ICAP CFAP CFAP-5: Tax Practices and Planning Syllabus

Within what time period and to whom does a taxpayer file the first appeal against an assessment order under income tax?

An appeal is filed with the Commissioner (Appeals) generally within 30 days of service of the order or notice of demand.

What is the appellate hierarchy for income tax disputes in Pakistan after the Commissioner (Appeals)?

Commissioner (Appeals) → Appellate Tribunal Inland Revenue (ATIR) → High Court (reference on question of law) → Supreme Court of Pakistan.

Under Section 122 of the Income Tax Ordinance 2001, what is the time limit for amendment of an assessment?

The Commissioner may amend an assessment within five years from the end of the financial year in which the original assessment order was issued (or the return was filed/deemed assessed).

What records and books of account must a taxpayer maintain, and for how long, under the Income Tax Ordinance 2001?

A taxpayer must maintain prescribed accounts, documents, and records to enable determination of taxable income, and must retain them for six years after the end of the tax year to which they relate (longer if proceedings are pending).

What is the penalty for failure to furnish an income tax return within the due date under the Income Tax Ordinance 2001?

Penalty is 0.1% of the tax payable for each day of default, subject to a minimum (e.g., Rs. 1,000 per day for a salaried individual) and a maximum of 200% of the tax payable, with prescribed floor amounts.

Distinguish between a 'penalty' and 'default surcharge' under the Income Tax Ordinance 2001.

Default surcharge is compensatory — additional tax charged for late payment of tax (a fixed rate, e.g., 12% per annum / KIBOR-based, on the unpaid amount). A penalty is a punitive fixed/percentage sum imposed for a specific default such as non-filing or concealment.

What powers does the Commissioner have to select a taxpayer for audit, and what is the role of FBR in audit selection?

The Commissioner may select any person for audit of income tax affairs under Section 177 by recording reasons; FBR may select persons/classes for audit under Section 214C through computer balloting (random or parametric).

How is tax 'collected at source' different from tax 'deducted at source' (withholding) under the Income Tax Ordinance 2001?

Collection at source is collected by a collector at the time of a transaction (e.g., on imports, vehicle registration, electricity bills), whereas deduction at source (withholding) is deducted by a payer from a payment (e.g., salary, dividend, contract payments) before remitting to the recipient.

What is the difference between final tax, minimum tax, and adjustable tax regimes for withholding taxes?

Under final tax, the withheld amount is the full and final liability (no return adjustment). Under minimum tax, the withheld amount is the minimum payable even if normal tax is lower. Under adjustable regime, the withheld tax is credited against the final assessed liability and any excess is refunded.

What is the procedure and time limit for claiming a refund of overpaid income tax under Section 170?

A taxpayer applies to the Commissioner for refund within two years of the later of the date of the assessment or the date tax was paid; the Commissioner must decide within 60 days, and refund is paid where tax paid exceeds the amount chargeable.

How may the Commissioner recover tax due that remains unpaid under the recovery provisions of the Income Tax Ordinance 2001?

Recovery measures include attachment and sale of property, appointing a receiver, recovery from persons holding money on the taxpayer's behalf (garnishee/Section 140), arrest of the taxpayer, and recovery as arrears of land revenue.

Define 'resident individual' for a tax year under the Income Tax Ordinance 2001.

An individual is resident if present in Pakistan for 183 days or more in the tax year, or is an employee/official of the Federal/Provincial Government posted abroad in the tax year (with citizenship conditions added in recent amendments).

What is the difference in the scope of taxation of a resident versus a non-resident person in Pakistan?

A resident is taxed on worldwide income (Pakistan-source plus foreign-source income), whereas a non-resident is taxed only on Pakistan-source income.

What relief is available for foreign income tax paid by a resident, under Section 103 of the Income Tax Ordinance 2001?

A foreign tax credit is allowed equal to the lesser of the foreign income tax paid or the Pakistan tax payable on that foreign-source income; the credit is computed separately for each head and excess foreign tax is not refundable or carried forward.

What is the purpose of an Avoidance of Double Taxation Agreement (treaty/DTA) and which provision empowers Pakistan to enter them?

A DTA allocates taxing rights between two countries to relieve double taxation, prevent fiscal evasion, and exchange information. Section 107 of the Income Tax Ordinance 2001 empowers the Federal Government to enter such agreements, which override the Ordinance where more beneficial.

What is a 'permanent establishment' (PE) and why is it significant in international taxation?

A PE is a fixed place of business through which a non-resident's business is wholly or partly carried on (e.g., branch, office, factory, construction site over a threshold period, dependent agent). It is significant because business profits of a non-resident are taxable in Pakistan only to the extent attributable to a PE in Pakistan.

What are 'transfer pricing' rules and the arm's length principle under the Income Tax Ordinance 2001?

Under Section 108, transactions between associates must be priced as if between independent parties dealing at arm's length; the Commissioner may distribute, apportion, or allocate income/deductions to reflect arm's length results to prevent profit shifting.

Under the Sales Tax Act 1990, define 'output tax' and 'input tax'.

Output tax is the sales tax charged/chargeable by a registered person on taxable supplies made (or, in some cases, on goods imported). Input tax is the sales tax paid by a registered person on taxable goods/services acquired for the purpose of taxable supplies (including tax paid on imports).

State the formula for the net sales tax payable by a registered person for a tax period.

Net sales tax payable = Output tax for the period minus admissible input tax for the period. If input tax exceeds output tax, the excess is carried forward or refunded as provided.

What is the general restriction on adjustment of input tax against output tax under Section 8B of the Sales Tax Act 1990?

