Tax Administration & Returns

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Tax Administration & Returns — Key ACCA/CA Pakistan Facts

Tax Authority: The Federal Board of Revenue (FBR) administers income tax through the ** Inland Revenue Service (IRS)**. Provincial revenue authorities (PRA in Punjab, Sindh, KPK, Balochistan) administer provincial taxes.

Key Identifiers:

• CNIC (Computerized National Identity Card): National identity number — mandatory for filing returns
• NTN (National Tax Number): Assigned by FBR upon registration — mandatory for businesses and individuals with taxable income
• STRN (Sales Tax Registration Number): For sales tax purposes

Filing Returns (Section 114):

• Due Dates: Individuals/AOPs — 30 September of the following year; Companies — 31 December of the following year
• Audit: Selected based on FBR’s random/parametric selection criteria
• Advance Tax (Section 147): Payable in installments if tax liability exceeds PKR 40,000/year (individuals)

Self-Assessment vs. Audit Assessment:

• Self-Assessment: Taxpayer computes and pays tax; return filed is deemed assessed unless selected for audit
• Audit Assessment: If selected, the Commissioner examines the return and may amend it

Penalties: Non-filing: Up to PKR 10,000 (or 25% of tax, whichever is higher). Late filing: 0.5% per month of the tax unpaid.

⚡ Exam Tip: Always check the due date in computation questions — late filing penalties are a common exam trap. Also know the difference between self-assessment and audit-based assessment under the new regime.

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Tax Administration & Returns — ACCA/CA Pakistan Study Guide

1. Tax Administration Framework

Federal Board of Revenue (FBR): The FBR is the apex body for federal tax administration. It operates through:

• Large Taxpayer Units (LTUs): For large corporate taxpayers
• Medium Taxpayer Units (MTUs): For medium-sized businesses
• Regional Tax Offices (RTOs): For smaller taxpayers

Provincial Revenue Authorities: Each province has its own revenue authority for provincial taxes (e.g., Punjab Revenue Authority — PRA). Income tax is federal.

Key Officers:

• Commissioner (Inland Revenue): Principal officer for a taxpayer; issues orders, approvals, and assessments
• Chief Commissioner: Supervises multiple Commissioners
• ATRC (Appellate Tribunal Inland Revenue): First appellate forum for tax appeals
• High Court: Second appeal (on points of law)

2. Registration — CNIC and NTN

CNIC (Computerized National Identity Card):

• Every individual filing a tax return must provide their CNIC number
• For companies: The NTN is the primary identifier; CNIC is required for individual directors/proprietors
• For non-residents: Passport number and nationality are used

NTN (National Tax Number):

• Businesses (companies, partnerships, sole proprietors) must obtain an NTN certificate from the FBR
• The NTN must be quoted on all tax documents, correspondences, and returns
• For companies: NTN registration requires the incorporation certificate from SECP

STRN (Sales Tax Registration Number):

• Required if annual turnover exceeds PKR 5 million (for goods) or PKR 3 million (for services)
• Separate from income tax NTN

3. Filing of Returns — Section 114

Who Must File:

• Every person whose taxable income exceeds the threshold (PKR 600,000 for individuals) — though filing is also mandatory even if below threshold if the person falls within certain categories (e.g., has a business, owns a vehicle above a certain engine capacity, holds foreign assets, etc.)
• Companies: Always required to file regardless of income level
• AOPs: Always required to file

Due Dates:

Taxpayer Type	Due Date
Individuals, AOPs	30 September of the following tax year
Companies	31 December of the following tax year
With audit requirement	As per extended timeline notified by FBR

Return Form:

• Individuals/AOPs: Form ITR-V (Income Tax Return)
• Companies: Form ITR-C (Corporate)

Contents of Return:

• Personal information (name, CNIC/NTN, address)
• Income details (head-wise)
• Tax computations
• Tax withheld/paid
• Claimed deductions and exemptions
• Tax credits

4. Assessment System

Self-Assessment (Section 120): Under the self-assessment regime:

• The return filed by the taxpayer is deemed to be an assessed order under Section 120
• No separate assessment order is issued unless the return is selected for audit
• The tax computed in the return is the assessed tax

Audit (Section 121–124): The Commissioner may select a return for audit based on:

• Random selection (computerized balloting by FBR)
• Risk-based criteria (e.g., inconsistent ratios, large refunds, unusual deductions)
• Specific information from intelligence or third parties

Types of Audit:

1. Limited Scope Audit (Section 121C): Commissioner may amend the return within one year based on specific issues identified
2. Full Scope Audit (Section 121/122): Full examination of books, records, and accounts — time limit: 5 years from the end of the tax year

Amended Assessment: After audit, the Commissioner may:

• Accept the return as filed, OR
• Amend the assessment — in which case the taxpayer is issued a amended assessment order with reasons and the additional tax demand

5. Advance Tax — Section 147

When Advance Tax Applies: Advance tax is payable if the estimated tax liability for the year exceeds PKR 40,000.

Installment Schedule:

• Due by 15th September: 25% of estimated annual tax
• Due by 15th December: 50% of estimated annual tax
• Due by 15th March: 75% of estimated annual tax
• Due by 15th June: 100% of estimated annual tax

How Advance Tax is Calculated: The advance tax is based on the previous year’s tax liability (or the current year’s estimate if higher). For first-year taxpayers with no prior year liability, advance tax may be based on the current year’s projected income.

