01-25-2011, 11:13 PM
Keeping in view the complexities, overlapping requirements and unique disagreements between different laws at Pakistan, first of all I would advise you to hire services of some well-reputed consultancy firm (chartered accountants in practice) in Pakistan on retainer-ship basis for ongoing consultation. For clarity, I must mention that I am not kidding.
Now coming to your queries, I would like to elaborate the second issue first.
If you have logical reasons and practical justification for having a special tax year which you can demonstrate in writing, you can forward an application stating such reasons/justifications to the concerned Commissioner of Income Tax (Enforcement & Collection) {wherever your company falls i.e. either under Regional Tax Office (RTO) or Large Taxpayers Unit (LTU)}. After mentioning all logical grounds for moving such application, you can request for January to December Tax Year for your company. Normally, such application is easily approved. Such application has to be filed under section 74(3) of the Income Tax Ordinance, 2001. You can download the Income Tax Ordinance from the website of Federal Board of Revenue www.fbr.gov.pk
Now I reply your other queries incidental to such a change of tax year.
Say if you move an application now and get calendar year 2011 approved as your special tax year, it will be called Tax year 2011. You will calculate your tax liabilities and file return of income tax for this special tax year. Now the question arises that your Tax Year 2010 was July 2009 - June 2010, so what would be done with outstanding period of July 2010 to December 2010. The reply is, you will file a TRANSITIONAL INCOME TAX RETURN for TRANSITIONAL TAX YEAR 2011 (from July 2010 to December 2010) and pay the tax due for this period, as may be required. For reference of law, see section 74 (9) of the Income Tax Ordinance, 2001. The due date for filing the income tax return, for TARNSAITIONAL TAX YEAR 2011 (July 2010 to December 2010) will be 30 September 2011.
I hope this issue has been replied.
Now I come to your first query.
Sales commission is a bonafide expense, so far it is covered under some written agreement and the percentages are not beyond the general market norms, so there is no issue with such commission, its acceptability by tax authorities and from accounting point of view etc. There are some tax with-holding issues which you can explore later-on. If commission is paid to foreign agents from Pakistan or the commission is being paid to a local person from some foreign country, there are certain foreign exchange regulatory requirements as well. These can be discussed only if some specific query is put.
As far as illegal kickbacks and bribes are concerned, these are totally illegal in Pakistan, so cannot be reflected in accounts, since accounts are subject to audit and are a basis of tax returns. It does not mean that such malpractices donât exist in Pakistan. Yes, these do exist and people have found way-outs to manage such things. Although I am aware of some facets of how people around manage it, still, I donât find it professional to advise on such methodologies. To such extent I offer my excuse. If you need to know what people do, you can concentrate and you can find out what people do.
Regards,
Now coming to your queries, I would like to elaborate the second issue first.
If you have logical reasons and practical justification for having a special tax year which you can demonstrate in writing, you can forward an application stating such reasons/justifications to the concerned Commissioner of Income Tax (Enforcement & Collection) {wherever your company falls i.e. either under Regional Tax Office (RTO) or Large Taxpayers Unit (LTU)}. After mentioning all logical grounds for moving such application, you can request for January to December Tax Year for your company. Normally, such application is easily approved. Such application has to be filed under section 74(3) of the Income Tax Ordinance, 2001. You can download the Income Tax Ordinance from the website of Federal Board of Revenue www.fbr.gov.pk
Now I reply your other queries incidental to such a change of tax year.
Say if you move an application now and get calendar year 2011 approved as your special tax year, it will be called Tax year 2011. You will calculate your tax liabilities and file return of income tax for this special tax year. Now the question arises that your Tax Year 2010 was July 2009 - June 2010, so what would be done with outstanding period of July 2010 to December 2010. The reply is, you will file a TRANSITIONAL INCOME TAX RETURN for TRANSITIONAL TAX YEAR 2011 (from July 2010 to December 2010) and pay the tax due for this period, as may be required. For reference of law, see section 74 (9) of the Income Tax Ordinance, 2001. The due date for filing the income tax return, for TARNSAITIONAL TAX YEAR 2011 (July 2010 to December 2010) will be 30 September 2011.
I hope this issue has been replied.
Now I come to your first query.
Sales commission is a bonafide expense, so far it is covered under some written agreement and the percentages are not beyond the general market norms, so there is no issue with such commission, its acceptability by tax authorities and from accounting point of view etc. There are some tax with-holding issues which you can explore later-on. If commission is paid to foreign agents from Pakistan or the commission is being paid to a local person from some foreign country, there are certain foreign exchange regulatory requirements as well. These can be discussed only if some specific query is put.
As far as illegal kickbacks and bribes are concerned, these are totally illegal in Pakistan, so cannot be reflected in accounts, since accounts are subject to audit and are a basis of tax returns. It does not mean that such malpractices donât exist in Pakistan. Yes, these do exist and people have found way-outs to manage such things. Although I am aware of some facets of how people around manage it, still, I donât find it professional to advise on such methodologies. To such extent I offer my excuse. If you need to know what people do, you can concentrate and you can find out what people do.
Regards,
