowed a deduction, not exceeding three per cent of the income for the tax year, arising out of consumer loans for creation of a reserve to off-set bad debts arising out of such loans.

• Where bad debt cannot be wholly set off against reserve, any amount of bad debt, exceeding the reserves shall be carried forward for adjustment against the reserve for the following years.]

⁴[Explanation.— In this section, “consumer loan” means a loan of money or its equivalent made by ⁵[ ] a non-banking finance company or the House Building Finance Corporation to a debtor (consumer)

1. Inserted by the Finance Act, 2003.

²The words “banking company or” omitted by the Finance Act, 2009.

1. Inserted by the Finance Act, 2004.

1. Added by the Finance Act, 2004.

⁵The words “a banking company or” omitted by the Finance Act, 2009.

Chapter III – Tax on Taxable Income ______________________

and the loan is entered primarily for personal, family or household purposes and includes debts created by the use of a lender credit card or similar arrangement as well as insurance premium financing.]

• Profit on non-performing debts of a banking company or development finance institution.—(1) A banking company or development finance institution ¹[or Non-Banking Finance Company (NBFC) or modaraba] shall be allowed a deduction for any profit accruing on a non-performing debt of the banking company or institution ²[or Non-Banking Finance Company (NBFC) or modaraba] where the profit is credited to a suspense account in accordance with the Prudential Regulations for Banks or ³[Non-Banking Finance Company or modaraba] Non-bank Financial Institutions, as the case may be, issued by the State Bank of Pakistan ⁴[or the Securities and Exchange Commission of Pakistan].

1. Any profit deducted under sub-section (1) that is subsequently recovered by the banking company or development finance institution ⁵[or Non-Banking Finance Company (NBFC) or modaraba] shall be included in the income of the company or institution ⁶[or Non-Banking Finance Company (NBFC) or modaraba] chargeable under the head “Income from Business” for the tax year in which it is recovered.

31. Transfer to participatory reserve.—(1) Subject to this section, a company shall be allowed a deduction for a tax year for any amount transferred by the company in the year to a participatory reserve created under ⁷[section 66 of the Companies Act, 2017 (XIX of 2017)] in accordance with an agreement relating to participatory redeemable capital entered into between the company and a banking company as defined in the⁸[Financial Institutions(Recovery of Finances) Ordinance,2001 (XLVI of 2001).]

• The deduction allowed under subsection (1) for a tax year shall be limited to five per cent of the value of the company’s participatory redeemable capital.

• No deduction shall be allowed under subsection (1) if the amount of the tax exempted accumulation in the participatory reserve exceeds ten per cent of the amount of the participatory redeemable capital.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

• The words “Non-bank Financial Institutions” substituted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

• The expression “section 120 of the Companies Ordinance, 1984 (XLVII of 1984)” substituted by the

Finance Act, 2021.

8The words “Banking Tribunals Ordinance, 1984” substituted by the words “Financial Institutions (Recovery Of Finances) Ordinance, 2001 (XLVI of 2001) by the Finance Act 2014”.

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Chapter III – Tax on Taxable Income ______________________

• Where any amount accumulated in the participatory reserve of a company has been allowed as a deduction under this section is applied by the company towards any purpose other than payment of share of profit on the participatory redeemable capital or towards any purpose not allowable for deduction or exemption under this Ordinance the amount so applied shall be included in the income from business of the company in the tax year in which it is so applied.

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Division IV

Tax Accounting

• Method of accounting.—¹[(1) Subject to this Ordinance, a person’s income chargeable to tax shall be computed in accordance with the method of accounting regularly employed by such person.]

• Subject to sub-section (3), a company shall account for income chargeable to tax under the head “Income from Business” on an accrual basis, while other persons may account for such income on a cash or accrual basis.

• The ²[Board] may prescribe that any class of persons shall account for income chargeable to tax under the head “Income from Business” on a cash or accrual basis.

1. A person may apply, in writing, for a change in the person’s method of accounting and the Commissioner may, by ³[order] in writing, approve such an application but only if satisfied that the change is necessary to clearly reflect the person’s income chargeable to tax under the head “Income from Business”.

1. If a person’s method of accounting has changed, the person shall make adjustments to items of income, deduction, or credit, or to any other items affected by the change so that no item is omitted and no item is taken into account more than once.

• Cash-basis accounting.—A person accounting for income chargeable to tax under the head “Income from Business” on a cash basis shall derive income when it is received and shall incur expenditure when it is paid.

34. Accrual-basis accounting.—(1) A person accounting for income chargeable to tax under the head “Income from Business” on an accrual basis shall derive income when it is due to the person and shall incur expenditure when it is payable by the person.

• Subject to this Ordinance, an amount shall be due to a person when the person becomes entitled to receive it even if the time for discharge of the entitlement is postponed or the amount is payable by instalments.

• Sub-section (1) substituted by the Finance Act, 2003. The substituted sub-section (1) read as follows:

“(1)A person’s income chargeable to tax under the head “Income from Business” shall be

computed in accordance with the method of accounting regularly employed by the person.” ²The words “Central Board of Revenue” substituted by the Finance Act, 2007.

• Substituted for the word “notice” by the Finance Act, 2003.

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• Subject to this Ordinance, an amount shall be payable by a person when all the events that determine liability have occurred and the amount of the liability can be determined with reasonable accuracy ¹[ ].

²[  ]

• Where a person has been allowed a deduction for any expenditure incurred in deriving income chargeable to tax under the head “Income from Business” and the person has not paid the liability or a part of the liability to which the deduction relates within three years of the end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to tax under the head “Income from Business” in the first tax year following the end of the three years.

³[(5A) Where a person has been allowed a deduction in respect of a trading liability and such person has derived any benefit in respect of such trading liability, the value of such benefit shall be chargeable to tax under ⁴[the] head “Income from Business” for the tax year in which such benefit is received.]

• Where an unpaid liability is chargeable to tax as a result of the application of sub-section (5) and the person subsequently pays the liability or a part of the liability, the person shall be allowed a deduction for the amount paid in the tax year in which the payment is made.

• Stock-in-trade.— (1) For the purposes of determining a person’s income chargeable to tax under the head “Income from Business” for a tax year, the cost of stock-in-trade disposed of by the person in the year shall be computed in accordance with the following formula, namely:—

(A+B)–C

where —

1. is the opening value of the person’s stock-in-trade for the year;

1. is cost of stock-in-trade acquired by the person in the year; and

¹The comma and words “, but not before economic performance occurs” omitted by the Finance Act, 2004.

• Sub-section (4) omitted by the Finance Act, 2004. The omitted sub-section (4) read as follows:

“(4)For the purposes of sub-section (3), economic performance shall occur –

1. in the case of the acquisition of services or assets, at the time the services or assets are provided;
   1. in the case of the use of assets, at the time the assets are used; and

1. in any other case, at the time payment is made in full satisfaction of the liability.”
2. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2005.

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1. is the closing value of stock-in-trade for the year.

• The opening value of stock-in-trade of a person for a tax year shall be —

• the closing value of the person’s stock-in-trade at the end of the previous year; or

• where the person commenced to carry on business in the year, the fair market value of any stock-in-trade acquired by the person prior to the commencement of the business.

• The fair market value of stock-in-trade referred to in clause (b) of sub-section (2) shall be determined at the time the stock-in-trade is ventured in the business.

• The closing value of a person’s stock-in-trade for a tax year shall be the lower of cost or ¹[net realisable]value of the person’s stock-in-trade on hand at the end of the year.

1. A person accounting for income chargeable to tax under the head

“Income from Business” on a cash basis may compute the person’s cost of stock-in-trade on the prime-cost method or absorption-cost method, and a person accounting for such income on an accrual basis shall compute the person’s cost of stock-in-trade on the absorption-cost method.

• Where particular items of stock-in-trade are not readily identifiable, a person may account for that stock on the first-in-first-out method or the average-cost method but, once chosen, a stock valuation method may be changed only with the written permission of the Commissioner and in accordance with any conditions that the Commissioner may impose.

1. In this section, —

“absorption-cost method” means the generally accepted accounting principle under which the cost of an item of stock-in-trade is the sum of direct material costs, direct labour costs, and factory overhead costs;

“average-cost method” means the generally accepted accounting principle under which the valuation of stock-in-trade is based on a weighted average cost of units on hand;

“direct labour costs” means labour costs directly related to the manufacture or production of stock-in-trade;

• Substituted for the words “fair market” by the Finance Act, 2002

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“direct material costs” means the cost of materials that become an integral part of the stock-in-trade manufactured or produced, or which are consumed in the manufacturing or production process;

“factory overhead costs” means the total costs of manufacturing or producing stock-in-trade, other than direct labour and direct material costs;

“first-in-first-out method” means the generally accepted accounting principle under which the valuation of stock-in-trade is based on the assumption that stock is sold in the order of its acquisition;

“prime-cost method” means the generally accepted accounting principle under which the cost of stock-in-trade is the sum of direct material costs, direct labour costs, and variable factory overhead costs;

“stock-in-trade” means anything produced, manufactured, purchased, or otherwise acquired for manufacture, sale or exchange, and any materials or supplies to be consumed in the production or manufacturing process, but does not include stocks or shares; and

“variable factory overhead costs” means those factory overhead costs which vary directly with changes in volume of stock-in-trade manufactured or produced.

• Long-term contracts.— (1) A person accounting for income chargeable to tax under the head “Income from Business” on an accrual basis shall compute such income arising for a tax year under a long-term contract on the basis of the percentage of completion method.

• The percentage of completion of a long-term contract in a tax year shall be determined by comparing the total costs allocated to the contract and incurred before the end of the year with the estimated total contract costs as determined at the commencement of the contract.

1. In this section, —

“long-term contract” means a contract for manufacture, installation, or construction, or, in relation to each, the performance of related services, which is not completed within the tax year in which work under the contract commenced, other than a contract estimated to be completed within six months of the date on which work under the contract commenced; and

“percentage of completion method” means the generally accepted accounting principle under which revenue and expenses arising under a long-term contract are recognised by reference to the stage of completion of the contract, as modified by sub-section (2).

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Chapter III – Tax on Taxable Income ______________________

PART V

HEAD OF INCOME: CAPITAL GAINS

• Capital gains.— (1) Subject to this Ordinance, a gain arising on the disposal of a capital asset by a person in a tax year, other than a gain that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Capital Gains”.

¹[      ]

²[(1A) Notwithstanding anything contained in sub-section (1), gain arising on disposal of immovable property situated in Pakistan, to a person in a tax year shall be chargeable to tax under the head capital gains at the rates specified in Division VIII of Part I of the First Schedule.]

• Subject to ³[sub-section (4)], the gain arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely:–

A – B

where —

1. is the consideration received by the person on disposal of the asset; and

1. is the cost of the asset. ⁴[ ]

¹Inserted by the Finance Act, 2012.

• Sub-section (1A) substituted by the Finance Act, 2022. Substituted sub-section (1A) reads as follows:

“(1A) Notwithstanding anything contained in sub-sections (1) and (3) gain ²[under sub-section

(3A) ²[ ] ] ²[ ] by a person in a tax year, shall be chargeable to tax in that year under the head Capital

Gains at the rates specified in Division VIII of Part I of the First Schedule.”

• The expression “sub-sections (3) and” omitted by the Finance Act, 2022.

• Sub-section (3) omitted by the Finance Act, 2022. Omitted sub-section (3) reads as follows:

“(3) Where a capital asset has been held by a person for more than one year,⁴[other than shares of public companies including the vouchers of Pakistan Telecommunication Corporation, modaraba certificates or any instrument of redeemable capital as defined in the ⁴[Companies Act, 2017 (XIX of 2017)], ] the amount of any gain arising on disposal of the asset shall be computed in accordance with the following formula, namely: —

A x ¾

where A is the amount of the gain determined under sub-section (2).”

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¹[    ]

²[      ]

³[  ]

• The sub-section (3A) substituted through Finance Act, 2020 dated 30^th June, 2020 the substituted

sub-section read as follows:

(3A) Notwithstanding anything contained in sub-section (3), the amount of any gain arising on disposal of immovable property being an open plot shall be computed in accordance with the formula specified in the Table below, namely:-

TABLE

S.No.	Holding Period	Gain
(1)	(2)	(3)
1.	Where the holding period of open plot does not exceed one year	A
2.	Where the holding period of open plot exceeds one year but does not	A x 3/4
	exceed eight years
3.	Where the holding period of open plot exceeds eight years	0
	where A is the amount of the gain determined under sub-section (2).

• Sub-sections (3A) omitted by the Finance Act, 2022. Omitted sub-section reads as follows:

(3A) Notwithstanding anything contained in sub-section (3), the amount of any gain arising on disposal of an immovable property shall be computed in accordance with the formula specified in the Table below, namely:-

TABLE

S.No.	Holding period	Gain
(1)	(2)	(3)
1.	Where the holding period of an immovable property	A
	does not exceed one year
2.	Where the holding period of an immovable property	A x 3/4
	exceeds one year but does not exceed two years
3.	Where the holding period of an immovable property	A x 1/2
	exceeds  two  years  but  does  not  exceed  three
	years
4.	Where the holding period of an immovable property	A x 1/4
	exceeds  three  years  but  does  not  exceed  four
	years
5.	Where the holding period of an immovable property	0
	exceeds four years

where A is the amount of gain determined under sub-section (2).]

• Sub-section (3B) omitted through Finance Act, 2020 dated 30^th June, 2020. The omitted clause read as follows: (3B) Notwithstanding anything contained in sub-section (3), the amount of any gain arising on disposal of immovable property being a constructed property shall be computed in accordance with the formula specified in the Table below, namely:-

TABLE

S.No.	Holding Period	Gain
(1)	(2)	(3)
1.	Where the holding period of constructed property does not exceed one year	A
2.	Where the holding period of constructed property exceeds one year but	A x 3/4
	does not exceed four years
3.	Where the holding period of constructed property exceeds four years	0
	where A is the amount of the gain determined under sub-section (2).]

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Chapter III – Tax on Taxable Income ______________________

• For the purposes of determining component B of the formula in sub-section (2), no amount shall be included in the cost of a capital asset for any expenditure incurred by a person –

• that is or may be deducted under another provision of this Chapter; or

• that is referred to in section 21.

¹[      ]

²[     ]

1. In this section, “capital asset” means property of any kind held by a person, whether or not connected with a business, but does not include —

³[(a)     any stock-in-trade ⁴[ ], consumable stores or raw materials held for the purpose of business;]

1. any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortisation deduction under section 24; ⁵[or]

⁶[  ]

1. any movable property ⁷[excluding capital assets specified in sub-section (5) of section 38] held for personal use by the

1. Inserted by the Finance Act, 2003.

• Sub-section (4A) omitted through Finance Act, 2022. Omitted sub-section read as follows: “(4A) Where the capital asset becomes the property of the person —

• under a gift ²[from a relative as defined in sub section (5) of section 85], bequest or will;
  • by succession, inheritance or devolution;

1. a distribution of assets on dissolution of an association of persons; or
   1. on distribution of assets on liquidation of a company,

the fair market value of the asset, on the date of its transfer or acquisition by the person shall be treated to be the cost of the asset ²[:

Provided that, if the capital asset acquired through gift is disposed of within two years of acquisition and the Commissioner is satisfied that such gift arrangement is a part of tax avoidance scheme, then the provisions of sub-section (3) of section 79 shall apply for the purpose of determining the cost of asset in the hands of recipient of the gift.]

• The brackets and words “(a) any stock-in-trade;” substituted by the Finance Act, 2002

⁴The brackets and words “(not being stocks and shares)” omitted by the Finance Act, 2010.

⁵Inserted by the Finance Act, 2012.

⁶Clause (c) omitted by the Finance Act, 2012. Omitted clause (c) read as follows:-

“(c)       any immovable property; or”

• The brackets, commas and words “(including wearing apparel, jewellery, or furniture)” substituted by the Finance Act, 2003.

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Chapter III – Tax on Taxable Income ______________________

person or any member of the person’s family dependent on the person¹[.]

²[  ]

³[(6) The person acquiring a capital asset, being shares of a company, shall deduct advance adjustable tax from the gross amount paid ⁴[or payable] as consideration for the shares ⁵[at the time of payment or at the time of registration of shares by the Securities and Exchange Commission of Pakistan or by the State Bank of Pakistan, whichever is earlier] at the rate of ten percent of the fair market value of the shares which shall be paid to the Commissioner by way of credit to the Federal Government, within fifteen days of the payment.

• Notwithstanding the provisions of section 68, the value of shares, for the purpose of sub-section (6), shall be the fair market value, as prescribed for sub-section (4) of section 101A, without reduction of liabilities.

• The Commissioner may, on application made by the person acquiring of the shares, and after making such inquiry as the Commissioner thinks fit, allow to make the payment, without deduction of tax or deduction of tax at a reduced rate.

• The provisions of sections 161, 162, entry No. 15 of the Table in section 182, clause (c) of sub-section (1) of section 191 and section 205 shall mutatis mutandis apply to the tax deductible and payable under this section.

• The person disposing of the capital asset, being shares of a company, shall furnish to the Commissioner within thirty days of the transaction of disposal, the prescribed information or documents, in a statement as may be prescribed:

Provided that the Commissioner may, by notice in writing, require the said person, to furnish information, documents and statement within a period of less than thirty days as specified in the notice.]

• The comma and word “; or” substituted by the Finance Act, 2002

• Clause (e) omitted by the Finance Act, 2001. The omitted clause (e) read as follows:

“(e)     any modaraba certificate or any instrument of redeemable capital listed on any stock exchange or shares of a public company.”

³ Sub-sections (6) to (10) added by the Finance (Supplementary) Act, 2023 (X of 2023) dated

23.02.2023.

• Words inserted by the Finance Act, 2024.

• Expression inserted by the Finance Act, 2024.

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¹[37A. Capital gain on disposal of securities. — (1) The capital gain arising on or after the first day of July 2010, from disposal of securities²[ ]³[, other than a gain that is exempt from tax under this Ordinance], shall be chargeable to tax at the rates specified in Division VII of Part I of the First Schedule:

⁴[ ]

Provided ⁵[ ] that this section shall not apply to a banking company and an insurance company ⁶[:

⁷[Provided further that this section shall not apply to the disposal of shares –

• of a listed company made otherwise than through registered stock exchange and which are not settled through NCCPL;

• through initial public offer during listing process except where the detail of such disposal is furnished to NCCPL for computation of capital gains and tax thereon under this section,

and the provisions of section 37 shall apply on such disposal of shares of a listed company or disposal of shares through initial public offer, accordingly.]]

⁸[(1A) The gain arising on the disposal of a security by a person shall be computed in accordance with the following formula, namely: —

A – B

Where —

• ‘A’ is the consideration received by the person on disposal of the security; and

¹Added by the Finance Act, 2010.

• Omitted by Finance Act, 2015. The omitted words read as follows:-

“ held for a period of less than a year,”

³Inserted by the Finance Act, 2012.

• The First proviso omitted by Finance Act, 2014. The omitted proviso read as follows:

“Provided that this section shall not apply if the securities are held for a period of more than a year.”

⁵The word “further” omitted by Finance Act, 2014

• Full stop substituted with colon and new proviso added by the by the Finance (Supplementary) Act, 2023 (X of 2023) dated 23.02.2023.

• Second proviso substituted by the by the Finance Act, 2023. The substituted second proviso read as follows:

“Provided further that this section shall not apply to the disposal of shares of a listed company made otherwise than through registered stock exchange and which are not settled through NCCPL and the provisions of section 37 shall apply on such disposal of shares of a listed company, accordingly.”

⁸Inserted by the Finance Act,2012.

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• ‘B’ is the cost of acquisition of the security.]

• The holding period of a security, for the purposes of this section, shall be reckoned from the date of acquisition (whether before, on or after the thirtieth day of June, 2010) to the date of disposal of such security falling after the thirtieth day of June, 2010.

• For the purposes of this section “security” means share of a public company, voucher of Pakistan Telecommunication Corporation, Modaraba Certificate, an instrument of redeemable capital¹[,debt Securities] ²[, unit of exchange traded fund] and derivative products.

³[(3A)      For the purpose of this section, “debt securities” means –

• Corporate Debt Securities such as Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds), Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and all kinds of debt instruments issued by any Pakistani or foreign company or corporation registered in Pakistan; and

• Government Debt Securities such as Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds, Infrastructure Bonds and all kinds of debt instruments issued by Federal Government, Provincial Governments, Local Authorities and other statutory bodies.]

⁴[“Explanation: For removal of doubt it is clarified that derivative products include future commodity contracts entered into by the members of Pakistan Mercantile Exchange whether or not settled by physical delivery.”]

⁵[(3B) For the purpose of this section, “shares of a public company” shall be considered as security if such company is a public company at the time of disposal of such shares.]

• Gain under this section shall be treated as a separate block of income.

• Notwithstanding anything contained in this Ordinance, where a person sustains a loss on disposal of securities in a tax year, the loss shall be set off only

¹Inserted by the Finance Act, 2014.

1. Inserted by the Finance Act, 2021.

³The sub-section (3A) inserted by the Finance Act, 2014.

⁴Inserted by the Finance Act, 2016.

• New sub-section (3B) inserted through Finance Act, 2020 dated 30^th June, 2020

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against the gain of the person from any other securities chargeable to tax under this section and no loss shall be carried forward to the subsequent tax year ¹[:]

²[Provided that so much of the loss sustained on disposal of securities in tax year 20l9 and onwards that has not been set off against the gain of the person from disposal of securities chargeable to tax under this section shall be carried forward to the following tax year and set off only against the gain of the person from disposal of securities chargeable to tax under this section, but no such loss shall be carried forward to more than three tax years immediately succeeding the tax year for which the loss was first computed.]

³[(6) To carry out purpose of this section, the Board may prescribe rules.]

• Deduction of losses in computing the amount chargeable under the head “Capital Gains”.— (1) Subject to this Ordinance, in computing the amount of a person chargeable to tax under the head “Capital Gains” for a tax year, a deduction shall be allowed for any loss on the disposal of a capital asset by the person in the year.

• No loss shall be deducted under this section on the disposal of a capital asset where a gain on the disposal of such asset would not be chargeable to tax.

• The loss arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely: —

A – B

where —

1. is the cost of the asset; and

1. is the consideration received by the person on disposal of the asset.

• The provisions of sub-section (4) of section 37 shall apply in determining component A of the formula in sub-section (3).

• No loss shall be recognized under this Ordinance on the disposal of the following capital assets, namely:—

1. A painting, sculpture, drawing or other work of art;

• jewellery;

1. a rare manuscript, folio or book;

1. a postage stamp or first day cover;

1. a coin or medallion; or

1. an antique.

• Full stop substituted by colon through Finance Supplementary (Second Amendment) Act, 2019

• New Proviso added through Finance Supplementary (Second Amendment) Act, 2019

1. Added by the Finance Act, 2021.

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PART VI

HEAD OF INCOME: INCOME FROM OTHER SOURCES

1. Income from other sources. — (1) Income of every kind received by a person in a tax year, ¹[if it is not included in any other head,] other than income exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Income from Other Sources”, including the following namely: —

• ²[Dividend;]

• ³[royalty;]

• profit on debt;

⁴[(cc) additional payment on delayed refund under any tax law;]

• ground rent;

• rent from the sub-lease of land or a building;

1. income from the lease of any building together with plant or machinery;

⁵[(fa)      income from provision of amenities, utilities or any other service connected with renting of building;]

1. any annuity or pension;

1. any prize bond, or winnings from a raffle, lottery⁶[, prize on winning a quiz, prize offered by companies for promotion of sale] or cross-word puzzle;

1. any other amount received as consideration for the provision, use or exploitation of property, including from the grant of a right to explore for, or exploit, natural resources;

1. Inserted by the Finance Act, 2002

• The word “Dividends” substituted by the Finance Act, 2002

• The word “royalties” substituted by the Finance Act, 2002

⁴Inserted by the Finance Act, 2012.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

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• the fair market value of any benefit, whether convertible to money or not, received in connection with the provision, use or exploitation of property; ¹[ ]

1. any amount received by a person as consideration for vacating the possession of a building or part thereof, reduced by any amount paid by the person to acquire possession of such building or part thereof; ²[ ]

3[(l)

any amount received by a person from Approved Income Payment Plan or Approved Annuity Plan under Voluntary Pension System Rules, 20054[; 5[ ] ]

⁶[(Ia)    subject to sub-section (3), any amount or fair market value of any property received without consideration or received as gift, other than gift received from ⁷[relative as defined in sub-section (5) of section 85] ] ⁸[; and]

⁹[(lb)    income arising to the shareholder of a company, from the issuance of bonus shares;]

10_[ 11_{[ ] ]}

• Where a person receives an amount referred to in clause (k) of sub-section (1), the amount shall be chargeable to tax under the head “Income from Other Sources” in the tax year in which it was received and the following nine tax years in equal proportion.

• Subject to sub-section (4), any amount received as a loan, advance, deposit ¹²[for issuance of shares] or gift by a person in ¹³[a tax year]from another person (not being a banking company or financial institution) otherwise than by a

• The word “and” omitted by the Finance Act, 2014.

• The word “and” omitted by the Finance Act, 2019.

1. Added by the Finance Act,  2005.

• The “full stop” substituted by word “;and” by the Finance Act, 2019.

• The word “and” omitted by the Finance Act, 2023.

• New clause (Ia) inserted by the Finance Act, 2019.

• The expression “grandparents, parents, spouse, brother, sister, son or a daughter” substituted by the Finance Act, 2021.

• Full stop substituted with a semi-colon and the word “and” added by the Finance Act, 2023.

• Clause added by the Finance Act, 2023.

• Clause (m) added by the Finance Act, 2014.

• Clause (m) omitted by the Finance Act, 2018,the omitted clause(m) reads as follows:-

“(m) income arising to the shareholder of a company, from the issuance of bonus shares”

1. Inserted by the Finance Act, 2003.

• The words “an income year” substituted by the Finance Act, 2002

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crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number ¹[ ] shall be treated as income chargeable to tax under the head “Income from Other Sources” for the tax year in which it was received.

• Sub-section (3) shall not apply to an advance payment for the sale of goods or supply of services.

²[(4A) Where —

1. any profit on debt derived from investment in National Savings Deposit Certificates including Defence Savings Certificate paid to a person in arrears or the amount received includes profit chargeable to tax in the tax year or years preceding the tax year in which it is received; and

1. as a result the person is chargeable at higher rate of tax than would have been applicable if the profit had been paid to the person in the tax year to which it relates,

the person may, by notice in writing to the Commissioner, elect for the profit to be taxed at the rate of tax that would have been applicable if the profit had been paid to the person in the tax year to which it relates.]

³[(4B) An election under sub-section (4A) shall be made by the due date for furnishing the person’s return of income for the tax year in which the amount was received or by such later date as the Commissioner may allow by an order in writing.]

• This section shall not apply to any income received by a person in a tax year that is chargeable to tax under any other head of income or subject to tax under section ⁴[5, 5AA, 6, 7 or 7B].

⁵[  ]

• Deductions in computing income chargeable under the head “Income from Other Sources”.— (1) Subject to this Ordinance, in computing the income of a person chargeable to tax under the head “Income from Other Sources” for a tax year, a deduction shall be allowed for any expenditure paid by the person in the year to the extent to which the expenditure is paid in deriving income chargeable to tax under that head, other than expenditure of a capital nature.

• The word “Card” omitted by the Finance Act, 2006.

1. Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

• The expression “5, 6 or 7” substituted by the Finance Act, 2021.