⚡ Key Point: Advance tax is not an additional tax — it is a prepayment of the annual tax liability. It is adjustable against the final tax assessed when the return is filed.

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🔴 Extended — Deep Study (3mo+)

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Tax Administration & Returns — Comprehensive ACCA/CA Pakistan Notes

1. Detailed Tax Administration Structure

FBR — Organizational Framework: The FBR operates under the Ministry of Finance and is headed by a Chairman. The IRS (Inland Revenue Service) cadre officers man the positions of Commissioners, Additional Commissioners, Deputy Commissioners, and Assistant Commissioners.

Key Functions of the FBR:

1. Collection of Taxes: Income tax, withholding tax, sales tax, federal excise
2. Policy Formulation: Drafting tax laws, issuing SROs (Statutory Regulatory Orders), circulars, and clarifications
3. Enforcement: Audit, recovery, prosecution for tax evasion
4. Facilitation: E-filing portals, taxpayer education, advance rulings

Taxpayer Rights and Obligations:

• Right to be informed of tax changes, demands, and decisions
• Right to appeal against any adverse order
• Right to confidentiality — taxpayer information cannot be disclosed except as permitted by law
• Obligation to maintain records — Section 109 requires maintenance of sufficient records
• Obligation to file returns — on time and with accurate information

2. Record Maintenance — Section 109 + Rules

Books and Documents: Every person engaged in business or profession must maintain:

• Books of account (journal, ledger, cash book, bank book)
• Bank statements and reconciliation statements
• Invoices, receipts, contracts supporting all transactions
• Payroll records (for salary payments)
• Asset registers (for depreciation/tax wear & tear)

Retention Period: Records must be retained for at least 5 years from the end of the relevant tax year.

Consequences of Non-Maintenance: If a person fails to maintain proper records, the Commissioner may:

• Make an estimate of income based on available information
• Impose penalty for non-compliance
• In severe cases, refer the matter for prosecution (for tax fraud)

⚡ Common Mistake: Students often think that submitting a tax return is sufficient. But the obligation to maintain records is continuous. Even if no return is filed, the obligation to maintain records still exists. The absence of records does not prevent the Commissioner from making an assessment — it may actually lead to a worse outcome for the taxpayer.

3. Due Diligence and Return Filing Process

E-Filing Portal ( iris.org.pk): The FBR’s e-filing system (IRIS) is the primary platform for:

• Filing income tax returns
• Paying taxes online
• Viewing tax records and demand notices
• Filing appeals and applications

Digital Certificate of Tax Payment: After paying any tax (advance tax, self-assessment tax, withholding tax), the taxpayer receives a challan copy with a unique deposit reference number. This must be quoted in the return to claim credit for taxes paid.

Return Filing Steps:

1. Register on IRIS (if not already registered)
2. Complete the return form — income, deductions, exemptions, tax credits
3. Attach required annexures (salary income annexure, bank statements summary, property income details)
4. Submit digitally using a digital signature (for companies) or E-number (for individuals)
5. Pay any balance tax before or at the time of filing

4. Advance Tax — Section 147 (Detailed)

Scope: Advance tax applies to every person who has a tax liability exceeding PKR 40,000 for the year — whether individual, company, or AOP.

Exceptions:

• A person who has filed a return for the immediately preceding tax year and whose tax liability was less than PKR 40,000
• A new business that has not yet commenced operations

Installment-Based System: The advance tax is payable in four equal installments. The due dates are:

Installment	Due Date	% of Estimated Tax
1st	15 September	25%
2nd	15 December	25%
3rd	15 March	25%
4th	15 June	25%

Adjustment Against Final Tax: Advance tax paid during the year is adjustable against the final tax liability disclosed in the annual return. If advance tax exceeds the final liability, the excess is refundable.

Default Penalty: If advance tax installments are not paid on time, a default surcharge of 12% per annum is levied on the unpaid amount from the due date until payment.

5. Refunds — Section 170

Claiming Refunds: If the tax paid/withheld exceeds the tax liability, the excess is a refund. Refund claims are processed by the Commissioner.

Refund Process:

1. File the annual return showing the excess tax paid
2. The Commissioner examines the claim
3. If approved, refund is issued within 45 days of the assessment becoming final
4. If not processed within 45 days, the taxpayer earns additional income at the rate of KIBOR + 3% per annum (Section 171)

Refund vs. Carry Forward: Instead of a cash refund, a taxpayer may elect to:

• Carry forward the excess tax as a credit for the next tax year, OR
• Request a refund

6. Appeals and Dispute Resolution

First Appeal — ATIR (Appellate Tribunal Inland Revenue): Any person aggrieved by a Commissioner’s order (assessment, penalty, refund denial) may file an appeal with the ATIR within 30 days of the order.

Second Appeal — High Court: Further appeal on a question of law lies to the High Court within 60 days.

Alternative Dispute Resolution (ADR) — Section 134A: A taxpayer and the Commissioner may jointly refer a dispute to ADR before the appeal is heard. The ADR panel can:

• Annul the order, OR
• Confirm/modify the order, OR
• Issue such orders as it deems fit

The ADR decision is binding and cannot be further appealed except on jurisdictional grounds.

⚡ Exam Tip: The administration and compliance sections are often tested in scenario-based questions involving a taxpayer’s obligations (e.g., “When is Mr. Khan required to pay advance tax?”, “What are the consequences of not filing his return by the due date?”). Pay attention to the specific thresholds (PKR 40,000 for advance tax, PKR 600,000 for filing obligation) and the relevant due dates.

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