ACCA Pakistan Taxation (TX-PKN) and Pakistan Tax Syllabus

What is the difference between a tax credit and a deductible allowance?

A deductible allowance is subtracted from total income before computing tax (reduces taxable income). A tax credit is subtracted from the tax liability itself (reduces tax payable), generally computed as: (tax assessed / taxable income) × eligible amount.

How is the tax credit for charitable donations to approved institutions computed under Section 61?

Tax credit = (A/B) × C, where A = tax assessed before credit, B = taxable income, and C = the lower of the donation amount or 30% of taxable income (15% for associates). It reduces the tax payable.

What is the tax credit available to a non-profit organisation / approved NPO under the ITO 2001?

Approved NPOs, trusts and welfare institutions are eligible for a 100% tax credit on their income (effectively exempt), provided they comply with conditions such as filing returns, maintaining accounts and using income for the approved purpose.

What is the basis of charge for Income from Property under Section 15 of the ITO 2001?

Rent received or receivable by the owner from the lease of land or buildings is chargeable as Income from Property. The taxable amount is the higher of actual rent or the fair market rent.

What deductions are allowed against property income for individuals/AOPs under the ITO 2001?

Property income is taxable on a net basis with deductions such as repairs (1/5th of rent chargeable), insurance premiums, local rates/taxes, ground rent, interest on borrowed capital for the property, collection charges, and unpaid/irrecoverable rent (subject to conditions).

How is unadjusted/non-adjustable advance (deposit) received against rented property treated for tax?

A non-adjustable amount received in relation to a building is treated as rent chargeable to tax in 10 equal annual instalments, i.e. 1/10th is added to property income each year for ten years.

What is the scope of Income from Business under Section 18 of the ITO 2001?

It includes profits and gains of any business/profession/vocation carried on, income from hire/lease of tangible movable property, fair market value of perquisites from business relationships, and any management/consultancy fee — taxed on net basis after admissible deductions.

State two key deductions NOT allowed in computing Income from Business under the ITO 2001.

Examples of inadmissible deductions: any cess/rate/tax on profits, salaries/rent/profit on debt/payments to non-residents on which tax was not deducted, fines/penalties for violation of law, personal expenses, and certain cash payments exceeding prescribed limits (e.g. salary over Rs 32,000 not via banking channel).

What method of accounting must companies use for Income from Business?

Companies must compute business income on an accrual basis (mercantile system). Other taxpayers may use cash or accrual basis, but must apply it consistently.

How is depreciation treated in computing business income under the Third Schedule of the ITO 2001?

Tax depreciation is allowed on a reducing-balance basis at prescribed rates (e.g. 15% plant & machinery, 10% buildings). Initial allowance of 25% (plant & machinery) is available in the year an eligible asset is first used in Pakistan.

What is the basis of charge for Capital Gains under Section 37 of the ITO 2001?

A gain arising on the disposal of a capital asset in a tax year is chargeable as a capital gain. Capital asset means property of any kind held by a person, excluding stock-in-trade, depreciable assets, and certain personal effects.

How is the capital gain on disposal of a capital asset (other than securities) computed?

Capital gain = Consideration received on disposal − Cost of the asset. If the asset (immovable property/other) is held for more than a specified period, only a reduced percentage of the gain may be chargeable per the holding-period rules.

How are capital gains on listed securities taxed in Pakistan?

Capital gains on securities (listed shares, units, debt securities) are taxed under Section 37A at rates depending on the holding period and acquisition date, generally collected/administered through NCCPL on a separate basis from other income.

What is the holding-period concept for capital gains on immovable property?

The taxable portion / rate of capital gain on immovable property depends on how long the property was held; gains reduce or become exempt as the holding period increases (slabs based on years held), encouraging long-term holding.

What is the scope of Income from Other Sources under Section 39 of the ITO 2001?

It is the residual head covering income not chargeable under the other four heads — e.g. dividends, profit on debt (interest), royalties, ground rent, annuities, prize/winnings, rent from sub-lease, and certain gifts/loans received outside banking channels.

How is a gift or loan received otherwise than through a banking channel treated under Income from Other Sources?