• Sub-section (6) omitted by the Finance Act, 2002. The omitted sub-section (6) read as follows:

“(6)Expenditure is of a capital nature if it has a normal useful life of more than one year.”

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1. A person receiving any profit on debt chargeable to tax under the head

“Income from Other Sources” shall be allowed a deduction for any Zakat paid by the person ¹[ ] under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), at the time the profit is paid to the person.

1. A person receiving income referred to in clause ²[  ] (f) of sub-section
2. of section 39 chargeable to tax under the head “Income from Other Sources” shall be allowed —

1. a deduction for the depreciation of any plant, machinery or building used to derive that income in accordance with section 22; and

1. an initial allowance for any plant or machinery used to derive that income in accordance with section 23.

• No deduction shall be allowed to a person under this section to the extent that the expenditure is deductible in computing the income of the person under another head of income.

• The provisions of section 21 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in determining the deductions allowed in computing the income of the person chargeable to tax under the head “Income from Business”.

³[(6) Expenditure is of a capital nature if it has a normal useful life of more than one year.]

• The words “on the profit” omitted by the Finance Act, 2003.

• The brackets, letter and word “(e) or” omitted by the Finance Act, 2003.

1. Added by the Finance Act,  2002.

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Chapter III – Tax on Taxable Income ______________________

PART VII

EXEMPTIONS AND TAX CONCESSIONS

1. Agricultural income. — (1) Agricultural income derived by a person shall be exempt from tax under this Ordinance.

1. In this section, “agricultural income” means, —

1. any rent or revenue derived by a person from land which is situated in Pakistan and is used for agricultural purposes;

1. any income derived by a person from land situated in Pakistan from —

1. agriculture;

• the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by such person to render the produce raised or received by the person fit to be taken to market; or

• the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by such person, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); or

1. any income derived by a person from —

1. any building owned and occupied by the receiver of the rent or revenue of any land described in clause (a) or (b);

1. any building occupied by the cultivator, or the receiver of rent-in-kind, of any land in respect of which, or the produce of which, any operation specified in sub-clauses (ii) or (iii) of clause (b) is carried on,

but only where the building is on, or in the immediate vicinity of the land and is a building which the receiver of the rent or revenue, or the cultivator, or the receiver of the rent-in-kind by reason of the person’s connection with the land, requires as a dwelling-house, a store-house, or other out-building.

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Chapter III – Tax on Taxable Income ______________________

• Diplomatic and United Nations exemptions. — (1) The income of an individual entitled to privileges under the Diplomatic and Consular Privileges Act, 1972 (IX of 1972) shall be exempt from tax under this Ordinance to the extent provided for in that Act.

• The income of an individual entitled to privileges under the United Nations (Privileges and Immunities) Act, 1948 (XX of 1948), shall be exempt from tax under this Ordinance to the extent provided for in that Act.

1. Any pension received by a person, being a citizen of Pakistan, by virtue of the person’s former employment in the United Nations or its specialised agencies (including the International Court of Justice) provided the person’s salary from such employment was exempt under this Ordinance.

• Foreign government officials.— Any salary received by an employee of a foreign government as remuneration for services rendered to such government shall be exempt from tax under this Ordinance provided —

• the employee is a citizen of the foreign country and not a citizen of Pakistan;

• the services performed by the employee are of a character similar to those performed by employees of the Federal Government in foreign countries; ¹[and]

• the foreign government grants a similar exemption to employees of the Federal Government performing similar services in such foreign country²[.]

³[  ]

• Exemptions under international agreements.— (1) Any Pakistan-source income which Pakistan is not permitted to tax under a tax treaty shall be exempt from tax under this Ordinance.

1. Any salary received by an individual (not being a citizen of Pakistan) shall be exempt from tax under this Ordinance to the extent provided for in an Aid Agreement between the Federal Government and a foreign government or public international organization, where –

1. Added by the Finance Act, 2002

• The comma and word  “,and” substituted by the Finance Act, 2002

• Clause (d) omitted by the Finance Act, 2002. The omitted clause (d) read as under:

“(d)      the income is subject to tax in that foreign country.”

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• the individual is either ¹[not a resident] individual or a resident individual solely by reason of the performance of services under the Aid Agreement;

1. if the Aid Agreement is with a foreign country, the individual is a citizen of that country; and

• the salary is paid by the foreign government or public international organisation out of funds or grants released as aid to Pakistan in pursuance of such Agreement.

1. Any income received by  ²[any person]  engaged as  a contractor,

consultant, or expert on a project in Pakistan shall be exempt from tax under this Ordinance to the extent provided for in a bilateral or multilateral ³[ ] agreement between the Federal Government and a foreign government or public international organisation, where —

• the project is financed out of grant funds in accordance with the agreement;

• the person is either a non-resident person or a resident person solely by reason of the performance of services under the agreement; and

• the income is paid out of the funds of the grant in pursuance of the agreement.

⁴[(4) Federal Government may, in respect of an official development assistance financed loans and grants-in-aid, subject to such conditions and limitations as it may specify, exempt income of any person on a case to case basis through a notification in the official Gazette.]

⁵[44A. Exemption under Foreign Investment (Promotion and Protection) Act, 2022 (XXXV of 2022). – (1) Taxes on income (including capital gains), advance tax, withholding taxes, minimum and final taxes under this Ordinance shall, for the period and to the extent provided in the Second and Third Schedules to the Foreign Investment (Promotion and Protection) Act, 2022 (XXXV of 2022) in respect of qualified investment as specified at Sr. No.1 of the First Schedule to the said Act

• The words “a non-resident” substituted by the Finance Act, 2003.

• The expression “a person (not being a citizen of Pakistan)” substituted by the Finance Act, 2022.

• The expression “technical assistance” omitted by the Finance Act, 2022.

• Sub-section (4) inserted by the Finance Act, 2022.

• Section 44A inserted by the Finance Act, 2023.

Chapter III – Tax on Taxable Income ______________________

or investors, be exempt or subject to tax at the rate and in the manner specified under the said Act.

1. All investors and shareholders of the qualified investment, their associates and companies specified in the Second and Third Schedules to the said Act including third party lenders on account of any loan shall also be exempt from taxes and other provisions of this Ordinance or subject to tax at the rate and in the manner specified under the said Act for the period and to the extent provided in the Second and Third Schedules to the said Act.

• Provisions of this Ordinance relating to Anti-Avoidance, for the period and to the extent specified in the said Act including sections 106, 106A, 108, 109 and 109A, shall not apply to the persons and amounts mentioned in sub-sections

1. and (2).

• Rates of depreciation, initial allowance and pre-commencement expenditure under sections 22, 23 and 25 as on the 20th day of March, 2022 shall continue to be applicable for thirty years as provided in the Third Schedule to the said Act in respect of persons mentioned in sub-sections (1) and (2).

• For the purpose of this section, the terms defined under the Second and Third Schedules to the said Act shall apply mutatis mutandis to this Ordinance.]

• President’s honours.— (1) Any allowance attached to any Honour, Award, or Medal awarded to a person by the President of Pakistan shall be exempt from tax under this Ordinance.

1. Any monetary award granted to a person by the President of Pakistan shall be exempt from tax under this Ordinance.

• Profit on debt.— Any profit received by a non-resident person on a security issued by a resident person shall be exempt from tax under this Ordinance where—

• the persons are not associates;

• the security was widely issued by the resident person outside Pakistan for the purposes of raising a loan outside Pakistan for use in a business carried on by the person in Pakistan;

• the profit was paid outside Pakistan; and

• the security is approved by the ¹[Board] for the purposes of this section.

¹The words “Central Board of Revenue” substituted by the Finance Act, 2007.

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Chapter III – Tax on Taxable Income ______________________

• Scholarships.— Any scholarship granted to a person to meet the cost of the person’s education shall be exempt from tax under this Ordinance, other than where the scholarship is paid directly or indirectly by an associate.

• Support payments under an agreement to live apart.—¹[Any income received by a spouse as support payment under an agreement to live apart] shall be exempt from tax under this Ordinance.

• Federal ²[Government,] Provincial Government, and ³[Local Government] income.— (1) The income of the Federal Government shall be exempt from tax under this Ordinance.

• The income of a Provincial Government or a ⁴[Local Government] in Pakistan shall be exempt from tax under this Ordinance, other than income chargeable under the head “Income from Business” derived by a Provincial

Government or ⁵[Local Government] from a business carried on outside its jurisdictional area.

⁶[(3) Subject to sub-section (2), any payment received by the Federal Government, a Provincial Government or a ⁷[Local Government] shall not be liable to any collection or deduction of advance tax.]

⁸[(4) Exemption under this section shall not be available in the case of corporation, company, a regulatory authority, a development authority, other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company, a regulatory authority, a development authority or other body or institution set up, owned and controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income as laid down in Article 165A of the Constitution of the Islamic Republic of Pakistan⁹[:]

• The words “Any support payment received by a spouse under an agreement to live apart” substituted by the Finance Act, 2002.
• The word “and” substituted by the Finance Act, 2009.

³The words “local authority” substituted by the Finance Act, 2008.

⁴The words “local authority” substituted by the Finance Act, 2008.

⁵The words “local authority” substituted by the Finance Act, 2008.

⁶Added by the Finance Act, 2006.

⁷The words “local authority” substituted by the Finance Act, 2008.

⁸Added by the Finance Act, 2007.

⁹Full stop substituted by a colon by the Finance Act, 2014.

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¹[Provided that the income from sale of spectrum licenses ²[and renewal thereof] by Pakistan Telecommunication Authority on behalf of the Federal Government after the first day of March 2014 shall be treated as income of the Federal Government and not of the Pakistan Telecommunication Authority.]

• Foreign-source income of short-term resident individuals.— (1) Subject to sub-section (2), the foreign-source income of an individual ³[ ] —

• who is a resident individual solely by reason of the individual’s employment; and

• who is present in Pakistan for a period or periods not exceeding three years,

shall be exempt from tax under this Ordinance.

• This section shall not apply to —

1. any income derived from a business of the person established in Pakistan; or

1. any foreign-source income brought into or received in Pakistan by the person.

• Foreign-source income of returning expatriates.—⁴[(1)] Any foreign-source income derived by a citizen of Pakistan in a tax year who was not a resident individual in any of the four tax years preceding the tax year in which the individual became a resident shall be exempt from tax under this Ordinance in the tax year in which the individual became a resident individual and in the following tax year.

⁵[(2) Where a citizen of Pakistan leaves Pakistan during a tax year and remains abroad during that tax year, any income chargeable under the head “Salary” earned by him outside Pakistan during that year shall be exempt from tax under this Ordinance.]

⁶[  ]

¹Added by the Finance Act, 2014.

• The words “and renewal thereof” inserted through Finance Supplementary (Second Amendment) Act, 2019

• The brackets and words “(other than a citizen of Pakistan)” omitted by the Finance Act, 2003.

• Section 51 numbered as sub-section (1) of section 51 by the Finance Act, 2003.

1. Added by the Finance Act, 2003.

• Section 52 omitted by the Finance Act, 2002. The omitted section 52 read as follows:

“52. Non-resident shipping and airline enterprises.- (1) Subject to sub-section (2), any income of a non-resident person, for the time being approved by the Federal Government for the purpose of this section,

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• Exemptions and tax concessions in the Second Schedule.—(1) The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be —

• exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein;

• subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein;

1. allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or

• exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein.

¹[  ]

• The ²[Federal Government or the] ³[ ] ⁴[ ] ⁵[ ] ⁶[Board with the approval of the Federal Minister-in-charge may, from time to time, pursuant to the approval of the Economic Coordination Committee of the Cabinet] whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, ⁷[ ] ⁸[,] implementation of bilateral and multilateral agreements

from the operation of ships and aircraft in international traffic shall be exempt from tax under this Ordinance, other than income from ships and aircraft operated principally to transport passengers, livestock, mail, or goods exclusively between places in Pakistan.

• Sub-section (1) shall not apply to a non-resident person where the person’s country of residence does not allow a similar exemption to a resident of Pakistan.”

¹Sub-section (1A) omitted by the Finance Act, 2012. The omitted sub-section (1A) read as follows:-“(1A) Where any income which is exempt from tax under any provision of the Second

Schedule, such income, as may be specified in the said Schedule and subject to such conditions as may be specified therein, shall be included in the total income, however the tax shall not be payable in respect of such income.”

²Inserted by the Finance Act, 2022.

• the expression “Federal Government” substituted by Finance Act, 2017.

⁴Inserted by the Finance Act, 2015.

⁵The expression “Board with the approval of Federal Minister-in-charge may, from time to time pursuant to the approval of the Economic Coordination Committee of Cabinet, ” substituted by the

Finance Act, 2018.

• The words “Federal Government may” substituted by the Finance Act, 2021.

• The words “removal of anomalies in taxes, development of backward areas” omitted by Finance

Act, 2019.

1. Inserted by the Finance Act, 2016.

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¹[or granting an exemption from any tax imposed under this Ordinance including a reduction in the rate of tax imposed under this Ordinance or a reduction in tax liability under this Ordinance or an exemption from the operation of any provision of this Ordinance to any international financial institution or foreign Government owned financial institution operating under an agreement, memorandum of understanding or any other arrangement with the Government of Pakistan] ], by notification in the official Gazette, make such amendment in the Second Schedule by —

1. adding any clause or condition therein;

• omitting any clause or condition therein; or

• making any change in any clause or condition therein,

as the Government may think fit, and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued.

• The Federal Government shall place before the National Assembly all amendments made by it to the Second Schedule in a financial year.

²[“(4) Any notification issued under sub-section (2) after the commencement of the Finance Act, 2015, shall, if not earlier rescinded, stand rescinded on the expiry of the financial year in which it was issued³[:]

⁴[Provided that all such notifications, except those earlier rescinded, shall be deemed to have been in force with effect from the first day of July, 2016 and shall continue to be in force till the thirtieth day of June, 2018, if not earlier rescinded:

Provided further that all notifications issued on or after the first day of July, 2016 and placed before the National Assembly as required under sub-section (3) shall continue to remain in force till the thirtieth day of June, 2018, if not earlier rescinded by the Federal Government or the National Assembly.]

• Exemptions and tax provisions in other laws.—No provision in any other law providing for —

1. an exemption from any tax imposed under this Ordinance;

¹Inserted by the Finance Act, 2016.

²Inserted by the Finance Act, 2015.

³Full stop substituted by the Finance Act, 2017.

⁴Added by the Finance Act, 2017

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1. a reduction in the rate of tax imposed under this Ordinance;

1. a reduction in tax liability of any person under this Ordinance; or

1. an exemption from the operation of any provision of this Ordinance,

shall have legal effect unless also provided for in this Ordinance ¹[.]

²[  ]

• Limitation of exemption.— (1) Where any income is exempt from tax under this Ordinance, the exemption shall be, in the absence of a specific provision to the contrary contained in this Ordinance, limited to the original recipient of that income and shall not extend to any person receiving any payment wholly or in part out of that income.

³[  ]

¹The colon substituted by the Finance Act, 2008.

²Proviso omitted by the Finance Act, 2008. The omitted proviso read as follows:

“Provided that any exemption from income tax or a reduction in the rate of tax or a reduction in tax liability of any person or an exemption from the operation of any provision of this Ordinance provided in any other law and in force on the commencement of this Ordinance shall continue to be available unless withdrawn.”

• Sub-section (2) omitted by the Finance Act, 2003. Omitted sub-section (2) read as follows: –

“(2) Where a person’s income from business is exempt from tax under this Ordinance as a result of a tax concession, any loss sustained in the period of the exemption shall not be set off against the person’s income chargeable to tax after the exemption expires.”

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PART VIII

LOSSES

• Set off of losses.— (1) Subject to sections 58 and 59, where a person sustains a loss for any tax year under any head of income specified in section 11, the person shall be entitled to have the amount of the loss set off against the person’s income, if any, chargeable to tax under any other head of income ¹[except income under the head salary ²[ ] ] for the year.

• Except as provided in this Part, where a person sustains a loss under a head of income for a tax year that cannot be set off under sub-section (1), the person shall not be permitted to carry the loss forward to the next tax year.

• Where,³[in  a  tax  year,]a  person  sustains  a  loss  under  the  head

“Income from Business” and a loss under another head of income, the loss under the head “Income from Business shall be set off last.

⁴[56A. Set off of losses of companies operating hotels.— Subject to sections 56 and 57, where a ⁵[public company as defined in the Companies Act, 2017 and] registered in Pakistan ⁶[,Gilgit-Baltistan] or Azad Jammu and Kashmir (AJ&K), operating hotels in Pakistan ⁷[,Gilgit-Baltistan] or AJ&K, sustains a loss in Pakistan ⁸[,Gilgit-Baltistan] or AJ&K for any tax year under the head “income from business” shall be entitled to have the amount of the loss set off against the company’s income in Pakistan ⁹[,Gilgit-Baltistan] or AJ&K, as the case may be, from the tax year 2007 ¹⁰[onward].

• Carry forward of business losses.—(1) Where a person sustains a loss for a tax year under the head “Income from Business” (other than a loss to which

¹¹[sub-section (4) or] section 58 applies) and the loss cannot be wholly set off under section 56, so much of the loss that has not been set off shall be carried forward

¹Inserted by the Finance Act, 2013.

• The words “or income from property” omitted by the Finance Act, 2021.

1. Inserted by the Finance Act, 2002

1. Inserted by the Finance Act, 2007.

• The word “company” substituted by the Finance Act, 2019.

⁶After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019.

⁷After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019.

⁸After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019.

⁹After word “Pakistan” the expression “, Gilgit-Baltistan” inserted by the Finance Act, 2019.

¹⁰The word “onward” substituted by the word “onward” by the Finance Act, 2014.

¹¹Inserted by the Finance Act, 2018.

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to the following tax year and set off against the person’s income chargeable under the head “Income from Business” for that year.

1. If a loss sustained by a person for a tax year under the head “Income from Business” is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year and applied as specified in sub-section (1) in that year, and so on, but no loss can be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

¹[(2A) Where a loss, referred to in sub-section (2), relating to any assessment year commencing on or after 1^st day of July, 1995, and ending on the 30^th day of June 2001, is sustained by a banking company wholly owned by the Federal Government as on first day of June, 2002, which is approved by the State Bank of Pakistan for the purpose of this sub-section, the said loss shall be carried forward for a period of ten years.]

²[(2B) Where a loss, referred to in sub-section (2), relating to a tax year commencing on or after the first day of July, 2020 is sustained by a resident company engaged in the hotel business in Pakistan, the said loss shall be carried forward for a period of eight years.]

³[(2C) Where a loss, referred to in sub-section (2), relating to a tax year commencing on or after the first day of January, 2017 is sustained by Pakistan International Airlines Corporation Limited, the said loss shall be carried forward for a period of ten years.]

• Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

⁴[(4) The loss attributable to deductions allowed under sections 22, 23, ⁵[ ] 23B and 24 that has not been set off against income, the loss not set off shall be set off against fifty percent of the person’s balance income chargeable under the head “income from business” after setting off loss under sub-section (1), in the following tax year and so on until completely set off:

1. Inserted by the Finance Act, 2002.

• New sub-section (2B) inserted through Finance Act, 2020 dated 30^th June, 2020

• Sub-section (2C) inserted by the Finance Act, 2024.

⁴Sub Section (4) substituted by the finance Act 2018,the substituted subsection (4) is read as follows

“(4) Where the loss referred to in sub-section (1) includes deductions allowed under sections 22, 23 ⁴[23A, 23B] and 24 that have not been set off against income, the amount not set off shall be added to the deductions allowed under those sections in the following tax year, and so on until completely set off”.

• The expression “23A” omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021.

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Provided that such loss shall be set off against hundred percent of the said balance income if the taxable income for the year is less than ten million Rupees.”]

1. In determining whether a person’s deductions under sections 22, 23, ¹[ ²[ ] 23B] and 24 have been set off against income, the deductions allowed under those sections shall be taken into account last.

³[57A. Set off of business loss consequent to amalgamation.—⁴[(1) The assessed loss (excluding capital loss) for the tax year, other than brought forward and capital loss, of the amalgamating company or companies shall be set off against business profits and gains of the amalgamated company, and vice versa, in the year of amalgamation and where the loss is not adjusted against the profits and gains for the tax year the unadjusted loss shall be carried forward for adjustment upto a period of six tax years succeeding the year of amalgamation.]

• The provisions of sub-section (4) and (5) of section 57 shall, mutatis mutandis, apply for the purposes of allowing unabsorbed depreciation ofamalgamating company or companies in the assessment of amalgamated company ⁵[and vice versa]⁶[:]

⁷[Provided that the losses referred to in sub-section (1) and unabsorbed depreciation referred to in sub-section (2) shall be allowed set off subject to the condition that the amalgamated company continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation.]

⁸[(2A).In case of amalgamation of Banking Company or Non-banking Finance Company, modarabas or insurance company, the accumulated loss under the head “Income from Business” (not being speculation business losses) of an amalgamating company or companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to

¹Inserted by the Finance Act, 2009.

• The expression “23A” omitted by the Finance Act, 2021. Earlier this omission was made through Tax

Laws (Second Amendment) Ordinance, 2021.

1. Added by the Finance Act, 2002.

⁴Sub-section (1) substituted by the Finance Act, 2007. The substituted sub-section (1) read as follows: “(1) The accumulated loss under the head “Income from Business” (not being a loss to which section 58 applies) of an amalgamating company or companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of

amalgamated company or amalgamating company or companies.”

1. Inserted by the Finance Act, 2005.

• Full stop substituted by the Finance Act, 2005.

1. Inserted by the Finance Act, 2005.

⁸Inserted by the Finance Act, 2008.

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a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of amalgamated company or amalgamating company or companies:

Provided that the provisions of this sub-section shall in the case of Banking companies be applicable from July 1, 2007.]

• Where any of the conditions as laid down by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan ¹[or any court], as the case may be, in the scheme of amalgamation, are not fulfilled, the set off of loss or allowance for depreciation made in any tax year of the amalgamated company ²[or the amalgamating company or companies] shall be deemed to be the income of that amalgamated company ³[or the amalgamating company or companies, as the case may be,] for the year in which such default is discovered by the Commissioner or taxation officer, and all the provisions of this Ordinance shall apply accordingly.]

• Carry forward of speculation business losses.—(1) Where a person sustains a loss for a tax year in respect of a speculation business carried on by the person (hereinafter referred to as a “speculation loss”), the loss shall be set off only against the income of the person from any other speculation business of the person chargeable to tax for that year.

1. If a speculation loss sustained by a person for a tax year is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year and applied against the income of any speculation

business of the person in that year and applied as specified in sub-section (1) in that year, and so on, but no speculation loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

• Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

• Carry forward of capital losses.— (1) Where a person sustains a loss for a tax year under the head “Capital Gains” (hereinafter referred to as a “capital loss”), the loss shall not be set off against the person’s income, if any, chargeable under any other head of income for the year, but shall be carried forward to the next tax year and set off against the capital gain, if any, chargeable under the head

“Capital Gains” for that year.

1. If a capital loss sustained by a person for a tax year under the head

“Capital Gains” is not wholly set off under sub-section (1), then the amount of the

1. Inserted by the Finance Act, 2005.

1. Inserted by the Finance Act, 2005.

1. Inserted by the Finance Act, 2005.

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loss not set off shall be carried forward to the following tax year, and so on, but no loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.

• Where a person has a loss carried forward under this section for more than one tax year, the loss of the earliest tax year shall be set off first.

¹[59A. Limitations on set off and carry forward of losses.—

²[  ]

³[  ]

1. In case of association of persons ⁴[any loss] shall be set off or carried forward and set off only against the income of the association.

• Nothing contained in section 56, 57, 58 or 59 shall entitle —

1. any member of an association of persons ⁵[ ] to set off any loss sustained by such association of persons, as the case may be, or have it carried forward and set off, against his income; or

1. any person who has succeeded, in such capacity, any other person carrying on any business or profession, otherwise than by inheritance, to carry forward and set off against his income, any loss sustained by such other person.

⁶[(5) Subject to sub-section (4) of section 57, sub-section (12) of section 22 and sub-section (6), where in computing the taxable income for any tax year, full effect cannot be given to the loss relating to deductions under section

1. Added by the Finance Act,  2003.

²Sub-section (1) omitted by the Finance Act, 2012. The omitted sub-section (1) read as follows:

“(1) In case of an association of persons to which sub-section (3) of section 92 applies, any loss which cannot be set off against any other income of the association of persons in accordance with section 56, shall be dealt with as provided under sub-section (2) of section 93.

³Sub-section (2) omitted by the Finance Act, 2012. The omitted sub-section (2) read as follows:

“(2) Nothing contained in section 57, section 58 or section 59 shall entitle an association of persons, to which sub-section (3) of section 92 applies to have its loss carried forward and set off thereunder.

⁴The words, figures, commas and brackets “, to which sub-section (3) of section 92 does not apply, any loss for such association” substituted by the Finance Act, 2012.

• The words, figures, commas and brackets “to which sub-section (3) of section 92 does not apply,” omitted by the Finance Act, 2012.
• Sub section (5) substituted by the finance Act 2018,the substituted sub section (5) is read as follows

“(5) Where in computing the taxable income for any tax year, full effect cannot be given to a deduction mentioned in section 22, 23, 24 or 25 owing to there being no profits or gains chargeable for that year or such profits or gains being less than the deduction, then, subject to sub-section (12) of section 22, and sub-section (6), the deduction or part of the deduction to which effect has not been given, as the case may be, shall be added to the amount of such deduction for the following year and be treated to be part of that deduction, or if there is no such deduction for that year, be treated to be the deduction for that year and so on for succeeding years.”

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22, 23, 24 or 25 owing to there being no profits or gains chargeable for that year or such profits or gains as mentioned in sub-section (4) of section 57, being less than the said loss, the loss or part of the loss, as the case may be, shall be set off against fifty percent of the person’s income chargeable under the head “income from business” for the following year or if there is no “income from business” for that year, be set off against fifty percent of the person’s income chargeable under the head ”income from business” for the next following year and soon for succeeding years.]

• Where, under sub-section (5), deduction is also to be carried forward, effect shall first be given to the provisions of section 56 and sub-section (2) of section 58.

• Notwithstanding anything contained in this Ordinance, no loss which has not been assessed or determined in pursuance of an order made under section 59, 59A, 62, 63 or 65 of the repealed Ordinance or an order made or treated as made under section 120, 121 or 122 shall be carried forward and set off under section 57, sub-section (2)of section 58 or section 59.]

¹[59AA. Group taxation.— (1) Holding companies and subsidiary companies of 100% owned group may opt to be taxed as one fiscal unit. In such cases, besides consolidated group accounts as required under the ²[Companies Act, 2017 (XIX of 2017)], computation of income and tax payable shall be made for tax purposes.

• The companies in the group shall give irrevocable option for taxation under this section as one fiscal unit.

• The group taxation shall be restricted to companies locally incorporated under the ³[Companies Act, 2017 (XIX of 2017)].

• The relief under group taxation would not be available to losses prior to the formation of the group.

• The option of group taxation shall be available to those group companies which comply with such corporate governance requirements ⁴[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time and are designated as companies entitled to avail group taxation.

1. Inserted by the Finance Act, 2007.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

⁴Inserted by the Finance Act, 2013.

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• Group taxation may be regulated through rules as may be made by

the¹[Board].