A registered person (other than specified exceptions) may adjust input tax only up to 90% of the output tax for that tax period; the excess input tax is carried forward to subsequent periods, subject to annual adjustment.

Give three examples of input tax that is not admissible (disallowed) under Section 8 of the Sales Tax Act 1990.

Input tax is not allowed on: goods/services used for non-taxable or exempt supplies, goods/services unrelated to taxable supplies, purchases without proper tax invoices, fake/flying invoices, vehicles/utilities for personal use, and supplies from persons not on the active taxpayer list.

What is the difference between a 'zero-rated supply' and an 'exempt supply' under the Sales Tax Act 1990?

A zero-rated supply is taxable at 0% and the supplier can claim/refund input tax. An exempt supply bears no output tax and the supplier cannot claim related input tax. Thus zero-rating is more favourable as input tax is recoverable.

What is the threshold and basis for compulsory sales tax registration under the Sales Tax Act 1990?

Registration is required for manufacturers, importers, wholesalers, distributors, and retailers who are liable to be registered (e.g., manufacturers exceeding the turnover/utility thresholds, retailers integrated under the Tier-1 criteria, and persons required under any federal/provincial law) — application is made electronically to FBR/IRIS.

What is the procedure for de-registration under the Sales Tax Act 1990?

A registered person who ceases to carry on business or whose supplies become exempt applies for de-registration; the Commissioner, after audit/clearance of liabilities, cancels the registration. Pending dues and final return must be settled before de-registration is effective.

What is the due date for filing the sales tax return and depositing the tax under the Sales Tax Act 1990?

The monthly sales tax return is generally due by the 18th of the month following the tax period, with tax payment due by the 15th (annexures/payment and return at prescribed dates); the return is filed electronically.

What records must a registered person keep under Section 22 of the Sales Tax Act 1990, and for how long?

Records of taxable/exempt supplies and purchases, tax invoices, debit/credit notes, bank statements, inventory, utility bills, and import/export documents must be maintained and retained for six years (or until pending proceedings are finalized).

Which authority levies sales tax on services in Pakistan, and name the provincial revenue authorities.

Sales tax on services is a provincial subject post-18th Amendment. The authorities are: Sindh Revenue Board (SRB), Punjab Revenue Authority (PRA), Khyber Pakhtunkhwa Revenue Authority (KPRA), Balochistan Revenue Authority (BRA), and for the Islamabad Capital Territory, the FBR under the ICT (Tax on Services) Ordinance 2001.

How is the issue of 'cross-border / inter-provincial services' (place of provision) typically resolved for provincial sales tax on services?

Each provincial law has place-of-provision/origination rules; tax is generally charged where the service is rendered or where the recipient/benefit is located, which can cause overlap. Inter-provincial coordination, input tax cross-adjustment arrangements, and apportionment rules are used to mitigate double taxation.

Under the Federal Excise Act 2005, what is the charging event for federal excise duty (FED)?

FED is levied on goods produced or manufactured in Pakistan, goods imported into Pakistan, and specified services rendered/provided; duty is charged at the rates in the First Schedule, either ad valorem (on value) or specific (per unit).

What is the 'VAT mode' of Federal Excise Duty and how does it operate?

Under FED in VAT mode (Section 7), duty is collected like sales tax — the registered person charges FED as output duty and adjusts FED/sales tax paid on inputs against it, so adjustment of duty paid on inputs is allowed against duty payable on outputs.

What are the key principles of fair tax legislation (canons of taxation per Adam Smith)?

Equity (taxes proportionate to ability to pay), Certainty (the amount, time, and manner of payment should be clear), Convenience (collected at a time and manner convenient to the taxpayer), and Economy (low cost of collection relative to revenue). Modern additions include simplicity, neutrality, and flexibility.

Distinguish between 'horizontal equity' and 'vertical equity' as principles of equitable tax administration.

Horizontal equity means persons in equal economic positions (equal income/ability) should bear equal tax. Vertical equity means persons with greater ability to pay should bear proportionately more tax (the basis for progressive taxation).

List the fundamental ethical principles applicable to a tax practitioner under ICAP/IFAC Code of Ethics.

Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behaviour — applied with independence of mind and avoidance of conflicts of interest when providing tax services.

What is the ethical distinction between 'tax avoidance', 'tax planning', and 'tax evasion'?

Tax planning uses legitimate provisions/reliefs to minimize tax within the law's intent. Tax avoidance exploits loopholes—legal in form but possibly against the law's spirit (and may be countered by anti-avoidance rules). Tax evasion is illegal—concealment, misrepresentation, or non-disclosure to reduce tax, attracting penalties and prosecution.

What ethical responsibilities do legislators and tax administrators have in designing and administering a tax system?

Legislators must enact clear, equitable, non-discriminatory, and certain laws serving the public interest; administrators must apply the law impartially, transparently, and consistently, respect taxpayers' rights, avoid corruption and abuse of power, maintain confidentiality, and ensure due process.

What ethical duties does a taxpayer owe under the principles of an equitable tax system?

A taxpayer must honestly and fully disclose income, file accurate returns on time, pay correct tax due, maintain proper records, refrain from concealment or false claims, and cooperate with lawful audit and enquiries — balancing the right to minimize tax with the duty of honesty.

Compare the broad organizational strategy goals for direct taxation versus indirect taxation planning for an entity.

Direct tax strategy focuses on minimizing taxable income and liability through allowable deductions, allowances, credits, group relief, loss utilization, and choice of entity/residence. Indirect tax strategy focuses on managing the cash-flow and input/output tax position, ensuring input tax recovery, supply chain/place-of-supply structuring, and compliance to avoid disallowance and penalties — while both must remain within legal and ethical bounds.