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Table of Contents
1. Tax System in Pakistan............................................................................................................ 4 Income Tax .................................................................................................................................. 4 Sales Tax ..................................................................................................................................... 4 Liability to Sales Tax .................................................................................................................. 5 The Federal Excise ...................................................................................................................... 5 Federal Excise duty is payable on: .............................................................................................. 6 Special Excise Duty .................................................................................................................... 6 Agreement for avoidance of double taxation .............................................................................. 6 2. Tax Policy & Administration .................................................................................................. 7 Winds of Change ......................................................................................................................... 7 3. Old Organizational Structure of FBR or CBR......................................................................... 8 GOALS OF CBR ........................................................................................................................ 8 FAILURE OF CBR ..................................................................................................................... 8 4. Previous structure sales tax department................................................................................... 9 Collectorate of sales tax in Pakistan ............................................................................................ 9 Officers in collectorate ................................................................................................................ 9 Departments in collect orate ........................................................................................................ 9 5. Previous structure of income tax department ........................................................................ 10 Income tax regions in Pakistan.................................................................................................. 10 Officers of income tax ............................................................................................................... 10 Offices of income tax ................................................................................................................ 10 6. Appellate structure ................................................................................................................. 11 Custom Excise and Sales Tax Appellate Tribunal .................................................................... 11 Previous Appellate Structure of Income Tax ............................................................................ 12 7. New Organizational Structure of FBR .................................................................................. 13 Organizational Chart of the FBR .............................................................................................. 14 Federal Board of Revenue ......................................................................................................... 15 Current set up ............................................................................................................................ 17 Superior University Lahore Page 2
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Sales Tax
Sales Tax was a provincial subject at the time of partition. It was being administered in the provinces of Punjab & Sindh as provincial levy. Sales tax was declared a federal subject in 1948 through the enactment of General Sales Tax Act, 1948 and in 1952, this levy was transferred permanently to the Central Government. Sales tax was levied at the standard rate of 6 pies per rupee at every stage whenever a sale was effected. The trading community protested against this system, and this resulted in the enactment of Sales Tax Act 1951. A system of licensed manufacturers & wholesalers was instituted whereby they were allowed to purchase goods free of sales tax from each other and pay tax on sales to unlicensed traders. Imports were chargeable to Sales Tax but the licensed manufacturers & wholesalers were allowed to import goods without the payment of Sales Tax. Later on Sales Tax became chargeable on locally produced & imported goods at the time of their sales & import, respectively. The sales tax, was collected under the Finance Ordinance, 1956, on goods which were chargeable to Central Excise Duty, as if it were a duty of Central Excise. In April 1981, by virtue of an amendment in the Sales Tax act, 1951, the collection of Sales Tax on non-excisable goods was also entrusted to the Central Excise Department. In the late eighties the government decided to replace Sales Tax with the Value Added Tax in the country as a part of its structural adjustment program which was undertaken to correct anomalies & distortions both in our tax & non-tax regimes. Accordingly new enactment titled Sales Tax Act 1990 replaced Sales Tax Act 1951 with effect from 1-11-1990.
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Previously it was being charged at the manufacturing & import stage, and its scope has been extended now to remaining sectors. Sales Tax is chargeable on all locally produced and imported goods except computer software, poultry feeds, medicines and unprocessed agricultural produce of Pakistan and other goods specified in Sixth Schedule to The Sales Tax Act, 1990.
The Federal Excise The Federal Excise Act, 2005, was promulgated with effect from 1st July, 2005, repealing the Central Excises Act, 1944. Following are some of the significant changes brought about by the new Act:
The word Federal was used in place of Central. Therefore, now the term Federal Excise Duty is more appropriate as compared to old Central Excise Duty for the duties of excise levied under the 2005 Act. The system of physical supervision has been entirely done away with and now all clearances will be self-assessed and no prior permission for clearance will be required. The payment of duty will be on monthly basis and the duty on all clearances during the month will be payable by the 15th of next month. This is in contrast to previous requirement of payment of duty prior to clearance. No gate passes are required for clearances as in the old system. Double taxation has been eliminated by allowing adjustment of the excise duty paid on the input goods used directly in the manufacture of excisable goods. On some services and goods FED is payable in VAT more i.e. in the same manner as provided in the Sales Tax Act, 1990. For details see the link Goods/Services Liable to Excise Duty on this page.
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Special Excise Duty As part of budgetary measures for the year 2007-08, Special FED at 1% has been levied on goods which are manufactured or are imported in Pakistan. This duty is in addition to FED as prescribed in First Schedule of the Federal Excise Act, 2005. For list of goods excluded from purview of this special duty and other details see SRO 655(I)/2007.
Agreement for avoidance of double taxation The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries including almost all the developed countries of the world. These agreements lay down the ceilings on tax rates applicable to different types of income arising in Pakistan. They also lay down some basic principles of taxation which cannot be modified unilaterally. The list of countries with which Pakistan has concluded tax treaties is given below: Austria Denmark Greece Italy Malta Romania U.A.E. Belgium Egypt India Japan Mauritius Bangladesh Canada France Indonesia Finland Iran China Germany Ireland
South Korea Lebanon Libya Saudi Arabia Singapore Poland Sri Lanka Sweden Tunisia Kazakhstan Turkey
Turkmenistan U.K.