²[59B. Group relief.— (1) Subject to sub-section (2), any company, being a subsidiary ³[or] a holding company, may surrender its assessed loss ⁴[“as computed in sub-section (1A)”] (excluding capital loss) for the tax year (other than brought forward losses and capital losses), in favour of its holding company or its subsidiary or between another subsidiary of the holding company:

Provided that where one of the company in the group is a public company listed on a registered stock exchange in Pakistan, the holding company shall directly hold fifty-five per cent or more of the share capital of the subsidiary company. Where none of the companies in the group is a listed company, the holding company shall hold directly seventy-five per cent or more of the share capital of the subsidiary company.

⁵[“(1A) The loss to be surrendered under sub-section (1) shall be allowed as per following formula, namely:-

(A/100) x B

where—

¹The words “Central Board of Revenue” substituted by the word “Board” by the Finance Act.  2014.

²Section 59B substituted by the Finance Act, 2007. The substituted section 59B read as follows:

“59B. Group Relief.- (1) Subject to sub-section (2), any company, being a subsidiary of a public

company listed on a registered stock exchange in Pakistan, owning and managing an industrial

undertaking or an undertaking engaged in providing services, may surrender its assessed loss for

the tax year other than brought forward losses, in favour of its holding company provided such

holding company owns or acquires seventy-five per cent or more of the share capital of the subsidiary

company.

• The loss surrendered by the subsidiary company may be claimed by the holding company for set off against its income under the head “income from Business” in the tax year and the following two tax years subject to the following conditions, namely:-

• there is continued ownership of share capital of the subsidiary company to the extent of seventy-five per cent or more for five years; and

• the subsidiary company continues the same business during the said period of five years.

• The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax years.

• Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the subsidiary company shall carry forward the unadjusted losses in accordance with the provision of section 57.

1. If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company to less than seventy-five per cent, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the subsidiary company.”

• The word “of” substituted by the Finance Act, 2021. ⁴Inserted by the Finance Act, 2016.

⁵Inserted by the Finance Act, 2016.

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1. is the percentage share capital held by the holding company of its subsidiary company; and

1. is the assessed loss of the subsidiary company.”]

• The loss surrendered by the subsidiary company may be claimed by the holding company or a subsidiary company for set off against its income under the head “Income from Business” in the tax year and the following two tax years subject to the following conditions, namely:—

• there is continued ownership for five years, of share capital of the subsidiary company to the extent of fifty-five per cent in the case of a listed company, or seventy-five per cent or more, in the case of other companies;

1. a company within the group engaged in the business of trading shall not be entitled to avail group relief;

• holding company, being a private limited company with seventy-five per cent of ownership of share capital gets itself listed within three years from the year in which loss is claimed;

• the group companies are locally incorporated companies under the ¹[Companies Act, 2017 (XIX of 2017)];

• the loss surrendered and loss claimed under this section shall have approval of the Board of Directors of the respective companies;

• the subsidiary company continues the same business during the said period of three years;

1. all the companies in the group shall comply with such corporate governance requirements ²[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time, and are designated as companies entitled to avail group relief; and

1. any other condition as may be prescribed.

• The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax years.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021.

²Inserted by the Finance Act, 2013.

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• Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the subsidiary company shall carry forward the unadjusted losses in accordance with section 57.

1. If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company to less than fifty-five per cent or seventy-five per cent, as the case may be, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the subsidiary company.

• Loss claiming company shall, with the approval of the Board of Directors, transfer cash to the loss surrendering company equal to the amount of tax payable on the profits to be set off against the acquired loss at the applicable tax rate. The transfer of cash would not be taken as a taxable event in the case of either of the two companies.

• The transfer of shares between companies and the share holders, in one direction, would not be taken as a taxable event provided the transfer is to acquire share capital for formation of the group and approval of the Security and Exchange Commission of Pakistan or State Bank of Pakistan, as the case may be, has been obtained in this effect. Sale and purchase from third party would be taken as taxable event.]

¹[     ]

• Section 59C shall be omitted and shall be deemed to have been omitted with effect from 2^nd March,

2022 through Finance Act, 2022. The omitted section read as follows:

59C. Carry forward of business losses of sick industrial units.- (I) Subject to sub-section (2), where a company hereinafter referred to as acquiring company, acquires under a scheme of acquisition majority share capital of another company being a sick industrial unit, hereinafter referred to as acquired company, the acquiring company shall be entitled to adjust loss for the latest tax year and brought forward assessed business losses excluding capital loss of the acquired company subject to provisions of section 57 for a period of three years.

• Sub-section (I) shall apply subject to the following conditions, namely:– (a) there is continued ownership for five years starting from the 30th June, 2023 and there is no change in share capital of the acquiring company;

(b) the assets of the acquired company shall not be sold upto the 30″ June, 2026; and

(c) the acquired company continues the same business till the 30th June, 2026.

• Where the losses surrendered by the acquired company are not adjusted against income of the acquiring company in the said three tax years, the acquired company shall carry forward the unadjusted losses in accordance with section 57.

• The loss of the acquired company referred to in sub-section (1) shall be adjusted against income under the head “income from business” of the acquiring company as per following formula, namely:-

(A/I00) x B where—

A is the percentage share capital held by the acquiring company of the acquired company; and

Bis the loss of the acquired company referred to in sub-section (I).

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PART IX

DEDUCTIBLE ALLOWANCES

• Zakat.— (1) A person shall be entitled to a deductible allowance for the amount of any Zakat paid by the person in a tax year under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

• Sub-section (1) does not apply to any Zakat taken into account under sub-section (2) of section 40.

1. Any allowance or part of an allowance under this section for a tax year that is not able to be deducted under section 9 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year.

¹[60A. Workers’ Welfare Fund.— A person shall be entitled to a deductible allowance for the amount of any Workers’ Welfare Fund paid by the person in tax year under Workers’ Welfare Fund Ordinance, 1971 (XXXVI of 1971) ²[or under any law relating to the Workers’ Welfare Fund enacted by Provinces after the eighteenth Constitutional amendment Act, 2010:

Provided that this section shall not apply in respect of any amount of Workers’ Welfare Fund paid to the Provinces by a trans-provincial establishment.]

³[60B. Workers’ Participation Fund.— A person shall be entitled to a deductible allowance for the amount of any Workers’ Participation Fund paid by the person in a tax year in accordance with the provisions of the Companies Profit (Workers’ Participation) Act, 1968 (XII of 1968) ⁴[or under any law relating to the Workers’

1. If the acquiring company fails to revive the acquired company by tax year 2026, the acquiring company shall, in tax year 2027 offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the acquired company.

• For the removal of doubt, this section shall not apply to any scheme of amalgamation

or merger.

• For the purposes of this section, –

1. a sick industrial unit referred to as acquired company in sub-section (I), shall be deemed to be revived if the said company attains maximum production capacity that was obtained before the industrial unit vent sick:

Provided that the acquired company produces a certificate to the effect that it stands revived, duly issued by Engineering Development Board, along with the return of income filed for tax year 2026.

• “sick industrial unit” means a company being an industrial undertaking, which –

• has accumulated losses, for a continuous period of three years prior to the I” July, 2022, equal to or exceeding its entire capital and reserves at the time of acquisition, as the ease may be; or

• has defaulted towards repayment of outstanding debts owing to banking companies or non-banking financial institutions for a consecutive period of three years immediately before acquisition, as the case may be, or

• has been declared as such by the Federal Government in a notification published in the official Gazette.”;

¹Added by the Finance Act, 2003.

1. Added by the Finance Act, 2021.

1. Added by the Finance Act, 2004.

1. Added by the Finance Act, 2021.

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Profit Participation Fund enacted by Provinces after the eighteenth Constitutional amendment Act, 2010:

Provided that this section shall not apply in respect of any amount of Workers’ Profit Participation Fund paid to the province by a trans-provincial establishment.]

¹[    ]

²[      ]

³[60D. Deductible allowance for education expenses.— (1) Every individual shall be entitled to a deductible allowance in respect of tuition fee paid by the individual in a tax year provided that the taxable income of the individual is less than one ⁴[and a half]million rupees.

• The amount of an individual‘s deductible allowance allowed under sub-section (1) for a tax year shall not exceed the lesser of —

• five per cent of the total tuition fee paid by the individual referred to in sub-section (1) in the year;

• twenty-five per cent of the person’s taxable income for the year; and

1. an amount computed by multiplying sixty thousand with number of children of the individual.

1. Any allowance or part of an allowance under this section for a tax year that is not able to be deducted for the year shall not be carried forward to a subsequent tax year.

1. Allowance under this section shall be allowed against the tax liability of either of the parents making payment of the feeon furnishing national tax number (NTN) or name of the educational institution.

1. Allowance under this section shall not be taken into account for computation of tax deduction under section 149.]

• Section 64A is re-numbered by the Finance Act 2017.

• Section 60C omitted by Finance Act, 2022 . Omitted section read as follows:

“60C. Deductible allowance for profit on debt.— (1) Every individual shall be entitled to a

deductible allowance for the amount of any profit or share in rent and share in appreciation for value of house paid by the individual in a tax year on a loan by a scheduled bank or non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan or advanced by Government or the Local Government, Provincial Government or a statutory body or a public company listed on a registered stock exchange in Pakistan where the individual utilizes the loan for the construction of a new house or the acquisition of a house.

• The amount of an individual‘s deductible allowance allowed under sub-section (1) for a tax year shall not exceed fifty percent of taxable income or ²[“two”] million rupees, whichever is lower.
• Any allowance or part of an allowance under this section for a tax year that is not able to be deducted for the year shall not be carried forward to a subsequent tax year.”
• Section 64AB is re-numbered by the Finance Act, 2017.

1. Inserted by the Finance Act, 2017.

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PART X

TAX CREDITS

• Charitable donations.—¹[(1) A person shall be entitled to a tax credit in respect of any sum paid, or any property given by the person in the tax year as a donation ²[, voluntary contribution or subscription] to —

1. any board of education or any university in Pakistan established by, or under, a Federal or a Provincial law;

1. any educational institution, hospital or relief fund established or run in Pakistan by Federal Government or a Provincial Government or a³[Local Government]; or

1. any non-profit organization ⁴[or any person eligible for tax credit under section 100C of this Ordinance; or

• entities, organizations and funds mentioned in the Thirteenth Schedule to this Ordinance.]

• The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:—

(A/B) x C

where —

1. is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;

1. is the person’s taxable income for the tax year; and

1. is the lesser of —

• the total amount of the person’s donations referred to in sub-section (1) in the year, including the fair market value of any property given; or

• Sub-section (1) substituted by the Finance Act, 2003. The substituted sub-section (1) read as follows:

“(1) A person shall be entitled to a tax credit for a tax year in respect of any amount paid, or property given by the person in the tax year as a donation to a non-profit organization.”

1. Inserted by the Finance Act, 2021. Earlier this insertion was made through Tax Laws (Second Amendment) Ordinance, 2021.

³The words “local authority” substituted by the Finance Act, 2008.

1. Inserted by the Finance Act, 2021. Earlier this insertion was made through Tax Laws (Second Amendment) Ordinance, 2021.

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• where the person is —

1. an individual or association of persons, thirty per cent of the taxable income of the person for the year; or

1. a company, ¹[twenty] per cent of the taxable income of the person for the year ²[:

Provided that where any sum is paid or any property is given to an associate by a donor, clause (b) of component C shall be, in the case of –

1. an individual or association of persons, fifteen percent of the taxable income of the person for the year; or

1. a company, ten percent of the taxable income of the person for the year.]

• For the purposes of clause (a) of component C of the formula in sub-section (2), the fair market value of any property given shall be determined at the time it is given.

1. A cash amount paid by a person as a donation shall be taken into account under clause (a) of component C³[of]sub-section (2) only if it was paid by a crossed cheque drawn on a bank.

⁴[(5) The ⁵[Board] may make rules regulating the procedure of the grant of approval under sub-clause (c) of clause (36) of section 2 and any other matter connected with, or incidental to, the operation of this section.]

⁶[     ]

¹The word “fifteen” substituted by the Finance Act, 2009.

• Full stop substituted by colon and thereafter new proviso added through Finance Act, 2020 dated 30^th June, 2020
• Inserted by the Finance Act, 2002.

1. Added by the Finance Act, 2003.

⁵The words “Central Board of Revenue” substituted by the Finance Act, 2007.

⁶Section 62 substituted by the Finance Act, 2011. The substituted section 62 read as follows:

“62. Investment in shares.— (1) A person ⁶[other than a company] shall be entitled to a tax credit for a tax year in respect of the cost of acquiring in the year new shares offered to the public by a public company listed on a stock exchange in Pakistan where the person ⁶[other than a company] is the original allottee of the shares or the shares are acquired from the Privatization Commission of Pakistan.

• The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

(A/B) x C

where –

1. is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;

1. is the person’s taxable income for the tax year; and

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1[(ib)

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¹[   ]

1. is the lesser of —
   1. the total cost of acquiring the shares referred to in sub-section (1) in the year;
   1. ten per cent of the person’s ⁶[taxable] income for the year; or
   1. ⁶[ ⁶[three] hundred] thousand rupees.
   1. Where –

1. a person has ⁶[been allowed] a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and

• the person has made a disposal of the share within twelve months of the date of acquisition,

the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.”

• Section 62 omitted by the Finance Act, 2022. Omitted section read as follows:

“62. Tax credit for investment in shares and insurance. — (1) A resident person other than a company shall be entitled to a tax credit for a tax year either—

1. in respect of the cost of acquiring in the year new shares offered to the public by a public company listed on a stock exchange in Pakistan, provided the resident person is the original allottee of the shares or the shares are acquired from the Privatization

Commission of Pakistan;¹[ ]

in respect of cost of acquiring in the tax year, sukuks offered to the public by a public company listed and traded on stock exchange in Pakistan, provided the resident person is the original allottee of the sukuks; ¹[ ] ]

in respect of cost of acquiring in the tax year, unit of exchange traded fund offered to public and traded on stock exchange in Pakistan; or]

1. in respect of any life insurance premium paid on a policy to a life insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person is deriving income chargeable to tax under the head “salary” or “income from business¹[:]

¹[Provided that where tax credit has been allowed under this clause and subsequently the insurance policy is surrendered within two years of its acquisition, the tax credit allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re-compute the tax payable by the taxpayer for the relevant tax years and the provisions of this Ordinance, shall, so far as may, apply accordingly. ]

• The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be

computed according to the following formula, namely: —

(A/B) x C

where—

A         is the amount of tax assessed to the person for the tax year before allowance

of any tax credit under this Part;

B         is the person’s taxable income for the tax year; and

1. is the lesser of —the total cost of acquiring the shares,¹[or sukuks], or the total contribution or premium paid by the person referred to in sub-section (1) in the year;¹[twenty] per cent of the person’s taxable income for the year; or¹[ ] ¹[ ] ¹[two] million rupees].
   1. Where —

1. a person has been allowed a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and

• the person has made a disposal of the share within ¹[twenty-four] months of the date of acquisition, the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.”

Chapter III – Tax on Taxable Income ______________________

¹[      ]

²[      ]

³[63. Contribution to an Approved Pension Fund.— (1) An eligible person as defined in sub-section (19A) of section 2 deriving income chargeable to tax under the head “Salary” or the head “Income from Business” shall be entitled to a tax credit for a

¹Inserted by the Finance Act, 2016.

• Section 62A omitted by the Finance Act, 2022. The omitted section read as follows:

“62A. Tax credit for investment in health insurance.— (1) A resident person ²[ ] other than a company shall be entitled to a tax credit for a tax year in respect of any health insurance premium or contribution paid to any insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person ²[ ] is deriving income chargeable to tax under the head “salary” or “income from business”.

• The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

(A/B) x C

where—

1. is the amount of tax assessed to the person for the tax year before allowance of tax credit under this section;

1. is the person’s taxable income for the tax year; and
2. is the lesser of —

• the total contribution or premium paid by the person referred to in sub-section

(1) in the year;

• five per cent of the person’s taxable income for the year; and
  • one hundred²[and fifty] thousand rupees.”
• Section 63 substituted by the Finance Act, 2005. The original section 63 read as follows:

“63. Retirement annuity scheme. – (1) Subject to sub-section (3), a resident individual deriving income chargeable to tax under the head “Salary” or the head “Income from Business” shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person under a contract of annuity scheme approved by, Securities and Exchange Commission of Pakistan] of an insurance company duly registered under the Insurance Ordinance, 2000 (XXXIX of 2000), having its main object the provision to the person of an annuity in old age.

• The amount of a resident individual’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: –

(A/B) x C

where –

1. is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
2. is the person’s taxable income for the tax year; and

1. is the lesser of –

• the total contribution or premium referred to in sub-section (1) paid by the individual in the year;

• ten per cent of the person’s taxable income for the tax year; or
  • two hundred thousand rupees.

1. A person shall not be entitled to a tax credit under sub-section (1) in respect of a contract of annuity which provides –

• for the payment during the life of the person of any amount besides an annuity;

• for the annuity payable to the person to commence before the person attains the age of sixty years;

• that the annuity is capable, in whole or part, of surrender, commutation, or assignment; or for payment of the annuity outside Pakistan.”

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tax year in respect of any contribution or premium paid in the year by the person in approved pension fund under the Voluntary Pension System Rules, 2005.

• The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

(A/B) x C

Where.-

1. is the amount of tax assessed to the person for the tax year, before allowance of any tax credit under this Part;

1. is the person’s taxable income for the tax year; and
2. is the lesser of —

• the total contribution or premium referred to in sub-section (1) paid by the person in the year; or

• twenty per cent of the ¹[eligible] person’s taxable income for the relevant tax year; Provided that ²[an eligible person] joining the pension fund at the age of forty-one years or above, during the first ten years ³[starting from July1, 2006] shall be allowed additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year ⁴[⁵[:] ] ]

⁶[“Provided also that the additional contribution of two percent per annum for each year of age exceeding forty years shall be allowed upto the 30^th June, 2019 subject to the condition that the total contribution allowed to such person shall not exceed thirty percent of the total taxable income of the preceding year.”]

⁷[  ]

1. Inserted by the Finance Act, 2006.

• The words “a person” substituted by the Finance Act, 2006.

³The words, figure and commas “of the notification of the Voluntary Pension System Rules, 2005,” substituted by the Finance Act, 2006.

⁴The semi-colon and the word “or” substituted by the Finance Act, 2011.

• Full stop substituted by the Finance Act, 2016.

1. Inserted by the Finance Act, 2016.

⁷Clause (iii) omitted by the Finance Act, 2011. The omitted clause (iii) read as follows:

“(iii) five hundred thousand rupees.”

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¹[(3) The transfer by the members of approved employment pension or annuity scheme or approved occupational saving scheme of their existing balance to their individual pension accounts maintained with one or more pension fund managers shall not qualify for tax credit under this section.]

²[  ]

³[  ]

⁴[  ]

⁵[  ]

⁶[64B. Tax credit for employment generation by manufacturers.—(1) Where a taxpayer being a company formed for establishing and operating a new manufacturing unit sets up a new manufacturing unit between the 1st day of July, 2015 and the 30th day of June, ⁷[“2019”], (both days inclusive) it shall be given a tax credit for a period of ten years.

• The tax credit under sub-section (1) for a tax year shall be equal to ⁸[“two”] percent of the tax payable for every fifty employees registered with The Employees Old Age Benefits Institution or the Employees Social Security

¹Added by the Finance Act, 2006.

• Section 64 omitted by the Finance Act, 2015. Omitted section read as follows:-

“64. Profit on debt.—²[(1) A person shall be entitled to a tax credit for a tax year in respect of any profit or share in rent and share in appreciation for value of house paid by the person in the year on a loan by a scheduled bank or non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan or advanced by Government or the²[Local Government] ²[or a statutory body or a public company listed on a registered stock exchange in Pakistan] where the person utilizes the loan for the construction of a new house or the acquisition of a house.]

• The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:—

(A/B) x C

where —

1. is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part;
2. is the person’s taxable income for the tax year; and
3. is the lesser of —
   1. the total profit referred to in sub-section (1) paid by the person in the year;
   1. ²[fifty] per cent of the person’s ²[taxable] income for the year; or
   1. ²[seven hundred and fifty] thousand rupees.
   1. A person is not entitled to ²[tax credit]under this section for any profit deductible under

section 17.”

1. Inserted by the Finance Act, 2016.

⁴Section 64A is re-numbered as section 60C by Finance Act, 2017

⁵Section 64AB is re-numbered as section 60D by Finance Act, 2017

⁶Inserted by the Finance Act, 2015.

• The figure “2018” substituted by the Finance Act, 2016. ⁸The word “one” substituted by the Finance Act, 2016.

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Institutions of Provincial Governments during the tax year, subject to a maximum of ten percent of the tax payable.

• Tax credit under this section shall be admissible where—

• the company is incorporated and manufacturing unit is setup between the first day of July, 2015 and the 30th day of June, 2018, both days inclusive;

• employs more than fifty employees in a tax year registered with The Employees Old Age Benefits Institution and the Employees Social Security Institutions of Provincial Governments;

• manufacturing unit is managed by a company formed for operating the said manufacturing unit and registered under the ¹[Companies Act, 2017 (XIX of 2017)] and having its registered office in Pakistan; and

• the manufacturing unit is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an undertaking established in Pakistan at any time before the1st July 2015.

• Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner that any of the conditions specified in this section were not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.

• For the purposes of this section, a manufacturing unit shall be treated to have been setup on the date on which the manufacturing unit is ready to go into production, whether trial production or commercial production.”]

²[ ]

³[  ]

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act,

2021.

• New sub-section 64C inserted by the Finance Act, 2019.

• Section 64C omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021. The omitted section read as follows:

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¹[64D. Tax credit for point of sale machine.—(1) Any person who is required to integrate with Board’s computerized system for real time reporting of sale or receipt, shall be entitled to tax credit in respect of the amount invested in purchase of point of sale machine.

• The amount of tax credit allowed under sub-section (1) for a tax year in which point of sale machine is installed, integrated and configured with the Board’s computerized system shall be lesser of—

1. amount actually invested in purchase of point of sale machine; or

• rupees one hundred and fifty thousand per machine.

• For the purpose of this section, the term point of sale machine means a machine meant for processing and recording the sale transactions for goods or services, either in cash or through credit and debit cards or online payments in an internet enabled environment.]

• Miscellaneous provisions relating to tax credits.— (1) Where the person entitled to a tax credit under ²[this]Part is a member of an association of persons to which sub-section (1) of section 92 applies, the following shall apply—

• component A of the formula in sub-section (2) of section 61, sub-section (2) of section 62, sub-section (2) of section 63 and sub-section (2) of section 64 shall be the amount of tax that would be assessed to the individual if any amount derived in the year that is

“64C. Tax credit for persons employing fresh graduates.– (1) A person employing freshly qualified graduates from a university or institution recognized by Higher Education Commission shall be entitled to a tax credit in respect of the amount of annual salary paid to the freshly qualified graduates for a tax year in which such graduates are employed.

• The amount of tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely:-

(A/B) x C

where-

1. is the amount of tax assessed to the person for the tax year before allowance of tax credit under this section;
   1. is the person’s taxable income for the tax year; and

1. is the lessor of –

• the annual salary paid to the freshly qualified graduates referred to in sub-section (1) in the year; and

• five percent of the person’s taxable income for the year;

• The tax credit shall be allowed for salary paid to the number of freshly qualified graduates not exceeding fifteen percent of the total employees of the company in the tax year.

1. In this section, “freshly qualified graduate” means a person who has graduated after the first day of July, 2017 from any institute or university recognized by the Higher Education Commission.”
2. Inserted by the Finance Act, 2021.

1. Inserted by the Finance Act, 2002

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exempt from tax under sub-section (1) of section 92 were chargeable to tax; and

• component B of the formula in sub-section (2) of section 61, sub-section (2) of section 62, sub-section (2) of section 63 and sub-section (2) of section 64 shall be the taxable income of the individual for the year if any amount derived in the year that is exempt from tax under sub-section (1) of section 92 were chargeable to tax.

1. Any tax credit allowed under this Part shall be applied in accordance with sub-section (3) of section 4.

• Subject to sub-section (4), any tax credit or part of a tax credit allowed to a person under this Part for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall not be refunded, carried forward to a subsequent tax year, or carried back to a preceding tax year.

• Where the person to whom sub-section (3) applies is a member of an association of persons to which sub-section (1) of section 92 applies, the amount of any excess credit under sub-section (3) for a tax year may be claimed as a tax credit by the association for that year.

• Sub-section (4) applies only where the member and the association agree in writing for the sub-section to apply and such agreement in writing must be furnished with the association’s return of income for that year.

¹[(6) Where the person is entitled to a tax credit under section 65B, 65D or 65E, provisions of clause (d) of sub-section (2) of section 169 and clause (d) of sub-section (1) of section 113 shall not apply.”]

²[  ]

¹Inserted by the Finance Act, 2015

²Section 65A omitted by the Finance Act, 2017, Omitted section reads as follows:

²[65A. Tax credit to a person registered under the Sales Tax Act, 1990. — (1) Every manufacturer, registered under the Sales Tax Act, 1990, shall be entitled to a tax credit of ²[“three”] per cent of tax payable for a tax year, if ninety per cent of his sales are to the person who is registered under the aforesaid Act during the said tax year.

• For claiming of the credit, the person shall provide complete details of the persons to whom the sales were made.

• No credit will be allowed to a person whose income is covered under final tax or minimum

tax.

• Carry forward of any amount where full credit may not be allowed against the tax liability for the tax year, shall not be allowed.

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¹[65B. Tax credit for investment.— (1) Where a taxpayer being a company invests any amount in the purchase of plant and machinery, for the purposes of ²[extension, expansion,] balancing, modernization and replacement of the plant and machinery, already installed therein, in an industrial undertaking set up in Pakistan and owned by it, credit equal to ten per cent of the amount so invested shall be allowed against the tax payable ³[, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance,] by it in the manner hereinafter provided ⁴[:]

⁵[Provided that for the tax year 2019 the rate of credit shall be equal to five percent of the amount so invested:

Provided further that the provisions of sub-section (5) relating to carry forward of the credit to be deducted from tax payable, to the following tax years, as specified in the said sub-section, shall continue to apply after tax year 2019; and]

• The provisions of sub-section (1) shall apply if the plant and machinery is purchased and installed at any time between the first day of July, 2010, and the 30^th day of June, ⁶[ ] ⁷[ ] ⁸[2019].

• The amount of credit admissible under this section shall be deducted from the tax payable by the taxpayer in respect of the tax year in which the plant or machinery in the purchase of which the amount referred to in sub-section (1) is invested and installed.

⁹[(4) The provisions of this section shall mutatis mutandis apply to a company setup in Pakistan before the first day of July, 2011, which makes investment, through hundred per cent new equity, during first day of July, 2011 and 30th day of June, 2016, for the purposes of balancing, modernization and replacement of the plant and

¹Added by the Finance Act, 2010.

²Inserted by the Finance Act, 2012.

• The coma and words inserted by Finance Act, 2012

⁴Full stop” substituted by “colon” by the Finance Act, 2019

⁵New provisos added by the Finance Act, 2019

⁶The figure “2015” substituted by Finance Act, 2015.

• The figure “2016” substituted by the Finance Act, 2016. ⁸The figure “2021” substituted by Finance Act, 2019.

⁹Sub-section (4) substituted by the Finance Act, 2012. The substituted sub-section (4) read as follows:

“(4) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of credit, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year, and so on, but no such amount shall be carried forward for more than two tax years, however, the deduction made under sub-section (2) and this sub-section shall not exceed in aggregate the limit specified in sub-section (1).”

