ASSESSMENT PROCEDURE: ILLUSTRATION 3

Mr. Atiq pays his manager a monthly salary of Rs. 50,000. Annual salary will amount to Rs. 6,00,000 which is taxable and annual tax payable will amount to Rs. 26,000 (calculated according to rates applicable for tax year 2007). It is necessary for Mr. Atiq to deduct tax @ Rs. 2,167 per month. He should pay his manager the remaining amount, i.e. Rs. 47,833 and deposit Rs. 2,167 every month with the Commissioner of Income Tax.

(b) Dividend

It is necessary for all the persons that while paying any amount of dividend to any person, tax should be deducted from the gross amount of dividend paid. The tax should not be deducted only if the dividend is exempt from tax.

The rate at which a person should deduct tax is ten percent of gross dividend payable.

(c) Profit on Debt

The person paying any profit on debt should deduct tax out of such amount according to the following rules:

(0) If the yield on a National Saving Deposit Certificate or Defence

Saving Certificate under the National Savings Scheme is being

paid, tax should be deducted @ 10% of profit credited. However, the tax is not to be deducted if the deposit in these schemes does not exceed Rs. 1,50,000. (ii) If a bank or financial institution pays any profit to its deposit holders, the should be deducted @ 10% of profit credited on

such deposits.

(4) If a banking company, a financial institution, a company of finance society pays any profit on any bond, certificate, debenture, security etc. to any person (other than a financial institution) tax should be deducted @ 10% of profits. However, it will not be applicable on the profit paid under a loan agreement between the borrower and above mentioned organizations.

(b) When Federal Government, a Provincial Government or a local authority pays any profit on the securities issued by them to any person, tax should be deducted at source @ 10% of the profit.

(2) The above rates of deductions will not be applicable if the amount is being paid to a non-resident.

(v) The deductions made under this section will be the final tax payments on behalf of the recipients of interest, except in case of a company.

Payment to Non-Residents

It is necessary for every person paying any amount (other than salary, dividend, property income or prize and winning) to a non-resident to deduct tax@30% of the amount paid.

However, in case the amount is being paid to a non-resident on account of royalty or fee for technical services, the rate of deduction will be 15% of the royalty or fee.

If the is being paid to a non-resident person on the execution of contracts of construction, provision of services, supply of supervisory active- ties for a project, providing advertising services rendered by TV channels etc. the rate of deduction will be 6% of the gross amount payable. Every person making a payment of insurance premium or re-insurance premium to a non- resident person should deduct tax @ 5% of the gross amount.

Through an amendment by Finance Act, 2012, if a person is paying any amount to a permanent establishment in Pakistan of a non-resident person, the tax should be deducted at the following rates: (a) On payment for sale of goods at the rate of 3.5% of the gross amount payable;

(6) On payment for transport services rendered at the rate of 2% of the gross amount; (c) Any other service rendered at the rate of 6% of the amount; and

(d) On payment for execution of a the deduction rate will also be applicable at the rate of 6% of the amount payable.
In case the amount is being paid to a non-resident media person relying from outside Pakistan, the tax deduction should be 10% of the gross amount paid.

Notes

(1) In case of payment of salary, dividend, property income or prize and

winning, the rate applicable to residents will also apply to non- residents.

(ii) All the above deduction will be treated as final tax payments except the deductions made @30% will be adjusted at the end of the year.

(e) Payment for Goods, Services and Contracts

If a person has to make any payment on behalf of a prescribed person to a resident person for the following purposes it should deduct tax from the payments:

1. for the sale of goods. for the rendering or providing the services.

3. on the execution of any other contract.

4. an exporter or export house making payment for providing services regarding textile.

The Commission of Income Tax may provide a certificate to any person that tax should not be deducted, or deducted at a reduced rate from the payment being made to a person. In such cases, the deduction must be reduced or not made.

The deductions should also not be made if the payment is from federal or provincial government or a local government to a contractor for the supply of construction material or it is a refund of any security deposit.

1. The deduction is to be made on the following rates: (1) In case payment is made for purchase of goods:

(a) Payment on account of purchase 1.5% of the gross of rice, cotton seed or edible oil amount payable

(b) Payment on purchase of any other goods

(i) In case of payment for rendering transport services

3.5% of the gross amount payable

2% of the gross amount payable

(a) In case of payment for rendering or providing any other services (iv) Payment is being made to a resident for the execution of a contract amount payable 6% of payment

(v) In case of payment by exporter export house for textile services 0.5% of the gross amount payable

2 The tax deducted on execution of contract and payment for textile services under this section shall be treated as final payment, except in case of public limited companies listed on a stock exchange in Pakistan. In case of rendering or providing services, it will be minimum tax. In case of supply of goods it shall be adjustable.

4. In case the amount has been deducted for rendering services, the deduction @ 6% of payment will be a minimum tax. It is adjustable while tax payable has been calculated.

Note:

The word “prescribed person” Dfa Ho as used above means:

(a) the Federal Government;

(b) a company,

(c) an association of persons;

(d) a non-profit organization;

(e) a foreign contractor or consultant; a consortium or joint venture;

(8) an individual having turnover of fifty million rupees or above.