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Winds of Change
Somewhere in 1980s there was a realization that the tax system needs restructuring and reforms. Since then, different Task Forces and Research Groups were constituted and their contribution has resulted into following valuable studies/reports: Report by the National Taxation Reform Commission (1986); Report by the Resource Mobilization and Tax Reforms Commission (1994); Report on Income Tax Reforms (2001); Several Reports by the Task Force on Reform of Tax Administration (2001); Strategy and Priorities for Tax and Customs Administration Reform (2001) The Strategy Document on Tax Reform (2001) Pakistan: A Preliminary Assessment of the Federal Tax System (2006) and Tax Policy in Pakistan: An Assessment of Major Taxes and Options for Reform (2008)
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FAILURE OF CBR Corruption Misconception about Tax Evasion And Tax Avoidance Legislative Loopholes
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6. Appellate structure
Appeal to the Collector (Appeals) 1. Collector (appeals ) 2. All cases of customs, federal Excise and Sales tax. Custom Excise and Sales Tax Appellate Tribunal Appellate tribunal It means customs, Excise and Sales Tax appellate Tribunal constituted u/s 194 of custom act. Appointing authority The federal government has the appointing authority of the appellate tribunal Members The appellate tribunal consists of two types of members. Judicial members Shall be a person who has been a. A judge of high court b. A district judge and is qualified to be a judge of high court c. An advocate of high court and is qualified to be a judge of high court Technical members An officer of customs and excise group equivalent to that a member, FBR CHAIRMAN The federal government shall appoint one of the members of appellate tribunal to be the chairman
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Previous Appellate Structure of Income Tax Appeal to the Commissioner (Appeals) 1. Commissioner (appeals) 2. All cases of income tax Appointment It means income tax appellate tribunal (ITAT) constituted u/s 130 of the income tax ordinance, 2001. The appellate tribunal shall consist of a chairperson and such other judicial and accountant members as are appointed by the federal government having regard to the needs of the tribunal. CHAIRPERSON Federal government shall appoint chairperson. Judicial Member A person may be appointed as a judicial member of the appellate tribunal if the person a. Has exercised the power of a district judge and is qualified to be a judge of high court; or b. Is or has been an advocate of a High Court and is qualified to be a judge of a High Court. ACCOUNTANT MEMBER A person may be appointed as an accountant member of the appellate tribunal if the person a. Is an income tax group equivalent in the rank to that of a chief commissioner. The commissioner of income tax or commissioner of income tax (Appeals) having at least three years experience as commissioner
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Karachi Large Taxpayer Units (LTU) LTU Karachi, being the first pilot project of FBR, was launched on 1st July 2002, symbolizing the new face of FBR tax administration. The Tax Administration Reforms Program in Pakistan (TARP) envisages a complete shift from conventional bureaucratic concept of enforcement to voluntary compliance, from periodic assessment to risk based audit and from traditional aloofness to proactive taxpayers' facilitation. Lahore Large Taxpayer Unit Federal board of revenue welcomes you to the Large Taxpayer unit (LTU) Lahore. The unit is working at 6-7 Floor, Income tax House, and Nabha Road, Lahore. The LTU handle all domestic taxes (income tax, sales tax & federal excises) of most of the Lahore based, which qualify the criteria laid down for selection of cases in LTU and those which belong to the following sectors. Banks Non-Residents Oil and Gas Sugar Cement Textiles Beverages Paper and Paper Board Automobiles
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Current set up Appeal to the Commissioner Appeals Superior University Lahore Page 17
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OLD SYSTEM
Direct interaction with tax payers. No use of modern technology. No check of dress code. Manual attendance system. Less tax payer facilitation. No education programs for tax payers. No employee training programs and Work-shops. Segregated offices of commissioners and assistant commissioners. Conventional offices of tax collectors and commissioners. No grievance report system for maladministration from employees. Conventional working methodology and old mind sets of employees.
NEW SYSTEM
Direct and indirect interaction with tax payers. Use of sophisticated MIS system. Professional dress code is implemented. Electronic attendance system introduced. Tax payer facilitation is the first obligation. Tax payers are educated and assisted through seminars and work- shops. Employees are trained to use modern technology and to tackle with tax payers problems. Commissioners and assistant commissioners at one place. Purpose built tax collection and tax payer facilitation offices. Grievance cell is created to complaint directly to chairman FBR.
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9. References
http://www.fbr.gov.pk/ShowArticle.aspx?view=Article&ActionID=59&ArticleID http://tariqrasheedlaw.blogspot.com/2011/10/information-on-second-customs-appealin.html http://www.defence.pk/forums/economy-development/22908-pakistan-tax-structure.html http://finance.kalpoint.com/highlights/business-news/fbr-acts-against-leakage-of-secretinformation.html http://www.ltukarachi.gov.pk/index.htm http://www.ltulahore.gov.pk/
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