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machinery already installed in an industrial undertaking owned by the company. However, credit equal to twenty per cent of the amount so invested shall be allowed against the tax payable, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance. The credit shall be allowed in the year in which the plant and machinery in the purchase of which the investment as aforesaid is made, is installed therein.

“Explanation.— For the purpose of this section the term “new equity” shall, have the same meaning as defined in sub-section (7) of section 65E.]

¹[(5) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year and so on, but no such amount shall be carried forward for more than two tax years in the case of investment referred to in sub-section (1) and for more than five tax years in respect of investment referred to in sub-section (4), however, the deduction made under this section shall not exceed in aggregate the limit specified in sub-section

(1) or sub-section (4), as the case may be.]

²[(6) Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was, or were, not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.]

³[    ]

⁴[  ]

¹Sub-section (5) substituted by the Finance Act, 2012. The substituted sub-section (5) read as follows:

“(5) Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was, or were, not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.”

²Added by the Finance Act, 2012.

³Added by the Finance Act, 2010.

• Section 65C omitted by the Finance Act, 2021. Earlier this omission was made through Tax Laws (Second Amendment) Ordinance, 2021. The omitted section read as follows:

65C. Tax credit for enlistment. —(1) Where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan⁴[on or before the 30^th day of June, 2022] a tax credit equal to ⁴[twenty] percent of the tax payable shall be allowed for the tax year in which the said company is enlisted ⁴[“and for the following ⁴[three tax years:]

[Provided that the tax credit for the last two years shall be ten per cent of the tax payable.]

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¹[  ]

²[    ]

¹Added by the Finance Act, 2011.

• Section 65D omitted by the Finance Act, 2021. The omitted section read as follows:

“65D. Tax credit for newly established industrial undertakings. — (1) Where a taxpayer being a company formed for establishing and operating a new industrial undertaking ²[including corporate

dairy farming] sets up a new industrial undertaking²[including a corporate dairy farm], it shall be given

a tax credit equal to ²[“an amount as computed in sub-section (1A)”] of the tax payable ²[, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance,] on the taxable income arising from such industrial undertaking for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.

²[“(1A) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

A x (B/C)

where—

1. is the amount of tax assessed to the person for the tax year before allowance of any tax credit for the tax year;

1. is the equity raised through issuance of new shares for cash consideration; and

1. is the total amount invested in setting up the new industrial undertaking.”]
2. Tax credit under this section shall be admissible where—

• the company is incorporated and industrial undertaking is setup between the first day of July, 2011 and 30^th day of June, ²[²[“2021”]];
  • industrial undertaking is managed by a company formed for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan;

• the industrial undertaking is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established in Pakistan at any time before 1^st July 2011; and

• the industrial undertaking is set up with ²[“at least seventy per cent”] equity²[raised through issuance of new shares for cash consideration:]

Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.]

[  ]

• Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that²[“the business has been discontinued in the subsequent five years after the credit has been allowed or”] any of the ²[conditions] specified in this section [were] not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.]

[(5) For the purposes of this section and sections 65B and 65E, an industrial undertaking shall be treated to have been setup on the date on which the industrial undertaking is ready to go into production, whether trial production or commercial production.]

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¹[65E. Tax credit for industrial undertakings established before the first day of July, 2011.—²[(1) Where a taxpayer being a company, setup in Pakistan before the first day of July, 2011, invests any amount, with ³[“at least seventy per cent”] new equity raised through issuance of new shares, in the purchase and installation of plant and machinery for an industrial undertaking, including corporate dairy farming, for the purposes of-

• expansion of the plant and machinery already installed therein; or

• undertaking a new project,

a tax credit shall be allowed against the tax payable in the manner provided in sub-section (2) and sub-section (3), as the case may be, for a period of five years beginning from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.]

⁴[(2) Where a taxpayer maintains separate accounts of an expansion project or a new project, as the case may be, the taxpayer shall be allowed a tax credit equal to one ⁵[“an amount as computed in sub-section (3A)”] of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, attributable to such expansion project or new project.]

⁶[(3) In all other cases, the credit under ⁷[“sub-section (3A)”] shall be such proportion of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, as is the proportion between the new equity and the total equity including new equity.]

¹Added by the Finance Act, 2011.

²Sub-section (1) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows:

“(1) Where a taxpayer being a company invests any amount, with hundred per cent equity investment, in the purchase and installation of plant and machinery for the purposes of balancing, modernization, replacement, or for expansion of the plant and machinery already installed in an industrial undertaking setup in Pakistan before the first day of July 2011, a tax credit shall be allowed against the tax payable in the manner provided hereinafter, in the same proportion, which exists between the total investment and such equity investment made by the industrial undertaking.”

• The words “hundred per cent” substituted by the Finance Act, 2016.

⁴Sub-section (2) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows:

“(2) The provisions of sub-section (1) shall apply if the plant and machinery is purchased and installed at any time between the first day of July, 2011, and the 30^th day of June, 2016.”

• The words “hundred per cent” substituted by the Finance Act, 2016.

⁶Sub-section (3) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows:

“(3) The amount of credit admissible under this section shall be deducted from the tax payable by the taxpayer in respect of the tax year in which the plant or machinery referred in sub-section (1) is purchased and installed and for the subsequent four years.”

• The words “this section” substituted by the Finance Act, 2016.

Chapter III – Tax on Taxable Income ______________________

¹[(3A) The amount of a person’s tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: —

A x (B/C)

where—

1. is the amount of tax assessed to the person for the tax year before allowance of any tax credit for the tax year;

1. is the equity raised through issuance of new shares for cash consideration; and

1. is the total amount invested in the purchase and installation of plant and machinery for the industrial undertaking.]

²[(4) The provisions of sub-section (1) shall apply if the plant and machinery is installed at any time between the first day of July, 2011 and the 30th day of June, ³[ ⁴[2021] .]

⁵[(5) The amount of credit admissible under this section shall be deducted from the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, by the taxpayer⁶[“, for a period of five years beginning from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.”]

⁷[(6)] Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that ⁸[“the business has been discontinued in the subsequent five years after the credit has been allowed or”]any of the condition specified in this section was not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything

¹Inserted by the Finance Act, 2016.

²Sub-section (4) substituted by the Finance Act, 2012. The substituted sub-section (1) read as follows: “(4) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of tax credit, the amount of such credit or so much of it as is in excess thereof, shall be carried forward and deducted from the

tax payable by the taxpayer in respect of the following tax year:

Provided that no such amount shall be carried forward for more than four tax years:

Provided further that deduction made under sub-section (1) and under this sub -section

shall not exceed in aggregate the limit of the tax credit specified in sub-section (1).”

• The figure “2016” substituted by the Finance Act, 2016. ⁴The figure “2019” substituted by Finance Act, 2018.

⁵Inserted by the Finance Act, 2012.

• The words “in respect of the tax year in which the plant or machinery referred to in sub-section (1) is installed and for the subsequent four years” substituted by Finance Act, 2015.

⁷Sub-section (5) renumbered by the Finance Act, 2012.

1. Inserted by the Finance Act, 2016.

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contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall apply accordingly.

¹[(7) For the purposes of this section, ‘new equity’ means equity raised through fresh issue of shares against cash by the company and shall not include loans obtained from shareholders or directors:

Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.]

²[65F. Tax credit for certain persons.– (1) Following persons or incomes shall be allowed a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum, alternate corporate tax and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations detailed as under:-

• persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects;

1. a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years ³[.]

⁴[Explanation. – For the removal of doubt it is clarified that tax credit under clause (a) shall only be available to the income derived from the operations of coal mining projects in Sindh supplying coal to power generation projects.]

⁵[     ]

• The tax credit under sub-section (1) shall be available subject to fulfillment of the following conditions, where applicable, namely:-

• return has been filed;

• withholding tax statements for the relevant tax year have been filed in respect of those provisions of the Ordinance, where the person is a withholding agent; and

¹Added by the Finance Act, 2012.

• Sections 65F and 65G inserted by the Finance Act, 2021. Earlier this insertion was made through Tax Laws (Second Amendment) Ordinance, 2021.
• Expression “; and” substituted by the Finance Act, 2024.

• Explanation inserted by the Finance Act, 2024.

• Clause (c) omitted by the Finance Act, 2022. The omitted clause read as follows:

“(c) Income from exports of computer software or IT services or IT enabled services as defined in clause (30AD) and (30AE) of section 2 upto the period ending on the 30th day of June, 2025:

Provided that eighty percent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.”

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• sales tax returns for the tax periods corresponding to relevant tax year have been filed if the person is required to file Sales Tax Return under any of the Federal or Provincial sales tax laws.

65G. Tax credit for specified industrial undertakings.- (1) When making certain eligible capital investments as specified in sub-section (2), the eligible taxpayers defined in sub-section (3) shall be allowed to take an investment tax credit of twenty five percent of the eligible investment amount, against tax payable under the provisions of this Ordinance including minimum and final taxes. The tax credit not fully adjusted during the year of investment shall be carried forward to the subsequent tax year subject to the condition that it may be carried forward for a period not exceeding two years.

• For the purposes of this section, the eligible investment means investment made in purchase and installation of new machinery, buildings, equipment, hardware and software, except self-created software and used capital goods.

• For the purpose of this section, eligible person means —

• green field industrial undertaking as defined in clause (27A) of section 2 engaged in —

• the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

• ship building:

Provided that the person incorporated between the 30th day of June, 2019 and the 30th day of June, 2024 and the person is not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project; and

1. industrial undertaking set up by the 30th day of June 2023 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from the date such industrial undertaking is set up.]

1[     ]

¹ Section 65H shall be omitted and shall be deemed to have been omitted with effect from 2^nd March,

2022 through Finance Act, 2022. The omitted section read as follows:

“65H. Tax credit for foreign investment for industrial promotion.- (I) Where a taxpayer being —

1. a non-resident Pakistani citizen having continued non-residential status for more than five years; or

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(b) a resident individual having foreign assets declared in terms of section 116 or 116A by the 31″ December, 2021,

invests in a company incorporated on or after the 1^st March, 2022, to set up an industrial undertaking in Pakistan with equity, not less than fifty million rupees, with funds remitted into Pakistan through proper banking channel as per the procedure to be prescribed by the State Bank of Pakistan, at any time up to the 31^st December, 2022, that company shall be entitled to a one-time tax credit equal to one hundred percent of the amount remitted and credited in rupees in the bank account of such company against tax liability for the tax year in which commercial production commences.

• Where no tax is payable by the taxpayer in respect of the tax year in which the commercial production has commenced or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year and so on, but no such amount shall be carried forward for more than five tax years in the case of investment referred to in sub-section (1), however, the deduction made under this section shall not exceed in aggregate the limit specified in sub-section (1).

• This section shall not apply to a company or an industrial undertaking established by splitting up or reconstitution of a company or an industrial undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established at any time before the 1^st March, 2022.
• The provisions of sub-section ( I) shall apply if commercial production commences by the 30^th June, 2024.

• Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was or were not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.”

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CHAPTER IV

COMMON RULES

PART I

GENERAL

1. Income of joint owners.—(1) For the purposes of this Ordinance and subject to sub-section (2), where any property is owned by two or more persons and their respective shares are definite and ascertainable –

• the persons shall not be assessed as an association of persons in respect of the property; and
  • the share of each person in the income from the property for a tax year shall be taken into account in the computation of the person’s taxable income for that year.

• This section shall not apply in computing income chargeable under the head “Income from Business”.

1. Apportionment of deductions.— (1) Subject to this Ordinance, where an expenditure1[“expenditures, deductions and allowances”] relates to –
   1. the derivation of more than one head of income; or

2[(ab)      derivation of income comprising of taxable income and any class of income to which sub-sections (4) and (5) of section 4 apply, or;]

• the derivation of income chargeable to tax under a head of income and to some other purpose,

the expenditure 3[“expenditures, deductions and allowances”] shall be apportioned on any reasonable basis taking account of the relative nature and size of the activities to which the amount relates.

• The 4[Board] may make rules under section 5[237] for the purposes of apportioning deductions 6[expenditures and allowances].

• Substituted by the Finance Act, 2016. ²Inserted by the Finance Act, 2002.

³Substituted by the Finance Act, 2016.

⁴The words “Central Board of Revenue” substituted by the Finance Act, 2007. ⁵The figure “232” substituted by the Finance Act, 2002.

1. Inserted by the Finance Act, 2016.

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• Fair market value.— (1) For the purposes of this Ordinance, the fair market value of any property ¹[or rent], asset, service, benefit or perquisite at a particular time shall be the price which the property ²[or rent], asset, service, benefit or perquisite would ordinarily fetch on sale or supply in the open market at that time.

• The fair market value of any property ³[or rent], asset, service, benefit or perquisite shall be determined without regard to any restriction on transfer or to the fact that it is not otherwise convertible to cash.

⁴[(3) Where the price ⁵[“other than the price of immoveable property”] referred to in sub-section (1) is not ordinarily ascertainable, such price may be determined by the Commissioner.]

⁶[(4) Notwithstanding anything contained in sub-sections (1) and (3), ⁷[the Board may, from time to time, by notification in the official Gazette, determine the fair market value of immovable property of the area or areas as may be specified in the notification] .]

⁸[(5) Where the fair market value of any immovable property of an area or areas has not been determined by the Board in the notification referred to in sub-section (4), the fair market value of such immovable property shall be deemed to be the value fixed by the District Officer (Revenue) or provincial or any other authority authorized in this behalf for the purposes of stamp duty.”]

⁹[(6)     In respect of immovable property—

• component A of the formula in sub-section (2) of section 37;

• “consideration received” as mentioned in Division X of Part IV of First Schedule;

• “value of immovable property” as mentioned in Divisions XVIII of Part IV of the First Schedule; and

• valuation for the purposes of section 111,shall not be less than the fair

1. Inserted by the Finance Act, 2003. ²Inserted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

1. Added by the Finance Act, 2003.

1. Inserted by the Finance Act, 2016. ⁶Inserted by the Finance Act, 2016.

⁷Substituted by the Income Tax (Fourth Amendment) Act, 2016 dated 02.12.2016. The substituted expression read as follows:

“the fair market value of immovable property shall be determined on the basis of valuation made by a panel of approved values of the State Bank of Pakistan”.

⁸Added by the Income Tax (Fourth Amendment) Act, 2016 dated 02.12.2016.

⁹Added by the Income Tax (Fourth Amendment) Act, 2016 dated 02.12.2016.

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market value as determined under sub-section (4) or (5).

Explanation.—(1) For the removal of doubt, it is clarified that the fair market value as determined under sub-section (4) or(5) shall be for carrying out the purposes of this Ordinance only.

1. It is further clarified that for the purposes of clauses (i) to (iv) of this sub-section if the fair market value determined under sub-section (4) or

1. is different than the auction price the applicable price shall be the higher of the two.]

• Receipt of income.— For the purposes of this Ordinance, a person shall be treated as having received an amount, benefit, or perquisite if it is —

1. actually received by the person;

1. applied on behalf of the person, at the instruction of the person or under any law; or

• made available to the person.

• Recouped expenditure.— Where a person has been allowed a deduction for any expenditure or loss incurred in a tax year in the computation of the person’s income chargeable to tax under a head of income and, subsequently, the person has received, in cash or in kind, any amount in respect of such expenditure or loss, the amount so received shall be included in the income chargeable under that head for the tax year in which it is received.

• Currency conversion.— (1) Every amount taken into account under this Ordinance shall be in Rupees.

• Where an amount is in a currency other than rupees, the amount shall be converted to the Rupee at the State Bank of Pakistan ¹[ ] rate applying between the foreign currency and the Rupee on the date the amount is taken into account for the purposes of this Ordinance.

• Cessation of source of income.— Where —

1. any income is derived by a person in a tax year from any business, activity, investment or other source that has ceased either before the commencement of the year or during the year; and

• The word “mid-exchange” omitted by the Finance Act, 2003.

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1. if the income had been derived before the business, activity, investment or other source ceased it would have been chargeable to tax under this Ordinance,

this Ordinance shall apply to the income on the basis that the business, activity, investment or other source had not ceased at the time the income was derived.

• Rules to prevent double derivation and double deductions.— (1) For the purposes of this Ordinance, where –

1. any amount is chargeable to tax under this Ordinance on the basis that it is receivable, the amount shall not be chargeable again on the basis that it is received; or

1. any amount is chargeable to tax under this Ordinance on the basis that it is received, the amount shall not be chargeable again on the basis that it is receivable.

• For the purposes of this Ordinance, where —

1. any expenditure is deductible under this Ordinance on the basis that it is payable, the expenditure shall not be deductible again on the basis that it is paid; or

1. any expenditure is deductible under this Ordinance on the basis that it is paid, the expenditure shall not be deductible again on the basis that it is payable.

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PART II

TAX YEAR

¹[74. Tax year.— (1) For the purpose of this Ordinance and subject to this section, the tax year shall be a period of twelve months ending on the 30^th day of June (hereinafter referred to as ‘normal tax year’) and shall, subject to sub-section (3), be denoted by the calendar year in which the said date falls.

• Where a person’s income year, under the repealed Ordinance, is different from the normal tax year, or where a person is allowed, by an order under sub-section (3), to use a twelve months’ period different from normal tax year, such income year or such period shall be that person’s tax year (hereinafter referred to as ‘special tax year’) and shall, subject to sub-section (3), be denoted by the calendar year relevant to normal tax year in which the closing date of the special tax year falls.

²[(2A) The ³[Board],—

1. in the case of a class of persons having a special tax year different from a normal tax year may permit, by a notification in the official Gazette, to use a normal tax year; and

¹Section 74 substituted by the Finance Act, 2002. The substituted section 74 read as follows:

“74. Tax year.- (1) For the purposes of this Ordinance and subject to this section, the tax year shall be the period of twelve months ending on the 30^th day of June (referred to in this section as the financial year).

1. A person may apply, in writing, to use as the person’s tax year a twelve-month period (hereinafter referred to as a “special year”) other than the financial year and the Commissioner may, subject to sub-section (4), by notice in writing, approve the application.

1. A person granted permission under sub-section (2) to use a special year may apply, in writing, to change the person’s tax year to the financial year or to another special year and the Commissioner may, subject to sub-section (4), by notice in writing, approve such application.

• The Commissioner may approve an application under sub-section (2) or (3) only if the person has shown a compelling need to use a special year or to change the person’s tax year and any approval shall be subject to such conditions as the Commissioner may prescribe.

• The Commissioner may, by notice in writing to a person, withdraw the permission to use a special year granted under sub-section (2) or (3).

1. A notice served by the Commissioner under sub-section (2) shall take effect on the date specified in the notice and a notice under sub-section (3) or (5) shall take effect at the end of the special year of the person in which the notice was served.

• Where the tax year of a person changes as a result of sub-section (2), (3) or (5), the period between the last full tax year prior to the change and the date on which the changed tax year commences shall be treated as a separate tax year, to be known as the “transitional year”.

1. In this Ordinance, a reference to a particular financial year shall include a special year or a transitional year of a person commencing during the financial year.

1. A person dissatisfied with a decision of the Commissioner under sub-section (2), (3) or

• may challenge the decision only under the appeal procedure in Part III of Chapter X.”
• Added by the Finance Act, 2004.

³The words “Central Board of Revenue” substituted by the Finance Act, 2007.

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1. in the case of a class of persons having a normal tax year may permit, by a notification in the official Gazette, to use a special tax year.]

1. A person may apply, in writing, to the Commissioner to allow him to use a twelve months’ period, other than normal tax year, as special tax year and the Commissioner may, subject to sub-section (5), by an order, allow him to use such special tax year.

1. A person using a special tax year, under sub-section (2), may apply in writing, to the Commissioner to allow him to use normal tax year and the Commissioner may, subject to sub-section (5), by an order, allow him to use normal tax year.

• The Commissioner shall grant permission under sub-section (3) or (4) only if the person has shown a compelling need to use special tax year or normal tax year, as the case may be, and the permission shall be subject to such conditions, if any, as the Commissioner may impose.

1. An order under sub-section (3) or (4) shall be made after providing to the applicant an opportunity of being heard and where his application is rejected the Commissioner shall record in the order the reasons for rejection.

• The Commissioner may, after providing to the person concerned an opportunity of being heard, by an order, withdraw the permission granted under sub-section (3) or (4).

1. An order under sub-section (3) or (4) shall take effect from such date, being the first day of the special tax year or the normal tax year, as the case may be, as may be specified in the order.

• Where the tax year of a person changes as a result of an order under sub-section (3) or sub-section (4), the period between the end of the last tax year prior to change and the date on which the changed tax year commences shall be treated as a separate tax year, to be known as the “transitional tax year”.

1. In this Ordinance, a reference to a particular financial year shall, unless the context otherwise requires, include a special tax year or a transitional tax year commencing during the financial year.

1. A person dissatisfied with an order under sub-section (3), (4) or (7) may file a review application to the ¹[Board], and the decision by the ²[Board] on such application shall be final.]

¹The words “Central Board of Revenue” substituted by the Finance Act, 2007.

²The words “Central Board of Revenue” substituted by the Finance Act, 2007.

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PART III

ASSETS

• Disposal and acquisition of assets.—(1) A person who holds an asset shall be treated as having made a disposal of the asset at the time the person parts with the ownership of the asset, including when the asset is —

• sold, exchanged, transferred or distributed; or

• cancelled, redeemed, relinquished, destroyed, lost, expired or surrendered.

• The transmission of an asset by succession or under a will shall be treated as a disposal of the asset by the deceased at the time asset is transmitted.

• The application of a business asset to personal use shall be treated as a disposal of the asset by the owner of the asset at the time the asset is so applied.

¹[(3A) Where a business asset is discarded or ceases to be used in business, it shall be treated to have been disposed of.]

1. A disposal shall include the disposal of a part of an asset.

1. A person shall be treated as having acquired an asset at the time the person begins to own the asset, including at the time the person is granted any right.

• The application of a personal asset to business use shall be treated as an acquisition of the asset by the owner at the time the asset is so applied.

1. In this section, –

“business asset” means an asset held wholly or partly for use in a business, including stock-in-trade and a depreciable asset; and

“personal asset” means an asset held wholly for personal use.

²[75A. Purchase of assets through banking channel.- (1) Notwithstanding anything contained in any other law, for the time being in force, no person shall purchase-

1. immovable property having fair market value greater than five million Rupees; or

1. Inserted by the Finance Act, 2003.

• New section 75A inserted by the Finance Act, 2019.

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1. any other asset having fair market value more than one million Rupees, otherwise than by a crossed cheque drawn on a bank or through crossed demand draft or crossed pay order or any other crossed banking instrument showing transfer of amount from one bank account to another bank account.

• For the purposes of this section in case of immovable property, fair market value means value notified by the Board under sub-section (4) of section 68 or value fixed by the provincial authority for the purposes of stamp duty, whichever is higher.

1. In case the transaction is not undertaken in the manner specified in sub-section (1), –

• such asset shall not be eligible for any allowance under sections 22, 23, 24 and 25 of this Ordinance; and

• such amount shall not be treated as cost in terms of section 76 of this Ordinance for computation of any gain on sale of such asset.]

• Cost.—(1) Except as otherwise provided in this Ordinance, this section shall establish the cost of an asset for the purposes of this Ordinance.

• Subject to sub-section (3), the cost of an asset purchased by a person shall be the sum of the following amounts, namely:—

• The total consideration given by the person for the asset, including the fair market value of any consideration in kind determined at the time the asset is acquired;

1. any incidental expenditure incurred by the person in acquiring and disposing of the asset; and

1. any expenditure incurred by the person to alter or improve the asset,

but shall not include any expenditure under clauses (b) and (c) that has been fully allowed as a deduction under this Ordinance.

• The cost of an asset treated as acquired under sub-section (6) of section 75 shall be the fair market value of the asset determined at the date it is applied to business use.

• The cost of an asset produced or constructed by a person shall be the total costs incurred by the person in producing or constructing the asset plus any expenditure referred to ¹[in] clauses (b) and (c) of sub-section (2) incurred by the person.

¹Inserted by the Finance Act, 2003.

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• Where an asset has been acquired by a person with a loan denominated in a foreign currency and, before full and final repayment of the loan, there is an increase or decrease in the liability of the person under the loan as expressed in Rupees, the amount by which the liability is increased or reduced shall be added to or deducted from the cost of the asset, as the case may be.

¹[Explanation.-Difference, if any, on account of foreign currency fluctuation, shall be taken into account in the year of occurrence for the purposes of depreciation.]

1. In determining whether the liability of a person has increased or decreased for the purposes of sub-section (5), account shall be taken of the person’s position under any hedging agreement relating to the loan.

• Where a part of an asset is disposed of by a person, the cost of the asset shall be apportioned between the part of the asset retained and the part disposed of in accordance with their respective fair market values determined at the time the person acquired the asset.

• Where the acquisition of an asset by a person is the derivation of an amount chargeable to tax, the cost of the asset shall be the amount so charged plus any amount paid by the person for the asset.

• Where the acquisition of an asset by a person is the derivation of an amount exempt from tax, the cost of the asset shall be the exempt amount plus any amount paid by the person for the asset.

• The cost of an asset does not include the amount of any grant, subsidy, rebate, commission or any other assistance (other than a loan repayable with or without profit) received or receivable by a person in respect of the acquisition of the asset, except to the extent to which the amount is chargeable to tax under this Ordinance.

²[(11) Notwithstanding anything contained in this section, the Board may prescribe rules for determination of cost for any asset.]

• Consideration received.—(1) The consideration received by a person on disposal of an asset shall be the total amount received by the person for the asset ³[or the fair market value thereof, whichever is the higher], including the fair market value of any consideration received in kind determined at the time of disposal.

¹Added by the Finance Act, 2009.

²Added by the Finance Act, 2012.

1. Inserted by the Finance Act, 2003.

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• Where an asset has been lost or destroyed by a person, the consideration received for the asset shall include any compensation, indemnity or damages received by the person under —

1. an insurance policy, indemnity or other agreement;

1. a settlement; or

1. a judicial decision.

• The consideration received for an asset treated as disposed of under sub-section (3) ¹[or (3A)] of section 75 shall be the fair market value of the asset determined at the time it is applied to personal use ²[or discarded or ceased to be used in business, as the case may be].

• The consideration received by a scheduled bank, financial institution, modaraba, or leasing company approved by the Commissioner (hereinafter referred to as a “leasing company”) in respect of an asset leased by the company to another person shall be the residual value received by the leasing company on maturity of the lease agreement subject to the condition that the residual value plus the amount realized during the term of the lease towards the cost of the asset is not less than the original cost of the asset.

• Where two or more assets are disposed of by a person in a single transaction and the consideration received for each asset is not specified, the total consideration received by the person shall be apportioned among the assets disposed of in proportion to their respective fair market values determined at the time of the transaction.

³[(6) Notwithstanding anything contained in this section, the Board may prescribe rules for determination of consideration received for any asset.]

• Non-arm’s length transactions.— Where an asset is disposed of in a non-arm’s length transaction —

• the person disposing of the asset shall be treated as having received consideration equal to the fair market value of the asset determined at the time the asset is disposed; and

• the person acquiring the asset shall be treated as having a cost equal to the amount determined under clause (a).