Any amount received as a loan, advance, gift or deposit not through a crossed cheque/banking channel is treated as Income from Other Sources and is chargeable to tax in the year it is received.

What is the general rule for set-off of a loss under one head against income of another head (Section 56)?

A loss under one head (except certain heads) for a tax year is first set off against income under any other head of income for the same tax year. However, business losses cannot be set off against salary income, and speculation/capital losses have restrictions.

How long can a business loss (excluding depreciation) be carried forward under the ITO 2001?

An unadjusted business loss can be carried forward and set off against business income (only) for the next 6 tax years following the year of the loss.

How is unabsorbed depreciation/amortisation treated for carry forward purposes?

Unabsorbed depreciation, initial allowance and amortisation can be carried forward indefinitely (no time limit) and set off against business income of subsequent years, after first using current-year and brought-forward business losses.

How are speculation business losses and capital losses carried forward?

Speculation losses can be set off only against speculation income and carried forward for 6 years. Capital losses can be set off only against capital gains and carried forward for 6 years; certain securities losses follow Section 37A rules.

What is the standard corporate tax rate for a company (other than banking/small company) in Pakistan?

The standard corporate income tax rate is 29% of taxable income for companies. Small companies are taxed at a reduced rate (around 20%), and banking companies at 39%, subject to the current Finance Act.

What conditions must be met for a company to qualify as a 'small company' under the ITO 2001?

A small company must: be registered on/after 1 July 2005; have paid-up capital plus undistributed reserves not exceeding Rs 50 million; have annual turnover not exceeding Rs 250 million; employ not more than 250 employees; and not be formed by splitting an existing business.

How is the taxable income of a company computed?

Taxable income = Accounting profit per financial statements ± adjustments for inadmissible/admissible items, tax depreciation in place of accounting depreciation, exempt income removed, separate-block income removed, less brought-forward losses and deductible allowances. Tax is then applied at the corporate rate.

What is Minimum Tax under Section 113 of the ITO 2001?

Minimum tax is a tax (currently 1.25% of turnover for most companies) payable when a company's normal tax liability is less than the minimum, or where it incurs a loss/declares low income. It ensures a minimum contribution based on turnover regardless of profit.

How is excess minimum tax (Section 113) carried forward?

Where minimum tax paid exceeds the actual (normal) tax liability, the excess can be carried forward and adjusted against the normal tax liability of the following tax years (up to 3 years).

What is Alternative Corporate Tax (ACT) under Section 113C of the ITO 2001?

ACT is 17% of 'accounting income' (after specified adjustments) of a company. A company pays the higher of its corporate tax (under normal provisions) or ACT. Excess ACT over normal tax can be carried forward up to 10 years.

How is the tax liability of an Association of Persons (AOP) determined?

An AOP is taxed as a separate entity at the slab rates applicable to AOPs/business individuals. The share of profit received by a member from a taxed AOP is exempt in the member's hands but is included for rate purposes (for non-corporate members).

Can a company be a member of an AOP, and how is its share taxed?

Yes. Where a company is a member of an AOP, the AOP's income attributable to the company member is taxed separately at corporate rates in the company's hands (not at AOP rates), to prevent rate arbitrage.

What is the Withholding Tax (WHT) regime under the ITO 2001?

A system whereby specified payers (withholding agents) deduct/collect tax at source on certain payments (salary, dividends, profit on debt, supplies, services, contracts, imports, rent, etc.) and deposit it with the FBR, crediting it against the recipient's final liability.

What is the difference between the Final Tax Regime (FTR) and the Minimum Tax Regime, and what are advance tax payments under Section 147?

Under the FTR, tax deducted/collected (e.g. on exports, certain prizes) is the final liability — no further tax, no refund, and that income is excluded from total income. Under the Minimum Tax Regime, the tax withheld is a minimum — if normal tax is higher, the excess is payable, but no refund if lower. Advance tax under Section 147 requires companies/AOPs and certain individuals to pay tax in quarterly instalments during the tax year (by 25th of Sept, Dec, March and 15th June), based on the latest assessed/estimated turnover, creditable against the final liability.