• Non-recognition rules.— (1) For the purposes of this Ordinance and subject to sub-section (2), no gain or loss shall be taken to arise on the disposal of an asset –

1. Inserted by the Finance Act, 2003. ²Inserted by the Finance Act, 2003. ³Added by the Finance Act, 2012.

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• between spouses under an agreement to live apart;

• by reason of the transmission of the asset to an executor or beneficiary on the death of a person;

• by reason of a gift of the asset ¹[to a relative, as defined in sub-section (5) of section 85];

• by reason of the compulsory acquisition of the asset under any law where the consideration received for the disposal is reinvested by the recipient in an asset of a like kind within one year of the disposal;

• by a company to its shareholders on liquidation of the company; or

• by an association of persons to its members on dissolution of the association where the assets are distributed to members in accordance with their interests in the capital of the association.

• Sub-section (1) shall not apply where the person acquiring the asset is a non-resident person at the time of the acquisition ²[in respect of disposal of an asset as mentioned in clauses (d), (e) and (f) of sub-section (1)].

• Where clause (a), (b), (c), (e) or (f) of sub-section (1) applies, the person acquiring the asset shall be treated as —

1. acquiring an asset of the same character as the person disposing of the asset; and

1. acquiring the asset for a cost equal to the cost of the asset for the person disposing of the asset at the time of the disposal.

• The person’s cost of a replacement asset referred to in clause (d) of sub-section (1) shall be the cost of the asset disposed of plus the amount by which any consideration given by the person for the replacement asset exceeds the consideration received by the person for the asset disposed of.

¹Inserted by the Finance Act, 2018.

1. Inserted by the Finance Act, 2021.

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CHAPTER V

PROVISIONS GOVERNING PERSONS

PART I

CENTRAL CONCEPTS

Division I

Persons

• Person. —(1) The following shall be treated as persons for the purposes of this Ordinance, namely: —

1. An individual;

1. a company or association of persons incorporated, formed, organised or established in Pakistan or elsewhere;

• the Federal Government, a foreign government, a political sub-

Division of a foreign government, or public international organisation.

• For the purposes of this Ordinance —

• “association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and anybody of persons formed under a foreign law, but does not include a company;

• “company” means —

1. a company as defined in the 1[Companies Act, 2017 (XIX of 2017)];

1. a body corporate formed by or under any law in force in Pakistan;

(iii)     a modaraba;

1. a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;

2[(v)   a co-operative society, a finance society or any other society;]

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021. ²Clause (v) substituted by the Finance Act, 2013. The substituted Clause (v) read as follows:-

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¹[(va) a non-profit organization;]

²[(vb) a trust, an entity or a body of persons established or constituted by or under any law for the time being in force;]

1. a foreign association, whether incorporated or not, which the ³[Board] has, by general or special order, declared to be a company for the purposes of this Ordinance;

1. a Provincial Government; ⁴[  ]

1. a ⁵[Local Government] in Pakistan; ⁶[or]

⁷[(ix)    a Small Company as defined in section 2;]

• “firm” means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all;

• “trust” means an obligation annexed to the ownership of property and arising out of the confidence reposed in and accepted by the owner, or declared and accepted by the owner for the benefit of another, or of another and the owner, and includes a unit trust; and

• “unit trust” means any trust under which beneficial interests are divided into units such that the entitlements of the beneficiaries to income or capital are determined by the number of units held.

“(v)      a trust, a co-operative society or a finance society or any other society established or constituted by or under any law for the time being in force;”

¹Inserted by the Finance Act, 2013.

²Inserted by the Finance Act, 2013.

³The words “Central Board of Revenue” substituted by the Finance Act, 2007.

⁴The word “or” omitted by the Finance Act, 2005.

⁵The words “local authority” substituted by the Finance Act, 2008.

⁶Inserted by the Finance Act, 2005.

1. Added by the Finance Act, 2005.

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Division II

Resident and Non-Resident Persons

• Resident and non-resident persons.— (1) A person shall be a resident person for a tax year if the person is —

1. a resident individual, resident company or resident association of persons for the year; or

• the Federal Government.

1. A person shall be a non-resident person for a tax year if the person is not a resident person for that year.

• Resident individual. — An individual shall be a resident individual for a tax year if the individual —

1. is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and ¹[eighty-three] days or more in the tax year; ²[ ] ³[or]

4[	]
5[	]
6[	]

1. is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year ⁷[;

¹The words “eighty-two” substituted by the Finance Act, 2006.

²

³The word “or” added by the Finance Act, 2022.

⁴New clause (ab) inserted by Finance Act, 2019

• Clause (ab) omitted by the Finance Act, 2021. The omitted clause read as follows:

“(ab) is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and twenty days or more in the tax year and, in the four years preceding the tax year, has been in Pakistan for a period of, or periods amounting in aggregate to, three hundred and sixty-five days or more; or”

• Clause (b) omitted by the Finance Act, 2003. The omitted clause (b) read as follows:

“(b)      is present in Pakistan for a period of, or periods amounting in aggregate to, ninety days or more in the tax year and who, in the four years preceding the tax year, has been in Pakistan for a period of, or periods amounting in aggregate to, three hundred and sixty-five days or more; or”

⁷The full stop substituted with a semicolon and clause (d) inserted by the Finance Act, 2022.

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• being a citizen of Pakistan is not present in any other country for more than one hundred and eighty-two days during the tax year or who is not a resident taxpayer of any other country.]

• Resident company.— A company shall be a resident company for a tax year

if —

1. it is incorporated or formed by or under any law in force in Pakistan;

• the control and management of the affairs of the company is situated wholly ¹[ ] in Pakistan at any time in the year; or

1. it is a Provincial Government or ²[Local Government] in Pakistan.
2. Resident association of persons. — An association of persons shall be a resident association of persons for a tax year if the control and management of the affairs of the association is situated wholly or partly in Pakistan at any time in the year.

Division III

Associates

1. Associates. — ³[(1) Subject to sub-section (2), two persons shall be associates where –

• the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person;

• one person sufficiently influences, either alone or together with an associate or associates, the other person;

Explanation. – For the purpose of this section, two persons shall be treated as sufficiently influencing each other, where one or both persons, directly or indirectly, are economically and financially dependent on each other and, decisions are made in accordance with the directions, instructions or wishes of each other for common economic goal; or

¹The words “or almost wholly” omitted by the Finance Act, 2003.

²The words “local authority” substituted by the Finance Act, 2008.

• Sub-section (1) substituted by the Finance Act, 2023. The substituted sub-section read as follows: “(1) Subject to sub-section (2), two persons shall be associates where the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third

person.”

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• one person enters into a transaction, directly or indirectly, with the other who is a resident of jurisdiction with zero taxation regime.]

• Two persons shall not be associates solely by reason of the fact that one person is an employee of the other or both persons are employees of a third person.

• Without limiting the generality of sub-section (1) and subject to sub-section (4), the following shall be treated as associates —

1. an individual and a relative of the individual;

• members of an association of persons;

1. a member of an association of persons and the association, where the member, either alone or together with an associate or associates under another application of this section, controls fifty per cent or more of the rights to income or capital of the association;

1. a trust and any person who benefits or may benefit under the trust;

1. a shareholder in a company and the company, where the shareholder, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons —

• fifty per cent or more of the voting power in the company;

• fifty per cent or more of the rights to dividends; or

• fifty per cent or more of the rights to capital; and

• two companies, where a person, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons —

• fifty per cent or more of the voting power in both companies;

• fifty per cent or more of the rights to dividends in both companies; or

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• fifty per cent or more of the rights to capital in both companies.

• Two persons shall not be associates under clause (a) or (b) of sub-section (3) where the Commissioner is satisfied that neither person may reasonably be expected to act in accordance with the intentions of the other.

¹[(5)    In this section, –

• “relative” in relation to an individual, means —

1. an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

1. a spouse of the individual or of any person specified in clause (a);

• jurisdiction with zero taxation regime means jurisdiction as may be prescribed.]

• Sub-section (5) substituted by the Finance Act. 2023. The substituted sub-section (5) read as follows:

“(5)  In this section, “relative” in relation to an individual, means —

1. an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

1. a spouse of the individual or of any person specified in clause (a).”

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PART II

INDIVIDUALS

Division I

Taxation of Individuals

• Principle of taxation of individuals.— Subject to this Ordinance, the taxable income of each individual shall be determined separately.

• Deceased individuals.— (1) The legal representative of a deceased individual shall be liable for —

1. any tax that the individual would have become liable for if the individual had not died; and

1. any tax payable in respect of the income of the deceased’s estate.

• The liability of a legal representative under this section shall be limited to the extent to which the deceased’s estate is capable of meeting the liability.

¹[(2A) The liability under this Ordinance shall be the first charge on the deceased’s estate.]

• For the purpose of this Ordinance, —

1. any proceeding taken under this Ordinance against the deceased before his or her death shall be treated as taken against the legal representative and may be continued against the legal representative from the stage at which the proceeding stood on the date of the deceased’s death; and

1. any proceeding which could have been taken under this Ordinance against the deceased if the deceased had survived may be taken against the legal representative of the deceased.

1. In this section, “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in representative character the person on whom the estate devolves on the death of the party so suing or sued.

¹Added by the Finance Act, 2010.

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Division II

Provisions Relating to Averaging

1. An individual as a member of an association of persons.— If, for a tax year, an individual has taxable income and derives an amount or amounts exempt from tax under sub-section (1) of section 92, the amount of tax payable on the taxable income of the individual shall be computed in accordance with the following formula, namely: —

(A/B) x C

where —

1. is the amount of tax that would be assessed to the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax;

1. is the taxable income of the individual for the year if the amount or amounts exempt from tax under sub-section (1) of section 92 were chargeable to tax; and

1. is the individual’s actual taxable income for the year.

¹[  ]

1. Authors. — Where the time taken by an author of a literary or artistic work to complete the work exceeds twenty-four months, the author may elect to treat any lump sum amount received by the author in a tax year on account of royalties in respect of the work as having been received in that tax year and the preceding two tax years in equal proportions.

¹Section 88A omitted by Finance Act, 2014. The omitted section read as follows:

“88A. Share profits of company to be added to taxable income.—(1) Notwithstanding the provisions of sub-section (1) of section 92, the share of profits derived by a company from an association of persons shall be added to the taxable income of the company.

• The company shall be allowed a tax credit in accordance with the following formula,

namely: —

(A/B) x C

Where —

1. is the amount of share of profits received by the company from the association;
2. is the taxable income of the association; and
3. is the amount of tax assessed on the association.

• The tax credit allowed under this section shall be applied in accordance with sub-section

(3) of section 4.”

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Division III

Income Splitting

• Transfers of assets. — (1) For the purposes of this Ordinance and subject to sub-section (2), where there has been a revocable transfer of an asset, any income arising from the asset shall be treated as the income of the transferor and not of the transferee.

• Sub-section (1) shall not apply to any income derived by a person by virtue of a transfer that is not revocable during the lifetime of the person and the transferor derives no direct or indirect benefit from such income.

• For the purposes of this Ordinance, where there has been a transfer of an asset but the asset remains the property of the transferor, any income arising from the asset shall be treated as the income of the transferor.

• For the purposes of this Ordinance and subject to sub-section (5), any income arising from any asset transferred by a person directly or indirectly to—

• the person’s spouse or minor child; or

1. any other person for the benefit of a person or persons referred to in clause (a),

shall be treated as the income of the transferor.

• Sub-section (4) shall not apply to any transfer made —

• for adequate consideration; or

1. in connection with an agreement to live apart.

• For the purposes of clause (a) of sub-section (5), a transfer shall not be treated as made for adequate consideration if the transferor has provided, by way of loan or otherwise, to the transferee, directly or indirectly, with the funds for the acquisition of the asset.

• Sub-section (5) does not apply where the transferor fails to produce evidence of the transfer of the asset by way of its registration or mutation in the relevant record and the income arising from the asset shall be treated as the income of the transferor for the purposes of this Ordinance.

• For the purposes of this section, —

1. a transfer of an asset shall be treated as revocable if —

• there is any provision for the re-transfer, directly or indirectly, of the whole or any part of the asset to the transferor; or

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• the transferor has, in any way, the right to resume power, directly or indirectly, over the whole or any part of the asset;

• “minor child” shall not include a married daughter; and

• “transfer” includes any disposition, settlement, trust, covenant, agreement or arrangement.

1. Income of a minor child.— (1) Any income of a minor child for a tax year chargeable under the head “Income from Business” shall be chargeable to tax as the income of the parent of the child with the highest taxable income for that year.

• Sub-section (1) shall not apply to the income of a minor child from a business acquired by the child through an inheritance.

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PART III

ASSOCIATIONS OF PERSONS

• Principles of taxation of associations of persons.—(1) ¹[ ] An association of persons shall be liable to tax separately from the members of the association and ²[where the association of persons has paid tax the] amount received by a member of the association in the capacity as member out of the income of the association shall be exempt from tax³[:]

⁴[Provided that if at least one member of the association of persons is a company, the share of such company or companies shall be excluded for the purpose of computing the total income of the association of persons and the company or the companies shall be taxed separately, at the rate applicable to the companies, according to their share⁵[: ]

Provided further that the share of a member of an association of persons having turnover of three hundred million rupees or above during the tax year or any of the preceding tax years shall not be exempt if financial statements duly audited by a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961), or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966) have not been filed along with return of income by the association of persons to whom he is a member:]

⁶[Explanation.– For removal of doubt it is clarified that if the income of association of persons is exempt and no tax is payable under the Ordinance due to this exemption, the share received in the capacity as member out of the income of the association shall remain exempt.]

⁷[  ]

⁸[  ]

⁹[  ]

¹The words, brackets, figure and comma “Subject to sub-section (2)” omitted by the Finance Act, 2007.

1. Inserted by the Finance Act, 2003.

³Full stop substituted by a colon by the Finance Act, 2014.

⁴Added by the Finance Act, 2014.

• Full stop substituted and new proviso inserted by the Finance Act, 2024.

• Explanation added by the Finance Act, 2022.

• Sub-section (2) omitted by the Finance Act, 2007. The omitted sub-section (2) read as follows:

“ (2) Sub-section (1) shall not apply to an association of persons that is a professional firm prohibited from incorporating by any law or the rules of the body regulating the profession.”

⁸Sub-section (3) omitted by the Finance Act, 2007. The omitted sub-section (3) read as follows:

“(3) An association of persons to which subsection (2) applies shall not be liable to tax and the income of the association shall be taxed to the members in accordance with section 93”.

• Sub-section (4) omitted by the Finance Act, 2007. The omitted sub-section (4) read as follows:

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¹[  ]

²[  ]

PART IV

COMPANIES

• Principles of taxation of companies.- (1) A company shall be liable to tax separately from its shareholders.

1. A dividend paid by a ³[ ] company shall be taxable in accordance with

Section 5.

⁴[ ]

“(4)An association of persons referred to in sub-section (3) shall furnish a return of total income for each tax year.

¹Sub-section (5) omitted by the Finance Act, 2007. The omitted sub-section (5) read as follows:

“(5) Sections 114, 118 and 119 shall apply to a return of total income required to be furnished under sub-section (4).”

• Section 93 omitted by the Finance Act, 2007. The omitted section read as follows:

“93. Taxation of members of an association of persons.- (1) Where sub-section (3) of section 92 applies, the income of a member of an association of persons chargeable under the head “Income from Business” for a tax year shall include –

1. in the case of a resident member, the member’s share in the total income of the association; or

1. in the case of a non-resident member, the member’s share in so much of the total income of the association as is attributable to Pakistani-source income.

• Where an association of persons to which sub-section (3) of section 92 applies sustains a loss that cannot be set off against any other income of the association in accordance with section 56, the amount of the loss shall be apportioned among the members of the association according to their interest in the association and the members shall be entitled to have their share of the loss set off and carried forward for set off under Part VIII of Chapter III in computing their taxable income under this Ordinance.

• The share of a loss referred to in sub-section (2) of a non-resident member shall be limited to the extent that the loss relates to the derivation of Pakistan-source income.

• The total income of an association of persons for the purposes of sub-section (1) and the loss of an association for the purposes of sub-section (2) shall be computed as if the association were a resident person.

1. Income, expenditures and losses of an association of persons to which this section applies shall retain their character as to geographic source and type of income, expenditure or loss in the hands of the members of the association, and shall be treated as having passed through the association on a pro rata basis, unless the Commissioner permits otherwise by order in writing to the association.

• The share of a member in the total income of an association of persons shall be determined according to the member’s interest in the association and shall include any profit on debt, brokerage, commission, salary or other remuneration received or due from the association.”

³The word “resident” omitted by the Finance Act, 2015

⁴Sub-section (3) omitted by the Finance Act 2017. Omitted sub-section reads as follows:

“A dividend paid by a non-resident company to a resident person shall be chargeable to tax under the head “Income from Business” or “Income from Other Sources”, as the case may be, unless the dividend is exempt from tax.”

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• Disposal of business by individual to wholly-owned company.- (1)

Where a resident individual (hereinafter referred to as the “transferor”) disposes of all the assets of a business of the transferor to a resident company, no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely:—

• The consideration received by the transferor for the disposal is a share or shares in the company (other than redeemable shares);

• the transferor must beneficially own all the issued shares in the company immediately after the disposal;

• the company must undertake to discharge any liability in respect of the assets disposed of to the company;

1. any liability in respect of the assets disposed of to the company must not exceed the transferor’s cost of the assets at the time of the disposal;

• the fair market value of the share or shares received by the transferor for the disposal must be substantially the same as the fair market value of the assets disposed of to the company, less any liability that the company has undertaken to discharge in respect of the assets; and

• the company must not be exempt from tax for the tax year in which the disposal takes place.

• Where sub-section (1) applies —

• each of the assets acquired by the company shall be treated as having the same character as it had in the hands of the transferor;

• the company’s cost in respect of the acquisition of the assets shall be —

1. in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;

1. in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35 ¹[ ], that value; or

¹The words “at fair market value” omitted by the Finance Act, 2007.

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1. in any other case, the transferor’s cost at the time of the disposal;

1. if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the assets transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the deductions allowed under those sections to the company in the tax year in which the transfer is made; and

• the transferor’s cost in respect of the share or shares received as consideration for the disposal shall be —

1. in the case of a consideration of one share, the transferor’s cost of the assets transferred as determined under clause (b), less the amount of any liability that the company has undertaken to discharge in respect of the assets; or

1. in the case of a consideration of more than one share, the amount determined under sub-clause (i) divided by the number of shares received.

1. In determining whether the transferor’s deductions under sections 22,

• or 24 have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.

• Disposal of business by association of persons to wholly-owned company.— (1) Where a resident association of persons disposes of all the assets of a business of the association to a resident company, no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely: —

• The consideration received by the association for the disposal is a share or shares in the company (other than redeemable shares);

• the association must own all the issued shares in the company immediately after the disposal;

• each member of the association must have an interest in the shares in the same proportion to the member’s interest in the business assets immediately before the disposal;

• the company must undertake to discharge any liability in respect of the assets disposed of to the company;

1. any liability in respect of the assets disposed of to the company must not exceed the association’s cost of the asset at the time of the disposal;

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• the fair market value of the share or shares received by the association for the disposal must be substantially the same as the fair market value of the assets disposed of to the company, as reduced by any liability that the company has undertaken to discharge in respect of the assets; and

• the company must not be exempt from tax for the tax year in which the disposal takes place.

• Where sub-section (1) applies —

• each of the assets acquired by the company shall be treated as having the same character as it had in the hands of the association;

• the company’s cost in respect of the acquisition of the assets shall be —

1. in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;

1. in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35¹[ ], that value; or

1. in any other case, the association’s cost at the time of the disposal;

1. if, immediately before the disposal, the association is subject to tax in accordance with sub-section (1) of section 92 and the association has deductions allowed under sections 22, 23 and 24 in respect of the assets transferred which have not been set off against the association’s income, the amount not set off shall be added to the deductions allowed under those sections to the company in the tax year in which the transfer is made; and

• the association’s cost in respect of the share or shares received as consideration for the disposal shall be —

(i)       in the case of a consideration of one share, the association’s cost of the assets transferred as determined under clause (b), as reduced by the amount of any liability that the company has undertaken to discharge in respect of the assets; or

¹ The words “at fair market value” omitted by the Finance Act, 2007.

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1. in the case of a consideration of more than one share, the amount determined under sub-clause (i) divided by the number of shares received.

1. In determining whether the association’s deductions under Sections

22, 23 or 24 have been set off against income for the purposes of clause (c) of sub-section (2), those deductions are taken into account last.

• Disposal of asset between wholly-owned companies.— (1) Where a resident company (hereinafter referred to as the “transferor”) disposes of an asset to another resident company (hereinafter referred to as the “transferee”), no gain or loss shall be taken to arise on the disposal if the following conditions are satisfied, namely:-

• Both companies belong to a wholly-owned group of ¹[resident] companies at the time of the disposal;

• the transferee must undertake to discharge any liability in respect of the asset acquired;

1. any liability in respect of the asset must not exceed the transferor’s cost of the asset at the time of the disposal; and

• the transferee must not be exempt from tax for the tax year in which the disposal takes place.

• Where sub-section (1) applies —

• the asset acquired by the transferee shall be treated as having the same character as it had in the hands of the transferor;

• the transferee’s cost in respect of the acquisition of the asset shall be —

• in the case of a depreciable asset or amortized intangible, the written down value of the asset or intangible immediately before the disposal;

1. in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35 ²[ ], that value; or

1. in any other case, the transferor’s cost at the time of the disposal;

1. if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the asset transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the

¹Inserted by the Finance Act, 2003.

²The words “at fair market value” omitted by the Finance Act, 2007.

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deductions allowed under those sections to the transferee in the tax year in which the transfer is made; and

• the transferor’s cost in respect of any consideration in kind received for the asset shall be the transferor’s cost of the asset transferred as determined under clause (b), as reduced by the amount of any liability that the transferee has undertaken to discharge in respect of the asset.

1. In determining whether the transferor’s deductions under sections 22,

23 or 24 in respect of the asset transferred have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.

• The transferor and transferee companies belong to a wholly-owned

group if —

• one company beneficially holds all the issued shares of the other company; or

1. a third company beneficially holds all the issued shares in both companies.

¹[97A. Disposal of asset under a scheme of arrangement and reconstruction.—(1) No gain or loss shall be taken to arise on disposal of asset from one company (hereinafter referred to as the “transferor”) to another company (hereinafter referred to as the “transferee”) by virtue of operation of a Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the ²[Companies Act, 2017 (XIX of 2017)] or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962), if the following conditions are satisfied, namely:—

• the transferee must undertake to discharge any liability in respect of the asset acquired;

1. any liability in respect of the asset must not exceed the transferor’s cost of the asset at the time of the disposal;

• the transferee must not be exempt from tax for the tax year in which the disposal takes place; and

• scheme is approved by the High Court, State Bank of Pakistan or Securities and Exchange Commission of Pakistan, as the case may be, on or after first day of July, 2007.

• No gain or loss shall be taken to arise on issue, cancellation, exchange or receipt of shares as a result of Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the Companies Act, 2017

1. Inserted by the Finance Act, 2007.

• The expression “Companies Ordinance, 1984 (XLVII of 1984)” wherever occurring substituted by “Companies Act, 2017 (XIX of 2017)” through Finance Act, 2020 dated 30^th June, 2020

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(XIX of 2017) or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962) and approved by:—

• the High Court;

• State Bank of Pakistan; or

• Securities and Exchange Commission of Pakistan, as the case may be, on or after first day of July, 2007.

• Where sub-section (1) applies—

• the asset acquired by the transferee shall be treated as having the same character as it had in the hands of the transferor;

• the transferee’s cost in respect of acquisition of the asset shall be—

1. in the case of a depreciable asset or amortised intangible, the written down value of the asset or intangible immediately before the disposal;

1. in the case of stock-in-trade valued for tax purposes under sub-section (4) of section 35, that value; or

1. in any other case, the transferor’s cost at the time of the disposal;

1. if, immediately before the disposal, the transferor has deductions allowed under sections 22, 23 and 24 in respect of the asset transferred which have not been set off against the transferor’s income, the amount not set off shall be added to the deduction allowed under those sections to the transferee in the tax year in which the transfer is made.

1. In determining whether the transferor’s deductions under sections 22,

23 or 24 in respect of the asset transferred have been set off against income for the purposes of clause (c) of sub-section (2), those deductions shall be taken into account last.

• Where sub-section (2) applies and the shares issued vested by virtue of the Scheme of Arrangement and Reconstruction under sections 282L and 284 to 287 of the Companies Act, 2017 (XIX of 2017) or section 48 of the Banking Companies Ordinance, 1962 (LVII of 1962) and approved by the Court or State Bank of Pakistan or Securities and Exchange Commission of Pakistan as the case may be, are disposed of, the cost of shares shall be the cost prior to the operation of the said scheme.]

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PART V

COMMON PROVISIONS APPLICABLE TO

ASSOCIATIONS OF PERSONS AND COMPANIES

• Change in control of an entity.- (1) Where there is a change of fifty per cent or more in the underlying ownership of an entity, any loss incurred for a tax year before the change shall not be allowed as a deduction in a tax year after the change, unless the entity —

• continues to conduct the same business after the change as it conducted before the change until the loss has been fully set off; and

• does not, until the loss has been fully set off, engage in any new business or investment after the change where the principal purpose of the entity or the beneficial owners of the entity is to utilise the loss so as to reduce the income tax payable on the income arising from the new business or investment.

1. In this section, —

“entity” means a company or association of persons to which sub-section (1) of section 92 applies;

“ownership interest” means a share in a company or the interest of a member in an association of persons; and

“underlying ownership” in relation to an entity, means an ownership interest in the entity held, directly or indirectly through an interposed entity or entities, by an individual or by a person not ultimately owned by individuals.

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1[PART         VA

TAX LIABILITY IN CERTAIN CASES

98A. Change in the constitution of an association of persons.—Where, during the course of a tax year, a change occurs in the constitution of an association of persons, liability of filing the return on behalf of the association of persons for the tax year shall be on the association of persons as constituted at the time of filing of such return but the income of the association of persons shall be apportioned among the members who were entitled to receive it and, where the tax assessed on a member cannot be recovered from him it shall be recovered from the association of persons as constituted at the time of filing the return.

98B. Discontinuance of business or dissolution of an association of persons.— (1) Subject to the provisions of section 117, where any business or profession carried on by an association of persons has been discontinued, or where an association of persons is dissolved, all the provisions of this Ordinance, shall, so far as may be, apply as if no such discontinuance or dissolution had taken place.

• Every person, who was, at the time of such discontinuance or dissolution, a member of such association of persons and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax payable by the association of persons.

98C. Succession to business, otherwise than on death.— (1) Where a person carrying on any business or profession has been succeeded in any tax year by any other person (hereafter in this section referred to as the “predecessor” and “successor” respectively), otherwise than on the death of the predecessor, and the successor continues to carry on that business or profession,-

• the predecessor shall be liable to pay tax in respect of the income of the tax year in which the succession took place upto the date of succession and of the tax year or years preceding that year; and

• the successor shall be liable to pay tax in respect of the income of such tax year after the date of succession.

• Notwithstanding anything contained in sub-section (1), where the predecessor cannot be found, the tax liability in respect of the tax year in which the succession took place upto the date of succession and of the tax year or years preceding that year shall be that of the successor in like manner and to the same extent as it would have been that of the predecessor, and all the provisions of this Ordinance shall, so far as may be, apply accordingly.

¹Inserted by the Finance Act, 2003.

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• Where any tax payable under this section in respect of such business or profession cannot be recovered from the predecessor, it shall be recoverable from the successor, who shall be entitled to recover it from the predecessor.]

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CHAPTER VI

SPECIAL INDUSTRIES

PART I

INSURANCE BUSINESS

• Special provisions relating to insurance business. — The profits and gains of any insurance business shall be computed in accordance with the rules in the Fourth Schedule.

1[   ]

2[  ]

3[99A.  Special provisions relating to payment of tax through electricity

connections. (1) Notwithstanding anything contained in the Ordinance, a tax shall

1. Inserted by the National Assembly Secretariat’s O.M. No.F.22(2)/2016-Legis dated 29.01.2016.

• Section 99A substituted by the Finance Act, 2022. The substituted section read as follows:

“99A. Special provisions relating to traders. -(1) Subject to sub-section (3), tax payable on the profits and gains of a trader as defined in sub-section (4) who upto thirty first day of December, 2015 has not filed a return for any of the preceding ten tax years shall be computed in accordance with the rules laid down in Part I of the Ninth Schedule.

• Subject to sub-section (3), tax payable on the profits and gains of any trader as defined in sub-section (4), who-
  • is a filer; or
  • is NTN holder and a non-filer but has filed return or returns in any of the last ten preceding tax years, shall be computed in accordance with the rules laid down in Part II of the Ninth Schedule.
  • Sub-sections (1) and (2) shall apply, if-
    • the return filed by the trader qualifies for acceptance in accordance with the rules laid down in the Ninth Schedule;
    • return relates to tax years 2015 to 2018; and
    • income from business consists of profits and gains from trading activity only.
  • For the purpose of this section and the Ninth Schedule, ‘trader’ means an individual or an association of persons (AOP) buying goods or merchandise and selling the same without further processing and providing, business-related after sales, services by doing repair jobs.

Explanation 1.-  For the removal of doubt it is clarified that any person engaged in-

• rendering of, or providing, services as defined in clause (ii) of sub-section (7) of section 153; or
• business of retailer falling under rule (5) of Chapter II of the Sales Tax Special Procedures Rules, 2007, shall not be treated as a trader for the purposes of this section.

Explanation 2.- It is also clarified that this section shall not apply to a person who is a Member of

the Senate of Pakistan, the National Assembly of Pakistan or a Provincial Assembly.”]

• Section 99A substituted and shall be deemed to have been so substituted from 1^st day of July, 2022 by the Tax Laws (Amendment) Act, 2023 (XVI of 2023) dated 20.04.2023. Earlier this section was substituted through Tax Laws (Second Amendment) Ordinance, 2022 (VI of 2022) dated 22.08.2022.

The substituted section read as follows:

“99A. Special provisions relating to payment of tax through electricity connections. – (1) Notwithstanding anything contained in the Ordinance, a tax shall be charged and collected from retailers other than Tier-I retailers as defined in Sales Tax Act, 1990 (VII of 1990) and specified service

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be charged and collected from retailers other than Tier-I retailers as defined in the Sales Tax Act, 1990 (VII of 1990) and specified service providers on commercial electricity connections at the rates specified in the income tax general order issued in terms of sub-section (2).

• For the purposes of this section, the Federal Government or the Board with the approval of the Minister in-charge pursuant to the approval of the Economic Coordination Committee of the Cabinet may, issue an income tax general order to —

• provide the scope, time, payment, recovery, penalty, default surcharge, adjustment or refund of tax payable under this section in such manner and with such conditions as may be specified;

• provide the collection of tax on the amount of bill or on any basis of consumption, in addition to or in lieu of advance tax collectible under sub-section (1) of section 235, at such rates or amounts, from such date and with such conditions as may be specified;

• provide record keeping, filing of return, statement and assessment in such manner and with such conditions as may be specified;

• provide mechanism of collection, deduction and payment of tax in respect of any person;

1. include or exempt any person or classes of persons, any income or classes of income from the application of this section, in such manner and with such conditions as may be specified; and

• provide that tax collected under this section shall in respect of such persons or classes of persons be adjustable, final or minimum, in

providers on commercial electricity connections at the rates provided in clause (2A) of Division IV, Part IV of the First Schedule.

1. A retailer who has paid sales tax under sub-section (9) of section 3 of Sales Tax Act, 1990 (VII of 1990), shall not be required to pay tax under this section and the sales tax so paid shall constitute discharge of tax liability under this section.

• The tax collected or paid under this section shall be final tax on the income of persons covered under this section in respect of business being carried out from the premises where the electricity connection is installed.

• For the purposes of this section, Board with the approval of the Minister in-charge may issue an income tax general order to-

• provide the scope, time, payment, recovery, penalty, default surcharge, adjustment or refund of tax payable under this section in such manner and with such conditions as may be specified.

• provide record keeping, filing of return, statement and assessment in such manner and with such conditions as may be specified;

• provide mechanism of collection, deduction and payment of tax in respect of any person; or

1. include or exempt any person or classes of persons, any income or classes of income from the application of this section, in such manner and with such conditions as may be specified.]

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respect of any income to such extent and with such conditions as may be specified.

• The provisions of sub-section (1) of section 235 shall apply to the persons as specified therein unless specifically exempted under the income tax general order issued under sub-section (2).

• The provisions of section 100BA and rule 1 of the Tenth Schedule shall not apply to the tax collectible under this section unless specifically provided in respect of the person or class of persons mentioned in the income tax general order issued under sub-section (2).]

¹[99B. Special procedure for small traders and shopkeepers:-Notwithstanding anything contained in this Ordinance the ²[Board with the approval of the Minister-in-charge] may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, filing of return and assessment in respect of such small traders and shopkeepers, in such cities or territories, as may be specified therein.]

³[99C. Special procedure for certain persons.- Notwithstanding anything contained in this Ordinance, the ⁴[Board with the approval of the Minister-in-charge] may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, record keeping, filing of return and assessment in respect of small businesses, construction businesses, medical practitioners, hospitals, educational institutions and any other sector specified by ⁵[Board with the approval of the Minister-in-charge], in such cities or territories, as may be specified therein.]

⁶[99D. Additional tax on certain income, profits and gains.– (1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, for any of the last three tax years preceding the tax year 2023 and onwards, in addition to any tax charged or chargeable, paid or payable under any of the provisions of this Ordinance, an additional tax shall be imposed on every person being a company who has any income, profit or gains that have arisen due to any economic factor or factors that resulted in windfall income, profits or gains.

• The Federal Government may, by notification in the official Gazette, –

• specify sector or sectors, for which this section applies;

• New Section 99B inserted through Finance Supplementary (Second Amendment) Act, 2019.

• The words “Federal Government” substituted by the Finance Act, 2021.

• New section 99C inserted through Finance Act, 2019

• The words “Federal Government” substituted by the Finance Act, 2021.

• The words “Federal Government” substituted by the Finance Act, 2021.

• New section 99D inserted by the Finance Act, 2023.

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• determine windfall income, profits or gains and economic factor or factors including but not limited to international price fluctuation having bearing on any commodity price in Pakistan or any sector of the economy or difference in income, profit or gains on account of foreign currency fluctuation;

• provide the rate not exceeding fifty percent of such income, profits or gains;

• provide for the scope, time and payment of tax payable under this section in such manner and with such conditions as may be specified in the notification; and

• exempt any person or classes of persons, any income or classes of income from the application of this section, subject to any conditions as may be specified in the notification.

• The Federal Government shall place before the National Assembly the notification issued under this section within ninety days of the issuance of such notification or by the 30th day of June of the financial year, whichever is earlier.]

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PART II

OIL, NATURAL GAS AND OTHER MINERAL DEPOSITS

• Special provisions relating to the production of oil and natural gas, and exploration and extraction of other mineral deposits.—(1) Subject to sub-section (2), the profits and gains from —

• the exploration and production of petroleum including natural gas and from refineries set up at the Dhodak and Bobi fields;

• the pipeline operations of exploration and production companies; or

• the manufacture and sale of liquefied petroleum gas or compressed natural gas,

and the tax payable thereon shall be computed in accordance with the rules in Part I of the Fifth Schedule.

• Sub-section (1) shall not apply to the profits and gains attributable to the production of petroleum including natural gas discovered before the 24^th day of September, 1954¹[:]

²[Provided that the for tax year 2017 and onward the provisions of this sub-section shall not apply on profit and gains derived from sui gas field.]

• The profits and gains of any business which consists of, or includes, the exploration and extraction of such mineral deposits of a wasting nature (not being petroleum or natural gas) as may be specified in this behalf by the ³[Board with the approval of the Minister-in-charge] carried on by a person in Pakistan shall be computed in accordance with the rules in Part II of the Fifth Schedule.

⁴[100A. Special provisions relating to banking business.—(1) Subject to sub-section (2), the income, profits and gains of any banking company as defined in clause (7) of section 2 and tax payable thereon shall be computed in accordance with the rules in the Seventh Schedule.

• Sub-section (1) shall apply to the profits and gains of the banking companies relevant to tax year 2009 and onwards.

¹Fullstop substituted by the Finance Act 2017.

²Inserted by the Finance Act, 2017.

• The words “Federal Government” substituted by the Finance Act, 2021. ⁴Inserted by the Finance Act, 2007.

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¹[(3) Notwithstanding anything contained in sub-section (1), income, profits and gains and tax payable thereon shall be computed subject to the limitations and provisions contained in Chapters VII and VIII.]

²[100B. Special provision relating to capital gain tax.— (1) Capital gains on disposal of listed securities and tax thereon ³[including super tax under section 4C ], subject to section 37A, shall be computed, determined, collected and deposited in accordance with the rules laid down in the Eighth Schedule.

• The provisions of sub–section (1) shall not apply to the following persons or class of persons, namely:-

1. a mutual fund;

• banking company, a non-banking finance company and an insurance company subject to tax under the Fourth Schedule;

1. a modaraba;

⁴[(d)       a company, in respect of debt securities only; and]

1. any other person or class of persons notified by the Board.]

⁵[100BA. Special provisions relating to persons not appearing in active taxpayers’ list.-(1) The collection or deduction of advance income tax, computation of income and tax payable thereon ⁶[in respect of a person not appearing on the active taxpayers’ list] ⁷[or persons appearing on the active taxpayers’ list who have not filed return by the due date specified in section 118 or by the due date as extended under section 119 or 214A] shall be determined in accordance with the rules in the Tenth Schedule.

• The provisions of the Tenth Schedule shall have effect notwithstanding anything to the contrary contained in this Ordinance.]

1. Added by the Finance Act, 2018.

1. Added by the Finance Act, 2012.

• Words inserted by the Finance Act, 2023.

• Clause (d) substituted by new clause (d) by the Finance Act, 2014. The substituted clause read as follows:

“(d) “a foreign institutional investor” being a person registered with NCCPL as a foreign institutional investor; and”

• New section 100BA inserted through Finance Act, 2019.

• Words inserted through Finance Act, 2020 dated 30^th June, 2020.

• Expression inserted by the Finance Act, 2024.

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¹[  ]

²[100C. Tax credit for charitable organizations.— (1) The persons mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred percent of tax payable under any of the provisions of this Ordinance including minimum and final

1. Inserted by the Finance Act, 2014.

• Section 100C substituted by the Finance Act, 2021. Earlier this substitution was made through Tax

Laws (Second Amendment) Ordinance, 2021. The substituted section read as follows:

“100C. Tax credit for certain persons.- (1) ²[The income of]Non-profit organizations, trusts or welfare institutions, as mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred per cent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, subject to the following conditions, namely:-

• return has been filed;
• tax required to be deducted or collected has been deducted or collected and paid;²[ ]
• withholding tax statements for the immediately preceding tax year have been filed²[;]

2[(d)	the administrative and management expenditure does not exceed 15% of the total receipts:
		“Provided that clause (d) shall not apply to a non-profit organization, if—
	2[(i)	charitable and welfare activities of the non-profit organization have commenced for
		the first time within last three years; and
	(ii)]	total receipts of the non-profit organization during the tax year are less than one
		hundred million Rupees” 2[;]
2[(e)	approval of Commissioner has been obtained as per the requirement of clause (36) of
	section 2:
		Provided that this clause shall take effect from the first day of July, 2020; 2[  ]

• none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendents or the maker of

the institution or to any other person:

Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor ²[; and]

1. a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed from and manner.]

²[(1A)      Notwithstanding                anything   contained         in     sub-section      (1),                surplus   funds      of             non-profit

²[organizations, trusts or welfare institutions] shall be taxed at a rate of ten percent.

(1B)         For the purpose of sub-section (1A), surplus funds mean funds or monies:

• not spent on charitable and welfare activities during the tax year;

• received during the tax year as donations, voluntary contributions, subscriptions and other incomes;

• which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and
• are not part of restricted funds.

Explanation.- For the purpose of this sub-section, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor.]

• Persons ²[and incomes] eligible for tax credit under this section include-
  • any income of a trust or welfare institution or non-profit organization from donations, voluntary contributions, subscriptions, house property, investments in the securities of the Federal Government and so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:

Provided that in the case of income under the head “income from business”, the exemption in respect of income under the said head shall not exceed an amount which bears to the income, under the said head, the same proportion as the said amount bears to the aggregate of the incomes from the aforesaid sources of income.

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taxes in respect of incomes mentioned in sub-section (3) subject to the conditions and limitations laid down in subsection (4).

• The provisions of this section shall apply to the following persons, namely:—

• persons specified in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance;

1. a trust administered under a scheme approved by the Federal Government and established in Pakistan exclusively for the purposes of

1. a trust administered under a scheme approved by the Federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the benefit and welfare of—

• ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependents; or

• ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents, where the said trust is administered by a committee nominated by the Federal Government or, as the case may be, a Provincial Government;

• ²[  ]
  • income of a university or other educational institution being run by a non-profit organization existing solely for educational purposes and not for purposes of profit;

1. any income which is derived from investments in securities of the Federal Government, profit on debt from scheduled banks ²[and microfinance banks], grant received from Federal Government or Provincial Government or District Governments, foreign grants and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto:

Provided that nothing in this clause shall apply to so much of the income as is not expended within Pakistan:

Provided further that if any sum out of the amount so set apart is expended outside Pakistan, it shall be included in the total income of the tax year in which it is so expended or of the year in which it was set apart, whichever is the greater, and the provisions of section 122 shall not apply to any assessment made or to be made in pursuance of this proviso.

Explanation.— Notwithstanding anything contained in the Mussalman Wakf Validating Act, 1913 (VI of 1913), or any other law for the time being in force or in the instrument relating to the trust or the institution, if any amount is set apart, expended or disbursed for the maintenance and support wholly or partially of the family, children or descendants of the author of the trust or the donor or, the maker of the institution or for his own maintenance and support during his life time or payment to himself or his family, children, relations or descendants or for the payment of his or their debts out of the income from house property dedicated, or if any expenditure is made other than for charitable purposes, in each case such expenditure, provision, setting apart, payment or disbursement shall not be deemed, for the purposes of this clause, to be for religious or charitable purposes; or

1. any income of a religious or charitable institution derived from voluntary contributions applicable solely to religious or charitable purposes of the institution:

Provided that nothing contained in this clause shall apply to the income of a private religious trust which does not ensure for the benefit of the public.”;]

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carrying out such activities as are for the welfare of ex-employees and serving personnel of the Federal Government or a Provincial Government or armed forces including civilian employees of armed forces and their dependents where the said trust is administered by a committee nominated by the Federal Government or a Provincial Government;

1. a trust;

1. a welfare institution registered with Provincial or Islamabad Capital Territory (ICT) social welfare department;

1. a not for profit company registered with the Securities and Exchange Commission of Pakistan under section 42 of the Companies Act, 2017;

1. a welfare society registered under the provincial or Islamabad Capital Territory (ICT) laws related to registration of co-operative societies;

1. a waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or any other law for the time being in force or in the instrument relating to the trust or the institution;

1. a university or education institutions being run by nonprofit organization existing solely for educational purposes and not for the purposes of profit;

1. a religious or charitable institution for the benefit of public registered under any law for the time being in force; and

1. international non-governmental organizations (INGOs) approved by the Federal Government.

• The following income is eligible for tax credit, namely:—

1. income from donations, voluntary contributions and subscriptions;

1. income from house property;

1. income from investments in the securities of the Federal Government;

• profit on debt from scheduled banks and microfinance banks;

• grant received from Federal, Provincial, Local or foreign Government;

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• so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:

Provided that in the case of income under the head “income from business”, only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and

1. any income of the persons mentioned in clauses (a), (b) and (h) of sub-section (2) of this section.

• Eligibility for tax credit shall be subject to the following conditions,

namely:—

• return has been filed;

• tax required to be deducted or collected has been deducted or collected and paid;

• withholding tax statements for the relevant tax year have been filed;

• the administrative and management expenditure does not exceed 15% of the total receipts:

Provided that clause (d) shall not apply to a nonprofit organization, if—

• charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; or

• total receipts of the non-profit organization during the tax year are less than one hundred million Rupees;

1. approval of Commissioner has been obtained as per requirement of clause (36) of section 2:

Provided that the condition of approval in respect of persons mentioned in Table-II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the first day of July, ¹[2023] and the requirements of clause (36) of section 2, shall not be applicable for earlier years;

• The figure 2022 substituted by the Finance Act, 2022.

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• none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person:

Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and

1. a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed form and manner.

• Notwithstanding anything contained in sub-section (1), surplus funds of organizations to which this section applies shall be taxed at a rate of ten percent.

• For  the  purpose  of  sub-section  (5),  surplus  funds  mean  funds  or

monies—

• not spent on charitable and welfare activities during the tax year;

• received during the tax year as donations, voluntary contributions, subscriptions and other incomes;

• which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and

1. are not part of restricted funds.

Explanation.—For the purpose of this clause, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.]

¹[100D. Special provisions relating to builders and developers. – (1) For tax year 2020 and onwards, the tax payable by a builder or a developer, as defined in sub-section (9), who opt to pay tax under this section shall be computed and paid in accordance with the rules in the Eleventh Schedule on a project by project basis

• New section (100D) inserted through Finance Act, 2020 dated 30^th June, 2020

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on the income, profits and gains derived from the sale of buildings or sale of plots, as the case may be, from–

1. a new project to be completed by the ¹[30^th day of September, 2023]; or

1. an incomplete existing project to be completed by the ²[30^th day of September, 2023]:

Provided that any income, profits and gains of a builder or developer of an incomplete existing project earned up to tax year 2019 ³[or tax year 2020, as the case may be] shall be subject to the provisions of this Ordinance as were in force prior to the commencement of the Tax Laws (Amendment) Ordinance, 2020 (Ordinance I of 2020):

Provided further that any income of a builders or developer other than income, profits and gains subject to this section shall be subject to tax as per the provisions of this Ordinance.

• Where sub-section (1) applies,-

• the income shall not be chargeable to tax under any head of income in computing the taxable income of the person;

• no deduction shall be allowed under this Ordinance for any expenditure incurred in deriving the income:

• the amount of the income shall not be reduced by –

1. any deductible allowance under Part IX of Chapter III: or

• the set off of any loss;

• no tax credit shall be allowed against the tax payable under sub-section

• except credit for tax under section 236A or 236K collected from the builder or developer after the commencement of the Tax Law (Amendment) Ordinance, 2020 (1 of 2020) on purchase of immoveable property utilized in a project;

• The expression “30^th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “30^th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• This expression inserted by the Finance Act, 2021. Earlier this expression was made through Income Tax (Amendment) Ordinance, 2021.

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• there shall be no refund of any tax collected or deducted under this Ordinance;

1. if the tax payable has not been paid or short paid, the said amount of tax may be recovered and all the provisions of this Ordinance shall apply accordingly; and

• section 113 and 113C shall not apply on the turnover, income, profits and gains of a builder or developer from a project.

• The provisions of section 111 shall not apply to capital investment made in a new project under clause (a) of sub-section (1) in the form of money or land, subject to the following conditions, namely:-

1. if the investment is made by a builder or developer being an individual-

1. in the form of money, such builder or developer shall open a new bank account and deposit such amount in it on or before the ¹[30th day of June, 2021]; or

1. in the form of land, such builder or developer shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020 (I of 2020);

1. if the investment is made by a person in a project through a company or an association of persons,-

• such company or association of person shall be a single object (builder or developer) company or association of persons registered under the Companies Act, 2017 (XIX of 2017), the Limited Liability Partnership Act, 2017 (XV of 2017) or the Partnership Act 1932 (IX of 1932), as the case may be, after the date of commencement of the Tax Laws (Amendment) Ordinance, 2020 (I of 2020) and on or before the ²[30th day of June, 2021]; and

• the person shall be a member or shareholder of such association of persons or company, as the case may be;

and if the capital investment is made,-

• The expression “31^st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “31^st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

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1. in the form of money, such amount shall be invested through a crossed banking instrument deposited in the bank account of such association of persons or company, as the case may be, no or before the ¹[30th day of June, 2021]; or

1. in the form of land, such land shall be transferred to such association of persons or company, as the case may be, on or before the ²[30th day of June, 2021]:

Provided that the person shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020 (I of 2020)

1. a person making an investment under clause (a) or (b) shall submit a prescribed form on Iris web portal ³[by 30th day of June, 2021];

• the money or land invested under clause (a) or (b) shall be wholly utilized in a project; and

• completion of the project shall be certified in the following manner, namely:-

1. in case of a builder, the map approving authority or NESPAK shall certify that grey structure as per the approved map has been completed by the builder on or before the ⁴[30^th day of September, 2023]; and

1. in case of a develop,-

• the map approving authority or NESPAK shall certify that landscaping has been completed on or before the ⁵[30^th day of September, 2023];

1. a firm of chartered accountants having an ICAP QCR rating of ‘satisfactory’, notified by the Board for this purpose, shall

• The expression “31^st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “31^st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression inserted by the Finance Act, 2021. Earlier this insertion was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “30^th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “30^th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

Chapter VI – Special Industries ___________________________

certify that at least 50% of the plots have been booked for sale and at least 40% of the sale proceeds have been received by the ¹[30^th day of September, 2023]; and

• at least 50% of the roads have been laid up to sub-grade level as certified by the approving authority of NESPAK.

• The provisions of section 111 shall also not apply to.-

• the first purchaser of a building or a unit of the building purchased from the builder in respect of purchase price of the building or unit of the building subject to the following conditions, namely:-

• full payment is made through a crossed banking instrument to the builder during a period starting from the date of registration of the project with the Board under this section and ending on the ²[31st day of March, 2023], in case the purchase is from a new project; and

• full or balance amount of payment is made through a crossed banking instrument to the builder during a period starting from the date of registration of the project with the Board under this section and ending on the ³[31st day of March, 2023], in case the purchase is from an existing incomplete project; and

• the purchaser of a plot who intends to construct a building thereon, if-

• the purchase is made on a before the ⁴[30^th day of June, 2021];
  • the full payment is made on or before the ⁵[30^th day of June, 2021] through a crossed banking instrument;

• construction on such plot is commenced on or before the ⁶[31^st day of December, 2021];

• The expression “30^th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “30^th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “30^th day of September, 2022” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “31^st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021..

• The expression “31^st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• The expression “31^st day of December, 2020” ” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

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• such construction is completed on or before the ¹[30^th day of September, 2023]; and

• the person registers himself with the Board on the online Iris werb portal.

• Where sub-section (3) or (4) apply, the value or price of land or building, as the case may be, shall be the higher of clause (a) or (b) below:-

1. 130% of the fair market value as determined by the Board under sub-section (4) of section 68; or

1. at the option of the person making investment, the lower of the values as determined by at least two independent valuers from the list of valuers approved by the State Bank of Pakistan.

• Sub-sections (3) and (4) shall not apply to –

• holder of any public office as defined in the Voluntary Declaration of Domestic Assets Act, 2018 or his benamidar as defined in the Benami Transactions (Prohibition) Act, 2017 (V of 2017) or his spouse or dependents;

1. a public listed company, a real estate investment trust or a company whose income is exempt under any provision of this Ordinance; or

1. any proceeds derived from the commission of a criminal offence including the crimes of money laundering extortion or terror financing but excluding the offences under this Ordinance.

• Divided income paid to a person by a builder or developer being a company out of the profits and gains derived from a project shall be exempt from tax.

• Notwithstanding anything contained in this section or the Eleventh Schedule, where a return or declaration has been made through misrepresentation or suppression of facts, such return or declaration shall be void and all the provisions of this Ordinance shall apply:

Provided that no action under this sub-section shall be taken if such misrepresentation has been made on account of a bona fide mistake:

• The expression “30^th day of September, 2022” ” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

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Provided further that no action under this sub-section shall be taken without providing an opportunity of being heard and without prior approval of the Board.

1. In this section.-

• “builder” means a person who is registered as a builder with the Board and is engaged in the construction and disposal of residential or commercial buildings;

• “capital investment” means investment as equity resources and does not include borrowed funds;

• “developer” means a person who is registered as a developer with the

Board and is engaged in the development of land in the form of plots of any kind either for itself or otherwise;

• “existing project” means a construction or development project, which-

• has commenced before the date of commencement of the Tax Laws (Amendment) Ordinance, 2020;

1. is incomplete;

1. is completed on or before the ¹[30^th day of September, 2023];and

1. a declaration is provided in the registration from under Eleventh Schedule to the effect of percentage of the project completed up to the last day of the accounting period pertaining to tax year 2019 ²[or tax year 2020 at the option of the taxpayer];

• “first purchaser” means a person who purchases a building or a unit, as the case may be, directly from the builder and does not include a subsequent or a substituted purchaser;

• “new project” means a construction or development project, which-

1. is commenced during the period starting from the date of commencement of the Tax Laws (Amendment) Ordinance, 2020 and ending on the ³[31^st day of December, 2021]; and

• The expression “30^th day of September, 2022” ” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• This expression inserted ” by the Finance Act, 2021. Earlier this insertion was made through Income

Tax (Amendment) Ordinance, 2021.

• The expression “31^st day of December, 2020” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

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1. is competed on or before the ¹[30^th day of September, 2023];

• “project” means a project for construction of a building with the object of disposal, or a project for development of land into plots with the object of disposal or otherwise;

• “registered with the Board” means registered after submission of form on project-by-project basis on the online Iris web portal;

• The provisions of the Ordinance not specifically dealt with in this section or the rules made thereunder shall apply mutatis mutandis to builders and developers in so far as they are not inconsistent with this section or the rules made thereunder.]

²[100E. Special provisions relating to small and medium enterprises.— (1) For tax year 2021 and onwards, the tax payable by a small and medium enterprise as defined in clause (59A) of section 2 shall be computed and paid in accordance with rules made under the Fourteenth Schedule.

• The Board may prescribe a simplified return for a small and medium enterprise.]

³[  ]

• The expression “30^th day of September, 2022” ” substituted by the Finance Act, 2021. Earlier the substitution was made through Income Tax (Amendment) Ordinance, 2021.

• Section 100E inserted by the Finance Act, 2021.

• Section 100F shall be omitted and shall be deemed to have been omitted with effect from 02^nd March,

2022 by the Finance Act, 2022. The omitted section read as follows:

“100F. Special provisions relating to investment for industrial promotion. — (1) Any eligible person may file a statement by the 30^th September, 2022, declaring therein the amount of funds (which have not been declared in any of the returns of income upto tax year 2021 filed by the 31^st December, 2021) for investment in a new company formed for establishing and operating an industrial undertaking in accordance with this section:

Provided that the funds referred to in sub-section (I) shall be deposited in rupees in a dedicated bank account in Pakistan as equity of the newly formed company, incorporated under the Companies Act, 2017 (XIX of 2017), before the filing of the statement and such funds shall only be used for purchase or import of plant and machinery through letter of credit or for construction of building and structure for the industrial undertaking:

Provided further that the minimum amount which would qualify for the purposes of this section shall be fifty million rupees.

• The provisions of section 111 shall not apply to the funds declared under sub-section (I) subject to fulfilment of conditions as laid down in this section and payment of an amount equal to five percent thereof along with the statement filed under sub-section (1).

• The new industrial undertaking in which such investment is made shall commence commercial production by the 30^th June, 2024 and a certificate to that effect, duly issued by Engineering Development Board, is submitted to the Commissioner along with the return filed for tax year 2024.

1. Any amount of tax paid under this section shall not be refundable or adjustable against any other tax liability of the declarant.

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• Where a declarant has paid tax under this section in respect of funds declared under sub-section (I), the declarant shall be entitled to incorporate the same in his wealth statement, financial statements or books of accounts, as the case may be.

• For the purposes of this section, eligible person means all persons, except–

• holders of’ public office, their spouses and dependent children;
• a public company as defined in clause (47) of section 2 of this Ordinance;

(c) a person who has filed a declaration under the Voluntary Declaration of Domestic Assets Act, 2018, the Foreign Assets (Declaration and Repatriation) Act, 2018, or the Assets Declaration Act, 2019;

1. a person that has been declared a bank loan defaulter by a bank or a financial institution within the last three years; or

1. a director of a company who has been declared a bank loan defaulter by a bank or a financial institution within the last three years.

(7) The provisions of this section shall not apply to —

1. any proceeds of crime, corruption, money laundering and terror financing;

1. any amount which is subject of any departmental or court proceedings;
2. the investments made in following sectors, namely:—
3. arms and ammunitions;

• explosives;
• sugar;

• cigarettes;

1. aerated beverages;

• flour mills;

• vegetable ghee; and

• cooking oil manufacturing excluding extraction units.

• Notwithstanding the provisions of any other law for the time being in force including sub-section (3) of section 216 of this Ordinance excluding clauses (a) and (g) of sub-section (3) thereof, the National Accountability Ordinance, 1999 (XVIII of 1999), the Federal Investigation Agency Act, 1974 (VIII of 1975) and the Right of Access to Information Act, 2017 (XXXI V of 2017), particulars of any person making a statement under this section or any information received in any statement made under this section shall be confidential.

• The statement filed under sub-section (1) shall not be valid, if—

• the newly formed industrial undertaking company fails to prove commercial production in terms of sub-section (3);
• there is change in ownership of industrial undertaking company prior to the 30^th June, 2026;

or

• the newly formed industrial undertaking company disposes of any of its assets prior to the 30^th June, 2026.

(10) Notwithstanding anything contained in this section, where the provisions of sub-section (7) or (9) apply, or where the statement under sub-section (I) has been made by misrepresentation or suppression of facts, such statement shall be void as if it had never been made and all the provisions of this Ordinance shall apply accordingly:

Provided that the Commissioner shall not take any action under this section without providing the declarant an opportunity of being heard.

(11) The statement filed under this section shall be made in the form and manner as specified by the Board through a notification in the official Gazette.

(12) The provisions of this section shall apply, mutatis mutandis, to an existing company being an industrial undertaking, for investment in expansion and modernization from amount of funds (which have not been declared in any of the returns of income upto tax year 2021 filed by the 31^st December, 2021):

Provided that such company opens a dedicated bank account to deposit the said funds before the filing of the statement and such funds shall only be used for expansion and modernization by way of purchase or import of plant and machinery including IT hardware through letter of credit, or software and IT services or for construction of building and structure for the manufacturing premises of the existing industrial undertaking:

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Provided further that the expansion and modernization shall be completed by the 30^th June, 2024, and a certificate to that effect, duly issued by the Engineering Development Board, is submitted to the Commissioner along with the return filed for tax year 2024.

1. In this section, unless there is anything repugnant in the subject or context,—

(a) “declarant” means a person filing a statement under sub-section (1);

(b) “holder of public office” means a person as defined in the Voluntary Declaration of Domestic

• “industrial undertaking” means a company being a new industrial undertaking setup for the purpose of this section and is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an existing industrial undertaking established in Pakistan;

• “investment” means investment in equity and does not include borrowed funds and investment in land; and

• “modernization” includes acquisition or upgradation of IT hardware, software and IT services.”;

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CHAPTER VII

INTERNATIONAL

PART I

GEOGRAPHICAL SOURCE OF INCOME

• Geographical source of income. — (1) Salary shall be Pakistan-source income to the extent to which the salary —

1. is received from any employment exercised in Pakistan, wherever paid; or

1. is paid by, or on behalf of, the Federal Government, a Provincial Government, or a 1[Local Government] in Pakistan, wherever the employment is exercised.

• Business income of a resident person shall be Pakistan-source income to the extent to which the income is derived from any business carried on in Pakistan.

• Business income of a non-resident person shall be Pakistan-source income to the extent to which it is directly or indirectly attributable to –

1. a permanent establishment of the non-resident person in Pakistan;

• sales in Pakistan of goods merchandise of the same or similar kind as those sold by the person through a permanent establishment in Pakistan; 2[ ]

• other business activities carried on in Pakistan of the same or similar kind as those effected by the non-resident through a permanent establishment in Pakistan 3[; or]

4[(d)     any business connection in Pakistan 5[; or]

¹The words “local authority” substituted by the Finance Act, 2008.

• The word “or” omitted by the Finance Act, 2003.

• Full stop substituted by the Finance Act, 2003.

1. Inserted by the Finance Act, 2003.

⁵Full stop substituted by the Finance Act, 2018.

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1[(e)  import	of goods,  whether or  not		the title to the goods			passes outside
Pakistan, if the import is part of an overall arrangement for						the	supply  of
goods,	installation,  construction,		assembly,		commission,		guarantees
or supervisory		activities  and  all	or	principal	activities are undertaken
or performed either by the associates of the person supplying the goods
or its permanent establishment, whether				or  not	the  goods  are  imported
in  the	name	of  the person, associate of the person or any other person.

Explanation.—For the removal of doubt, it is clarified that where the income is subject to taxation under sections 5A, 5AA, 6, 7 and 7A, the income shall not be chargeable to tax under the head income from business.”]

²[(3A) For the purposes of clause (d) of sub-section (3), business connection in Pakistan shall include “significant economic presence in Pakistan” of a non-resident.

(3B)   significant economic presence in Pakistan shall mean –

• transaction in respect of any goods, services or property carried out by a non-resident with any person in Pakistan including provision of download of data or software in Pakistan, if the aggregate of payments arising from such transaction or transactions during the tax year exceeds such amount as may be prescribed; and

• systematic and continuous soliciting of business activities or engaging in interaction through digital means with such number of users in Pakistan as may be prescribed, irrespective of whether or not —

• the agreement for such transactions or activities is signed in Pakistan;

• the non-resident has a residence or place of business in Pakistan; or

• the non-resident renders services in Pakistan:

Provided that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise from a business connection in Pakistan.]

¹Added by the Finance Act, 2018.

• Sub-sections (3A) and (3B) added by the Finance Act, 2024.

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¹[(4) Where the business of a non-resident person comprises the rendering of independent services (including professional services and the services of entertainers and sports persons), the Pakistan-source business income of the person shall include [in addition to any amounts treated as Pakistan-source income under sub-section (3)] any remuneration derived by the person where the remuneration is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person.]

1. Any gain from the disposal of any asset or property used in deriving any business income referred to in sub-section (2), (3) or (4) shall be Pakistan-source income.

1. A dividend shall be Pakistan-source income if it is ²[—] ³[( a) paid by a resident company; or]

⁴[(b) dividend as per provisions of sub-clause (f) of clause (19) of section 2.]

• Profit on debt shall be Pakistan-source income if it is —

• paid by a resident person, except where the profit is payable in respect of any debt used for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or

• borne by a permanent establishment in Pakistan of a non-resident person.

1. A royalty shall be Pakistan-source income if it is —

• paid by a resident person, except where the royalty is payable in respect of any right, property, or information used, or services utilised for the purposes of a business carried on by the resident outside Pakistan through a permanent establishment; or

• Sub-section (4) substituted by the Finance Act, 2003. The substituted sub-section (4) read as follows: –

“(4) Where the business of a non-resident person comprises the rendering of independent services (including professional services and the services of entertainers and sports-persons), the Pakistan-source business income of the person shall include (in addition to any amounts treated as Pakistan-source income under sub-section (3)) any remuneration derived by the person where –

• the remuneration is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident; person; and

• the aggregate gross amount (before deduction of expenses) of the remuneration is sixty thousand rupees or more.”
• The words and full stop “paid by a resident company.” substituted by the Finance Act, 2012.

³Added by the Finance Act, 2012.

⁴Added by the Finance Act, 2012.

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• borne by a permanent establishment in Pakistan of a non-resident person.

• Rental income shall be Pakistan-source income if it is derived from the lease of immovable property in Pakistan whether improved or not, or from any other interest in or over immovable property, including a right to explore for, or exploit, natural resources in Pakistan.

1. Any gain from the alienation of any property or right referred to in sub-section (9) or from the alienation of any share in a company the assets of which consist wholly or principally, directly or indirectly, of property or rights referred to in sub-section (9) shall be Pakistan-source income.

1. A pension or annuity shall be Pakistan-source income if it is paid by a resident or borne by a permanent establishment in Pakistan of a non-resident person.

1. A technical fee shall be Pakistan-source income if it is –

• paid by a resident person, except where the fee is payable in respect of services utilised in a business carried on by the resident outside Pakistan through a permanent establishment; or

• borne by a permanent establishment in Pakistan of a non-resident person.

¹[(12A)   A fee for offshore digital services shall be Pakistan- source income, if it is –

• paid by a resident person, except where the fee is payable in respect of services utilised in a business carried on by the resident

outside Pakistan through a permanent establishment; or

• borne by a permanent establishment in Pakistan of a non-resident person.]

1. Any gain arising on the disposal of shares in a resident company shall be Pakistan-source income.

²[(13A).Any amount paid on account of insurance or re-insurance premium by an insurance company to an overseas insurance or re-insurance company shall be deemed to be Pakistan source income.]

1. Any amount not mentioned in the preceding sub-sections shall be Pakistan-source income if it is paid by a resident person or borne by a permanent establishment in Pakistan of a non-resident person.

¹Inserted by the Finance Act, 2018.

²Inserted by the Finance Act, 2008.

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• Where an amount may be dealt with under sub-section (3) and under another sub-section (other than sub-section (14)), this section shall apply—

• by first determining whether the amount is Pakistan-source income under that other sub-section; and

1. if the amount is not Pakistan-source income under that sub-section, then determining whether it is Pakistan-source income under sub-section (3).

1. An amount shall be foreign-source income to the extent to which it is not Pakistan-source income.

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¹[101A. Gain on disposal of assets outside Pakistan.— (1) Any gain from the disposal or alienation outside Pakistan of an asset located in Pakistan of a non-resident company shall be Pakistan-source.

• The gain under sub-section (1) shall be chargeable to tax at the rate and in the manner as specified in sub-section (10).

• Where the asset is any share or interest in a non-resident company, the asset shall be treated to be located in Pakistan, if ─

• the share or interest derives, directly or indirectly, its value wholly or principally from the assets located in Pakistan; and

• shares or interest representing ten per cent or more of the share capital of the non-resident company are disposed or alienated.

• The share or  interest,  as  mentioned  in sub-section  (3),  shall  be

treated to derive its value principally from the assets located in Pakistan, if on the last day of the tax year preceding the date of transfer ofa share or an

interest, the value of such assets exceeds one hundred million Rupees and represents at least fifty per cent of the value of all the assets owned by the non-resident company.

• Notwithstanding the provisions of section 68, the value as mentioned in sub-section (4) shall be the fair market value, as may be prescribed, for the purpose of this section without reduction of liabilities.

• Where  the  entire  assets  by  the  non-resident  company  are not

located in Pakistan, the income of the non-resident company, from disposal or alienation outside Pakistan of a share of, or interest in, such non-resident company shall be treated to be located in Pakistan, to the extent it is reasonably attributable to assets located in Pakistan and determined as may be prescribed.

• Where the asset of a non-resident company derives, directly or indirectly, its value wholly or principally from the assets located in Pakistan and the non-resident company holds, directly or indirectly, such assets through a resident company, such resident company shall, for the purposes of determination

¹Inserted by the finance Act 2018.

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of gain and tax thereon under sub-section (8)or, as the case may be, sub-section

(9), shall furnish to the Commissioner within sixty days of the transaction of disposal or alienation of the asset by the non-resident company, the

prescribed information or documents, in a statement as may be prescribed:

Provided that the Commissioner may, by notice in writing, require the resident company, to furnish information, documents and statement within a period of less than sixty days as specified in the notice.

• The person acquiring the asset from the non-resident person shall deduct tax from the gross amount paid as consideration for the asset at the rate of ten percent of the fair market value of the asset and shall be paid to the Commissioner by way of credit to the Federal Government through remittance to the Government Treasury or deposit in an authorized branch of the State Bank of Pakistan or the National Bank of Pakistan, within fifteen days of the payment to the non-resident.

• The resident company as referred to in sub-section (7) shall collect advance tax as computed in sub-section (10) from the non-resident company within thirty days of the transaction of disposal or alienation of the asset by such non-resident company:

Provided that where the tax has been deducted and paid by the person acquiring the asset from the non-resident person under sub-section (8), the said tax shall be treated as tax collected and paid under this

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sub-section and shall be allowed a tax credit for that tax in computing the tax under sub-section (10).

(10)    The tax to be collected under sub-section (9) shall be the higher of ─

• 20% of A, where A – fair market value less cost of acquisition of the asset; or

1. 10% of the fair market value of the asset.

• Where tax has been paid under sub-section (8) or (9), no tax shall be payable by the non-resident company in respect of gain under sub-section (8) of section 22 or capital gains under section 37 or 37A.

• Where any gain is taxable under this section and also under any other provision of this Ordinance, the said gain shall be taxable under other provision of the Ordinance.]

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PART II

TAXATION OF FOREIGN-SOURCE INCOME OF RESIDENTS

• Foreign source salary of resident individuals.— (1) Any foreign-source salary received by a resident individual shall be exempt from tax if the individual has paid foreign income tax in respect of the salary.

1. A resident individual shall be treated as having paid foreign income tax in respect of foreign-source salary if tax has been withheld from the salary by the individual’s employer and paid to the revenue authority of the foreign country in which the employment was exercised.

• Foreign tax credit.— (1) Where a resident taxpayer derives foreign source income chargeable to tax under this Ordinance in respect of which the taxpayer has paid foreign income tax, the taxpayer shall be allowed a tax credit of an amount equal to the lesser of –

• the foreign income tax paid; or

• the Pakistan tax payable in respect of the income.

• For the purposes of clause (b) of sub-section (1), the Pakistan tax payable in respect of foreign source income derived by a taxpayer in a tax year shall be computed by applying the average rate of Pakistan income tax applicable to the taxpayer for the year against the taxpayer’s net foreign-source income for the year.

• Where, in a tax year, a taxpayer has foreign income under more than one head of income, this section shall apply separately to each head of income.

• For the purposes of sub-section (3), income derived by a taxpayer from carrying on a speculation business shall be treated as a separate head of income.

• The tax credit allowed under this section shall be applied in accordance with sub-section (3) of section 4.

1. Any tax credit or part of a tax credit allowed under this section for a tax year that is not credited under sub-section (3) of section 4 shall not be refunded, carried back to the preceding tax year, or carried forward to the following tax year.

1. A credit shall be allowed under this section only if the foreign income tax is paid within two years after the end of the tax year in which the foreign income to which the tax relates was derived by the resident taxpayer.

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1. In this section,—

“average rate of Pakistan income tax” in relation to a taxpayer for a tax year, means the percentage that the Pakistani income tax (before allowance of the tax credit under this section) is of the taxable income of the taxpayer for the year;

“foreign income tax” includes a foreign withholding tax; and

“net foreign-source income” in relation to a taxpayer for a tax year, means the total foreign-source income of the taxpayer charged to tax in the year, as reduced by any deductions allowed to the taxpayer under this Ordinance for the year that –

• relate exclusively to the derivation of the foreign-source income; and

1. are reasonably related to the derivation of foreign-source income in accordance with sub-section (1) of section 67 and any rules made for the purposes of that section.

• Foreign losses.— (1) Deductible expenditures incurred by a person in deriving foreign-source income chargeable to tax under a head of income shall be deductible only against that income.

1. If the total deductible expenditures referred to in sub-section (1) exceed the total foreign source income for a tax year chargeable to tax under a head of income (hereinafter referred to as a “foreign loss”), the foreign loss shall be carried forward to the following tax year and set off against the foreign source income chargeable to tax under that head in that year, and so on, but no foreign loss shall be carried forward to more than six tax years immediately succeeding the tax year for which the loss was computed.

• Where a taxpayer has a foreign loss carried forward for more than one tax year, the loss for the earliest year shall be set off first.

• Section 67 shall apply for the purposes of this section on the basis

that —

1. income from carrying on a speculation business is a separate head of income; and

• foreign source income chargeable under a head of income (including the head specified in clause (a)) shall be a separate head of income.

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PART III

TAXATION OF NON-RESIDENTS

• Taxation of a permanent establishment in Pakistan of a non-resident person.— (1) The following principles shall apply in determining the income of a permanent establishment in Pakistan of a non-resident person chargeable to tax under the head “Income from Business”, namely: —

• The profit of the permanent establishment shall be computed on the basis that it is a distinct and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the non-resident person of which it is a permanent establishment;

• subject to this Ordinance, there shall be allowed as deductions any expenses incurred for the purposes of the business activities of the permanent establishment including executive and administrative expenses so incurred, whether in Pakistan or elsewhere;

• no deduction shall be allowed for amounts paid or payable by the permanent establishment to its head office or to another permanent establishment of the non-resident person (other than towards reimbursement of actual expenses incurred by the non-resident person to third parties) by way of:

• royalties, fees or other similar payments for the use of any tangible or intangible asset by the permanent establishment;

• compensation for any services including management services performed for the permanent establishment; or

• profit on debt on moneys lent to the permanent establishment, except in connection with a banking business; and

• no account shall be taken in the determination of the income of a permanent establishment of amounts charged by the permanent establishment to the head office or to another permanent establishment of the non-resident person (other than towards reimbursement of actual expenses incurred by the permanent establishment to third parties) by way of:

• royalties, fees or other similar payments for the use of any tangible or intangible asset;

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• compensation for any services including management services performed by the permanent establishment; or

• profit on debt on moneys lent by the permanent establishment, except in connection with a banking business.

• No deduction shall be allowed in computing the income of a permanent establishment in Pakistan of a non-resident person chargeable to tax under the head “Income from Business” for a tax year for head office expenditure in excess of the amount as bears to the turnover of the permanent establishment in Pakistan the same proportion as the non-resident’s total head office expenditure bears to its worldwide turnover.

1. In this section, “head office expenditure” means any executive or general administration expenditure incurred by the non-resident person outside Pakistan for the purposes of the business of the Pakistan permanent establishment of the person, including —

1. any rent, local rates and taxes excluding any foreign income tax, current repairs, or insurance against risks of damage or destruction outside Pakistan;

1. any salary paid to an employee employed by the head office outside Pakistan;

1. any travelling expenditures of such employee; and

1. any other expenditures which may be prescribed.

• No deduction shall be allowed in computing the income of a permanent establishment in Pakistan of a non-resident person chargeable under the head “Income from Business” for —

1. any profit paid or payable by the non-resident person on debt to finance the operations of the permanent establishment; or

1. any insurance premium paid or payable by the non-resident person in respect of such debt.

• Thin capitalisation. — (1) Where a foreign-controlled resident company (other than a financial institution ¹[or a banking company)] ²[or a branch of a foreign

¹Inserted by the Finance Act, 2002

²Inserted by the Finance Act, 2008.

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company operating in Pakistan,] has a foreign debt-to-foreign equity ratio in excess of three to one at any time during a tax year, a deduction shall be disallowed for the profit on debt paid by the company in that year on that part of the debt which exceeds the three to one ratio.

(2)       In this section, —

“foreign-controlled resident company” means a resident company in which fifty per cent or more of the underlying ownership of the company is held by a non-resident person (hereinafter referred to as the “foreign controller”) either alone or together with an associate or associates;

“foreign debt” in relation to a foreign-controlled resident company, means the greatest amount, at any time in a tax year, of the sum of the following amounts, namely: —

(a)       The balance outstanding at that time on any debt obligation owed by the foreign-controlled resident company to a foreign controller or non-resident associate of the foreign controller on which profit on debt is payable which profit on debt is deductible to the foreign-controlled resident company and is not taxed under this Ordinance or is taxable at a rate lower than the ¹[corporate rate] of tax applicable on assessment to the foreign controller or associate; and

(b)      the balance outstanding at that time on any debt obligation owed by the foreign-controlled resident company to a person other than the foreign controller or an associate of the foreign controller where that person has a balance outstanding of a similar amount on a debt obligation owed by the person to the foreign controller or a non-resident associate of the foreign controller; and

“foreign equity” in relation to a foreign-controlled resident company and for a tax year, means the sum of the following amounts, namely: —

(a)       The paid-up value of all shares in the company owned by the foreign controller or a non-resident associate of the foreign controller at the beginning of the tax year;

(b)      so much of the amount standing to the credit of the share premium account of the company at the beginning of the

¹ The words “corporate tax” substituted by the Finance Act, 2002

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tax year as the foreign controller or a non-resident associate would be entitled to if the company were wound up at that time; and

• so much of the accumulated profits and asset revaluation reserves of the company at the beginning of the tax year as the foreign controller or a non-resident associate of the foreign controller would be entitled to if the company were wound up at that time;

reduced by the sum of the following amounts, namely: —

• the balance outstanding at the beginning of the tax year on any debt obligation owed to the foreign-controlled resident company by the foreign controller or a non-resident associate of the foreign controller; and

• where the foreign-controlled resident company has accumulated losses at the beginning of the tax year, the amount by which the return of capital to the foreign controller or non-resident associate of the foreign controller would be reduced by virtue of the losses if the company were wound up at that time.

¹[106A. Restriction on deduction of profit on debt payable to associated enterprise.-(1) Subject to sections 108 and 109, a part of deduction for foreign profit on debt claimed by a foreign-controlled resident company(other than an insurance company, or a banking company) during a tax year, shall be disallowed according to the following formula, namely:-

[B] – [(A+B) x 0.15]

where-

1. is the taxable income before depreciation and amortization; and

1. is the foreign profit on debt claimed as deduction

(2)       This section shall not apply to a foreign-controlled resident company if the total foreign profit on debt claimed as deduction is less than ten million rupees for a tax year.

(3)       Where in computing the taxable income for a tax year, full effect cannot be given to a deduction for foreign profit on debt, the excessive amount shall be added to the amount of foreign profit on debt for the

¹ New section 106A inserted through Finance Act, 2020 dated 30^th June, 2020

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following tax year and shall be treated to be part of that deduction, or if there is no such deduction for that tax year, be treated to be the deduction for that tax year, be treated to be the deduction for that tax year and so on for three tax years.

• Notwithstanding the provisions of section 106, where deduction of foreign profit on debt is disallowed under this section and also under section 106, the disallowed amount shall be the higher of the disallowed amount under this section and section 106.

• This section shall apply in respect of foreign profit on debt accrued with effect from the first day of July, 2020, ever if debts were contracted before the first day of July, 2020.

1. In this section-

• “foreign-controlled resident company” means a resident company in which fifty per cent or more of the underlying ownership of the company is held by a non-resident person either alone or together with an associate or association; and

• “foreign profit on debt” means interest paid or payable to a non-resident person or an associate of the foreign-controlled resident company and includes-

1. interest on all forms of debt;

• payments made which are economically equivalent to interest;

• expenses incurred in connection with the raising of finance;

• payments under profit participating loans;

1. imputed interest on instruments such as convertible bonds and zero coupon bonds;

1. amounts under alternative financing arrangements such as Islamic finance;

• the finance cost element of finance lease payments;

• capitalized interest included in the balance sheet value of related asset, or the amortisation of capitalised interest;

1. amounts measured by reference to a funding return under transfer pricing rules;

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• where applicable, national interest amounts under derivative instruments or hedging arrangements related to an entity’s borrowings;

• certain foreign exchange gains and losses on borrowings and instruments connected with the raising of finance;

• guarantee fees with respect to financing arrangements; and

1. arrangements fee and similar cost related to the borrowing funds.]

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PART IV

AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION

1. Agreements for the avoidance of double taxation and prevention of fiscal evasion. —¹[²[(1) The Federal Government may enter into a tax treaty, a tax information exchange agreement, a multilateral convention, an inter-governmental agreement or similar agreement or mechanism for the avoidance of double taxation ³[or assistance in the recovery of taxes] or for the exchange of information for the prevention of fiscal evasion or avoidance of taxes including automatic ⁴[and spontaneous] exchange of information with respect to taxes on income imposed under this Ordinance or any other law for the time being in force and under the corresponding laws in force in that country and may, by notification in the official Gazette, make such provisions as may be necessary for implementing the said instruments.”;] and]

⁵[“(1A) Notwithstanding anything contained in any other law to the contrary, the Board shall have the powers to obtain and collect information when solicited by another country under a tax treaty, a tax information exchange agreement, a multilateral convention, an inter-governmental agreement, a similar arrangement or mechanism.]

⁶[(1B) Notwithstanding the provisions of the Freedom of Information Ordinance, 2002 (XCVI of 2002), ⁷[subject to clause (a) of sub-section (3) of section 216 of this Ordinance] any information received or supplied, and any

¹The sub-section (1) substituted by Finance Act, 2015. Substituted sub-section (1) read as follows:-“(1) The Federal Government may enter into an agreement with the government of a foreign country for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income imposed under this Ordinance and under the corresponding laws in force in that country, and may, by notification in the official Gazette make such provisions as may be necessary for implementing the agreement.”

²Sub-section (1) substituted by the Finance Act, 2016. The substituted sub-section (1) reads as follows:-

“(1) The Federal Government may enter into an agreement, bilateral or multilateral with the government or governments of foreign countries or tax jurisdictions for the avoidance of double taxation and the prevention of fiscal evasion and exchange of information including automatic exchange of information with respect to taxes on income imposed under this Ordinance or any other law for the time being in force and under the corresponding laws in force in that country, and may, by notification in the official Gazette, make such provisions as may be necessary for implementing the agreement.”

1. Inserted by the Finance Act, 2021.

• The words “and spontaneous” inserted through Finance Act, 2020 dated 30^th June, 2020 ⁵Inserted by the Finance Act, 2015

⁶Inserted by the Finance Act, 2015

⁷The words inserted by the Finance Act, 2019.

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concomitant communication or correspondence made, under a tax treaty, a tax information exchange agreement, a multilateral convention, a similar arrangement or mechanism, shall be confidential ¹[ ].

(2) 2[Subject to section 109, where] any agreement is made in accordance with sub-section (1), the agreement and the provisions made by

notification for implementing the agreement shall, notwithstanding anything contained in any law for the time being in force, have effect in so far as they provide for ³[at least one of the following] –

• relief from the tax payable under this Ordinance;

• the determination of the Pakistan-source income of non-resident persons;

• where all the operations of a business are not carried on within Pakistan, the determination of the income attributable to operations carried on within and outside Pakistan, or the income chargeable to tax in Pakistan in the hands of non-resident persons, including their agents, branches, and permanent establishments in Pakistan;

• the determination of the income to be attributed to any resident person having a special relationship with a non-resident person; and

• the exchange of information for the prevention of fiscal evasion or avoidance of taxes on income chargeable under this Ordinance and under the corresponding laws in force in that other country.

• Notwithstanding anything⁴[contained] in sub-sections (1) or (2), any agreement referred to in sub-section (1) may include provisions for the relief from tax for any period before the commencement of this Ordinance or before the making of the agreement.

¹The expression “subject to sub-section (3) of section 216” omitted by the Finance Act, 2016

²The word “where” substituted by the Finance Act, 2018.

³Inserted by the Finance Act, 2016.

⁴Inserted by the Finance Act, 2016.

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CHAPTER VIII

ANTI-AVOIDANCE

• Transactions between associates. — (1) The Commissioner may, in respect of any transaction between persons who are associates, distribute, apportion or allocate income, deductions or tax credits between the persons as is necessary to reflect the income that the persons would have realised in an arm’s length transaction.

1. In making any adjustment under sub-section (1), the Commissioner may determine the source of income and the nature of any payment or loss as revenue, capital or otherwise.

1[(3) Every taxpayer who has entered into a transaction with its associate shall:

• maintain a master file and a local file containing documents and information as may be prescribed;

• keep 2[, maintain and furnish to the Board] prescribed country-by-country report, where applicable;

• keep and maintain any other information and document in respect of transaction with its associate as may be prescribed; and

• keep the files, documents, information and reports specified in clauses

(a) to (c) for the period as may be prescribed.

1. A taxpayer who has entered into a transaction with its associate shall furnish, within thirty days the documents and information to be kept and maintained under 3[clause (a), (c) or (d) of] sub-section (3) if required by the Commissioner in the course of any proceedings under this Ordinance.;

• The Commissioner may, by an order in writing, grant the taxpayer an extension of time for furnishing the documents and information under sub-section

(4), if the taxpayer applies in writing to the Commissioner for an extension of time to furnish the said documents or information:

Provided that the Commissioner shall not grant an extension of more than forty-five days, when such information or documents were required to be furnished under sub-section (4), unless there are exceptional circumstances justifying a longer extension of time.]

1. Added by the Finance Act, 2016.

²The words “and maintain” substituted by the Finance Act, 2018

³Insertedby the Finance Act, 2018

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¹[(6) Notwithstanding the provisions of sub-section (1), for the tax year 2024 and onwards, where any amount is claimed as deduction for the tax year or for any of the two preceding tax years on account of royalty paid or payable to an associate directly or indirectly in respect of use of any brand name, logo, patent, invention, design or model, secret formula or process, copyright, trademark, scientific or technical knowledge, franchise, license, intellectual property or other like property or right or contractual right and on a notice issued by the Commissioner, the taxpayer fails to furnish any explanation or evidence that no benefit has been conferred on the associate, twenty five percent of the total expenditure for the tax year in respect of sales promotion, advertisement and publicity shall be disallowed and allocated to the said associate.]

²[108A. Report from independent chartered accountant or cost and management accountant. – (1) Where the Commissioner is of the opinion that a transaction has not been declared at arm’s length, the Commissioner may obtain report from an independent chartered accountant or cost and management accountant to determine the fair market value of asset, product, expenditure or service at the time of transaction.

• The scope, terms and conditions of the report shall be as may be

prescribed.

• Where the Commissioner is satisfied with the report of the independent chartered accountant or cost and management accountant, the fair market value of asset, product, expenditure or service determined in the report shall be treated as definite information for the purpose of sub-section (8) of section 122.

• Where the Commissioner is not stratified with the report of the independent chartered accountant or cost and management accountant, the Commissioner may record reasons for being not satisfied with the report and seek report from another independent chartered accountant or cost and management accountant, to determine the fair market value of asset, product, expenditure or service at the time of transaction.

• The Commissioner shall seek report under sub-section (1) or sub-section (3), as the case may be, with prior approval of the Board.

108B. Transactions under dealership arrangements.- (1) Where a person supplies products listed in the Third Schedule to the Sales Tax Act, 1990 or any other products as prescribed by the Board, under a dealership arrangement with the dealers who are not registered under Sales Tax Act, 1990 and are not appearing in the active taxpayers’ list under this Ordinance, an amount equal to

• Sub-section (6) added by the Finance Act, 2024.

²New sections (108A) & (108B) inserted through Finance Act, 2019

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seventy-five percent of the dealer’s margin shall be added to the income of the person making such supplies.

• For the purposes of operation of this section, ten percent of the sale price of the manufacturer shall be treated as dealers margin.]

• Recharacterisation of income and deductions. — (1) For the purposes of determining liability to tax under this Ordinance, the Commissioner may –

• recharacterise a transaction or an element of a transaction that was entered into as part of a tax avoidance scheme;

• disregard a transaction that does not have substantial economic effect; ¹[ ]

• recharacterise a transaction where the form of the transaction does not reflect the substance²[;]

³[(d) from tax year 2018 and onwards, disregard an entity or a corporate structure that does not have an economic or commercial substance or was created as part of the tax avoidance scheme] ⁴[; or

• from tax year 2018 and onwards, treat a place of business in Pakistan as a permanent establishment, if the said place fulfills the conditions as specified in sub-clause (g) of clause (41) of section 2.]

1. In this section, “tax avoidance scheme” means any transaction where one of the main purposes of a person in entering into the transaction is the avoidance or reduction of any person’s liability to tax under this Ordinance.

⁵[(3) Reduction in a person’s liability to tax as referred to in sub-section (2) means a reduction, avoidance or deferral of tax or increase in a refund of tax and includes a reduction, avoidance or deferral of tax that would have been payable under this Ordinance, but are not payable due to a tax treaty for the avoidance of double taxation as referred to in section 107.]

¹The word “or” omitted by the finance Act 2022.

²Full stop substituted with a semicolon by the finance Act 2022.

³Inserted by the finance Act 2018

⁴Full stop substituted and a new clause (e) added by the Finance Act 2022.

1. Added by the finance Act 2018

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¹[109A. Controlled foreign company.— (1) There shall be included in the taxable income of a resident person for a tax year an income attributable to controlled foreign company as defined in sub- section (2).

• For the purpose of this section, controlled foreign company means a non-resident company, if ─

• more than fifty percent of the capital or voting rights of the non-resident company are held, directly or indirectly, by one or more persons resident in Pakistan o more than forty percent of the capital of the or voting rights of the non-resident company are held, directly or indirectly, by a single resident person in Pakistan;

• tax paid, after taking into account any foreign tax credits available to the non-resident company, on the income derived or accrued, during a foreign tax year, by the non-resident company to any tax authority outside Pakistan is less than sixty percent of the tax payable on the said income under this Ordinance;

• the non-resident company does not derive active business income as defined under sub-section (3); and

• the shares of the company are not traded on any stock exchange

recognized by law of the country or jurisdiction of which the non-resident company is resident for tax purposes.

(3)   A  company shall  be  treated  to  have  derived  active  income if─

(a) more than eighty percent of income of the company does not include income from dividend, interest, property, capital gains, royalty, annuity payment, supply of goods or services to an associate, sale or licensing of intangibles and management, holding or investment in securities and financial assets; and

• principally derives income under the head “income from business” in the country or jurisdiction of which it is a resident.

1. Income of a controlled foreign company is an amount equal to the taxable income of that company determined in accordance with the provisions of this Ordinance as if that controlled foreign company is a resident taxpayer and shall be taxed at the rate specified in Division III of Part I of the First Schedule.

(5) The amount of attributable income under sub-section (1) for a tax year shall be computed according to the following formula, namely:—

¹Inserted by the finance Act 2018

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A x (B/100)

Where –

1. is the amount of income of a controlled foreign company under sub-section (2); and

1. is the percentage of capital or voting rights, whichever is higher, held by the person, directly or indirectly, in the controlled foreign company.

• The amount of attributable income shall be treated as zero, if the capital or voting rights of the resident person is less than ten percent.

1. Income of a controlled foreign company shall be treated as zero, if it is less than ten million Rupees.

• The income of a controlled foreign company in respect of a foreign tax year, as defined in sub-section (9), shall be determined in the currency of that controlled foreign company and shall, for purposes of determining the amount to be included in the income of any resident person during any tax year under the provisions of this section, be converted into Rupees at the State Bank of Pakistan rate applying between that foreign currency and the Rupee on the last day of the tax year.

• Foreign tax year, in relation to a non-resident company, means any year or period of reporting for income tax purposes by that non-resident company in the country or jurisdiction of residence or, if that company is not subject to income tax, any annual period of financial reporting by that company.

(10) The income attributable to controlled foreign company under sub-section (1) and taxed in Pakistan under this section shall not be taxed again when the same income is received in Pakistan by the resident taxpayer.

• Where tax has been paid by the resident person on the income attributable to controlled foreign company and in a subsequent tax year the resident person receives dividend distributed by the controlled foreign company, after deduction of tax on dividend, the resident person shall be allowed a tax credit equal to the lesser of, —

• foreign tax paid, as defined in sub-section (8) of section 103, on dividends; and

• Pakistan tax payable, as defined in section 103, for the tax year in which the dividend is received by the resident taxpayer.]

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• Salary paid by private companies. — Where, in any tax year, salary is paid by a private company to an employee of the company for services rendered by the employee in an earlier tax year and the salary has not been included in the employee’s salary chargeable to tax in that earlier year, the Commissioner may, if there are reasonable grounds to believe that payment of the salary was deferred, include the amount in the employee’s income under the head “Salary” in that earlier year.

• Unexplained income or assets. — (1) Where —

1. any amount is credited in a person’s books of account;

1. a person has made any investment or is the owner of any money or valuable article; ¹[ ]

1. a person has incurred any expenditure²[; or]

³[(d) any person has concealed income or furnished inaccurate particulars of income including —

• the suppression of any production, sales or any amount chargeable to tax; or

• the suppression of any item of receipt liable to tax in whole or in part,]

and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made ⁴[suppression of any production, sales, any amount chargeable to tax and of any item of receipt liable to tax] or the explanation offered by the person is not, ⁵[in the Commissioner’s opinion, satisfactory-

• the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person’s income chargeable to tax under the head “Income from Other Sources” to the extent it is not adequately explained; and

¹The word “or” omitted by the Finance Act, 2011.

²Comma substituted by the Finance Act, 2011.

³Added by the Finance Act, 2011

⁴Inserted by the Finance Act, 2011.

⁵The expressions “in the Commissioner’s opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure ⁵[suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax] shall be included in the person’s income chargeable to tax under head “Income from ⁵[Other Sources”] to the extent it is not adequately explained” substituted through Finance Act, 2020 dated 30^th June, 2020

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• the suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person’s income chargeable to tax under the head “Income from Business” to the extent it is not adequately explained”] ¹[:]

²[Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.]

³[(2) The amount referred to in sub-section (1) shall be included in the person’s income chargeable to tax:

1. in the tax year to which such amount relates if the amount representing investment, money, valuable article or expenditure is situated or incurred in Pakistan or concealed income is Pakistan-source; and

1. in the tax year immediately preceding the tax year in which the investment, money, valuable article or expenditure is discovered by the Commissioner and is situated or incurred outside Pakistan ⁴[or] concealed income is foreign-source.

Explanation.—For the removal of doubt, it is clarified that where the investment, money, valuable article or expenditure is acquired or incurred outside Pakistan in a prior tax year and is liable to be included in the income of tax year 2018 and onwards on the basis of discovery made by the Commissioner during tax year 2019 and onwards and the person explains the acquisition of such asset or expenditure from sources relating to tax year in which such asset was acquired or expenditure was incurred, such explanation shall not be rejected on the basis that the source does not relate to the tax year in which the amount chargeable to tax is to be included.]

¹Full stop substituted by the Finance Act, 2013.

²Added by the Finance Act, 2013.

³Sub-section (2) substituted by the Finance Act, 2018. The substituted sub-section (2) read as follows:

“(2) The amount referred to in sub-section (1) shall be included in the person’s income chargeable to tax in the tax year ³[to which such amount relates.”

• The word “and” substituted by the Finance Act, 2021.

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¹[(2A) For the purposes of clause (ii) of sub-section (2) of this section, the “year of discovery of foreign assets or expenditure or concealed income”, shall mean the year in which the Commissioner has issued a notice requiring the person to explain the nature and source of such foreign assets, expenditure or concealed income.]

²[(3) Where the declared cost of any investment or valuable article or the declared amount of expenditure of a person is less than reasonable cost of the investment or the valuable article, or the reasonable amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person’s income chargeable to tax under the head “Income from Other Sources” in the tax year ³[to which the investment, valuable article or the expenditure relates].]

⁴[  ]

⁵[(4) Sub-section (1) does not apply to any amount of foreign exchange remitted from outside Pakistan through normal banking channels not exceeding five million Rupees in a tax year that is en-cashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.]

⁶[Explanation.— For removal of doubt, it is clarified that the remittance through money service bureaus, exchange companies or money transfer operators shall be deemed to constitute foreign exchange remitted from outside Pakistan through normal banking channels as provided under this sub-section.

• Sub-section (2A) inserted by the Finance Act, 2024.

• Sub-section (3) substituted by the Finance Act, 2003. The substituted sub-section (3) read as follows:

“(3) Where the declared value of any investment, valuable article or expenditure of a person is less than the cost of the investment or valuable article, or the amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person’s income chargeable to tax under the head “Income from Other Sources” in the tax year in which the difference is discovered.”

³The words “immediately preceding the financial year in which the difference is discovered” substituted by the Finance Act, 2010.

⁴Sub-section (4) substituted by the Finance Act, 2004. The substituted sub-section (4) read as follows:

“(4) Sub-section (1) does not apply to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.”

• Sub-section (4) substituted by the Finance Act, 2021. The substituted sub-section read as follows:

• Sub-section (1) does not apply,—

• to any amount of foreign exchange remitted from outside Pakistan through normal

banking channels ⁵[not exceeding ⁵[five] million Rupees in a tax year] that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect⁵[.]

⁵[  ]

⁵[  ]

• The explanation and sub-section (4A) inserted by the Finance Act, 2022.

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(4A) Where a taxpayer, while explaining the nature and source of any amount referred to in sub-section (1), takes into account any source of income which is subject to final tax under any provision of the Ordinance, the taxpayer shall not be entitled to take credit of any sum as is in excess of imputable income, unless the excess amount is reasonably attributed to the business activities subject to final tax and the taxpayer furnishes financial statements and accounts duly audited by a chartered accountant.]

• The ¹[Board] may make rules under section ²[237] for the purposes of

this section.

³[  ]

⁴[Explanation.— For the removal of doubt, it is clarified that a separate notice under this section is not required to be issued if the explanation regarding nature and sources of;

1. any amount credited in a person’s books of account; or
   1. any investment made or ownership of money or valuable article; or
   1. funds from which expenditure was made; or

• suppression of any production, sales, or any amount chargeable to tax; or

• suppression of any item of receipt liable to tax in whole or in part has been confronted to the taxpayer through a notice under sub-section

(9) of section 122 of the Ordinance.]

• Liability in respect of certain security transactions.— (1) Where the owner of any security disposes of the security and thereafter re-acquires the security and the result of the transaction is that any income payable in respect of the security is receivable by any person other than the owner, the income shall be treated, for all purposes of the Ordinance, as the income of the owner and not of the other person.

1. In this section, “security” includes ⁵[bonds, certificates, debentures,] stocks and shares.

• The words “Central Board of Revenue” substituted by the Finance Act, 2007.

• The figure “232” substituted by the Finance Act, 2002.

1. Added by the Finance Act, 2021.

• The explanation substituted by the Finance Act, 2022. The substituted Explanation read as follows: “Explanation.—For the removal of doubt, a separate notice under this section is not required to beissued if the explanation regarding nature and sources of amount credited or the investment of money, valuable article, or the funds from which expenditure was made has been confronted to the taxpayer through a notice under sub-section (9) of section 122 of this Ordinance.”

1. Inserted by the Finance Act, 2003.

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CHAPTER IX

MINIMUM TAX

1[113. Minimum tax on the income of certain persons.- (1) This section shall apply to a resident company,2[permanent establishment of a non-resident company,] 3[, an individual (having turnover of 4[ ] 5[hundred] million rupees or above in the tax year 6[2017] or in any subsequent tax year) and an association of persons (having turnover of 7[ ] 8[hundred] million rupees or above in the tax year 9[2017] or in any subsequent tax year)] where, for any reason whatsoever allowed under this Ordinance, including any other law for the time being in force —

(a)     loss for the year;

• the setting off of a loss of an earlier year;

(c)     exemption from tax;

• the application of credits or rebates; or

• the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than 10[ 11[the percentage as specified in column (3) of the Table in Division IX of Part-I of the First

¹Inserted by the Finance Act, 2009.

²The expressions inserted through Finance Act, 2020 dated 30^th June, 2020

³Inserted by the Finance Act, 2010.

⁴The word “fifty” substituted by the Finance Act, 2016.

• The word “ten” substituted by the Finance Act, 2021. ⁶The figure “2009” substituted by the Finance Act, 2016 ⁷The word “fifty” substituted by the Finance Act, 2016.
• The word “ten” substituted by the Finance Act, 2021. ⁹The figure “2007” substituted by the Finance Act, 2016

¹⁰The word “one-half” substituted by the Finance Act, 2013.

¹¹The word “one per cent” substituted by the Finance Act, 2017.

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Schedule] ] of the amount representing the person’s turnover from all sources for that year:

¹[    ]

²[ ³[Explanation.-For the purpose of this sub-section, the expression “tax payable or paid” does not include-

• tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance; and

• tax payable or paid under section 4B ⁴[or 4C]. ]

• Where this section applies:

• the aggregate of the person’s turnover as defined in sub-section

(3) for the tax year shall be treated as the income of the person for the year chargeable to tax ⁵[.

Explanation.—For the removal of doubt, it is clarified that the definition of turnover covers receipts from all business activities in line with expression “ turnover from all sources” used in sub-section (1) including but not limited to receipts from sale of immoveable property where such receipt is taxable under the head Income from Business;]

(b)      the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance),⁶[minimum tax computed on the basis of rates as specified in Division IX of Part I of First Schedule];

¹ Proviso omitted by the Finance Act, 2016. The omitted proviso reads as follows:-

“Provided that this sub-section shall not apply in the case of a company, which has declared gross loss before set off of depreciation and other inadmissible expenses under the Ordinance. If the loss is arrived at by setting off the aforesaid or changing accounting pattern, the Commissioner may ignore such claim and proceed to compute the tax as per historical accounting pattern and provision of this Ordinance and all other provisions of the Ordinance shall apply accordingly.”

²Added by the Finance Act, 2012.

³Explanation substituted by the Finance Act, 2016. The substituted Explanation reads as follows:-

[“Explanation.- For the purpose of this sub-section, the expression “tax payable or paid” does

not include tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance.]

1. Inserted by the Finance Act, 2022.

• Semi colon substituted and explanation added by the Finance Act, 2021.

⁶The words “an amount equal to one percent of the person’s turnover for the year” substituted by the words “minimum tax computed on the basis of rates as specified in Division IX of Part I of First Schedule”, by the Finance Act, 2014.

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• where tax paid under sub-section (1) exceeds the actual tax payable under Part I,¹[clause (1) of Division I, or] Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year:

²[Provided that if tax is paid under sub-section (1) due to the fact that no tax is payable or paid for the year, the entire amount of tax paid under sub-section (1) shall be carried forward for adjustment in the manner stated aforesaid:

Provided further that the amount under this clause shall be carried forward and adjusted against tax liability for ³[three] tax years immediately succeeding the tax year for which the amount was paid.]

⁴[Explanation. – For the removal of doubt it is clarified that the aforesaid Part referred to in this clause means clause (1) of Division I or Division II of Part I of the First Schedule.]

• “turnover” means,-

• the ⁵[gross sales or] gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable;

• the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable;

• the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and

¹Inserted by the Finance Act, 2013.

• The proviso substituted by the Finance Act, 2021. The substituted proviso read as follows:

“Provided that the amount under this clause shall be carried forward and adjusted against tax liability for ²[five] tax years immediately succeeding the tax year for which the amount was paid.”

³The word “five” substituted by the Finance Act, 2022.

• The explanation added by the Finance Act, 2023. ⁵Inserted by the Finance Act, 2011.

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• the company’s share of the amounts stated above of any association of persons of which the company is a member.]

¹[²[  ] ]

³[  ]

¹Section 113A substituted by the Finance Act, 2013. The substituted section 113A read as follows:-

“113A. Tax on Income of certain persons. — (1) Subject to this Ordinance, where a retailer being

an individual or an association of persons has turnover upto rupees five million for any tax year, such

person may opt for payment of tax as a final tax at the rates specified in Division IA of Part I of the

First Schedule.

• For the purposes of this section, —

• “retailer” means a person selling goods to general public for the purpose of consumption;

• “turnover” shall have the same meaning as assigned to it in sub-section (3) of section 113.

• The tax paid under this section shall be a final tax on the income arising from the turnover as specified in sub-section (1). The retailer shall not be entitled to claim any adjustment of withholding tax collected or deducted under any head during the year.”

• Section 113A omitted by the Finance Act, 2016. The omitted section 113a reads as follows:-“113A. Minimum tax on builders.— (1) Subject to this Ordinance, where a person derives incomefrom the business of construction and sale of residential, commercial or other buildings, he shall pay minimum tax at the rates as the Federal Government may notify in the official Gazette. The Federal Government may also specify the mode, manner and time of payment of such amount of tax.

• The tax paid under this section shall be minimum tax on the income of the builder from the sale of such residential, commercial or other building.]

²[“(3) This section shall not have effect till the 30th June, 2018.”]”

³Section 113B substituted by the Finance Act, 2013. The substituted section 113B read as follows:-

“113B. Taxation of income of certain retailers. — Subject to this Ordinance, a retailer being an individual or association of persons,-

• whose turnover exceeds five million rupees; and

• who is subject to special procedure for payment of sales tax under Chapter II of the Sales Tax Special Procedures Rules, 2007,

shall pay final tax at the following rates which shall form part of single stage sales tax as envisaged in the aforesaid rules;________________________________________________________________

S.No.      Amount of turnover                                               Rate of tax

________________________________________________________________

1.	Where turnover	Rs.25,000 plus
	exceeds Rs.5,000,000	0.5% of the
	but does not exceed	turnover exceeding
	Rs. 10,000,000	Rs.5 ,000,000
2.	Where turnover	Rs. 50,000 plus
	exceeds	0.75% of the
	Rs.10,000,000	turnover exceeding
		Rs.10,000,000.

• The retailer shall not be entitled to claim any adjustment of withholding tax

collected or deducted under any head during the year:

Provided that turnover chargeable to tax under this section shall not include the sale of goods on which tax is deducted or deductible under clause (a) of sub-section (1) of section 153.”

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¹[  ]

²[113C. Alternative Corporate Tax.- (1) Notwithstanding anything contained in this Ordinance, for tax year 2014 and onwards, tax payable by a company ³[in respect of income which is subject to tax under Division II of Part I of the First Schedule or minimum tax under any of the provisions of this Ordinance”] shall be higher of the Corporate Tax or Alternative Corporate Tax.

• For the purposes of this section.-

• “Accounting Income” means the accounting profit before tax for the tax year, as disclosed in the financial statements or as adjusted under sub-section (7) or sub-section (11) excluding share from the associate recognized under equity method of accounting;

• “Alternative Corporate Tax” means the tax at a rate of seventeen per cent of a sum equal to accounting income less the amounts, as specified in sub-section (8), and determined in accordance with provisions of sub-section (7) hereinafter;

⁴[“(c) “corporate tax” means higher of tax payable by the company under Division II of Part I of the First Schedule and minimum tax payable under any of the provisions of this Ordinance.”]

• The sum equal to accounting income, less any amount to be excluded there from under sub-section (8), shall be treated as taxable income for the purpose of this section.

• The excess of Alternative Corporate Tax paid over the Corporate Tax payable for the tax year shall be carried forward and adjusted against the tax payable under Division II of Part I of the First Schedule, for following year.

¹Section 113B omitted by the Finance Act, 2016. The omitted section reads as follows:-

“113B. Minimum tax on land developers.— (1) Subject to this Ordinance, where a person derives income from the business of development and sale of residential, commercial or other plots, he shall pay minimum tax¹[at the rate of two per cent of the value of land notified by any authority for the purpose of stamp duty]. The Federal Government may also specify the mode, manner and time of payment of such amount of tax.

• The tax paid under this section shall be minimum tax on the income of the developer from the sale of such residential, commercial or other plots sold or booked.”]

²Section 113C inserted by the Finance Act, 2014.

³Inserted by the Finance Act, 2015

⁴ Clause (c) Substituted by the Finance Act, 2015. The substituted clause (c) read as follows:-“Corporate Tax” means total tax payable by the company, including tax payable on account of minimum tax and final taxes payable, under any of the provisions of this Ordinance but not including those mentioned in sections 8, 161 and 162 and any amount charged or paid on account of default surcharge or penalty and the tax payable under this section.

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1. If the excess tax, as mentioned in sub-section (4), is not wholly adjusted, the amount not adjusted shall be carried forward to the following tax year and adjusted as specified in sub-section (4) in that year, and so on, but the said excess cannot be carried forward to more than ten tax years immediately succeeding the tax year for which the excess was first computed.

Explanation.– For the purpose of this sub-section the mechanism for adjustment of excess of Alternative Corporate Tax over Corporate Tax, specified in this section, shall not prejudice or affect the entitlement of the taxpayer regarding carrying forward and adjustment of minimum tax referred to in section 113 of this Ordinance.

1. If Corporate Tax or Alternative Corporate Tax is enhanced or reduced as a result of any amendment, or as a result of any order under the Ordinance, the excess amount to be carried forward shall be reduced or enhanced accordingly.

• For the purposes of determining the “Accounting Income”, expenses shall be apportioned between the amount to be excluded from accounting income under sub-section (8) and the amount to be treated as taxable income under sub-section (2).

• The following amounts shall be excluded from accounting income for the purposes of computing Alternative Corporate Tax:-

• exempt income;

¹[“(ii)        income which is subject to tax other than under Division II of Part I of the First Schedule or minimum tax under any of the provisions of this Ordinance;”;]

1. income subject to tax credit under section 65D ²[,65E and 100C]

³[    ]

• The provisions of this section shall not apply to taxpayers chargeable to tax in accordance with the provisions contained in the Fourth, Fifth and Seventh Schedules.

¹Sub-Clause (ii) substituted by Finance Act, 2015. The substituted clause read as follows:-

1. income subject to tax under section 37A and final tax chargeable under sub-section (7) of section 148, section 150, sub-section (3) of section 153, sub-section (4) of sections 154, 156 and sub-section (3) of section 233;”

²The word and figure “and 65E” substituted by the Finance Act, 2015

• Sub-clause (iv) and (v) omitted by Finance Act, 2015. The omitted clause read as follows:-

“(iv) income subject to tax credit under section 100C;”

“(v) income of the company subject to clause (18A) of Part-II of the Second Schedule;”

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• Tax credit under ¹[sections 64B and] 65B shall be allowed against Alternative Corporate Tax.

• The Commissioner may make adjustments and proceed to compute accounting income as per historical accounting pattern after providing an opportunity of being heard.”;]

²[Explanation.— For the removal of doubt, it is clarified that taxes paid or payable other than payable under Division II of Part I of the First Schedule shall remain payable in accordance with the mode or manner prescribed under the respective provisions of this Ordinance.]

¹The words “section” substituted by Finance Act, 2015.

²Added by Finance Act, 2015.