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Accounting treatment for unique pakistan issues
01-25-2011, 08:33 PM,
#1
Accounting treatment for unique pakistan issues
Hi

First of all I must say that the past topics in your forums are very helpful for a person looking for a quick overview of general practices in Pakistan. Keep up the active discussion, its a treasure trove that will be helpful to a lot of people.

Now to give you a bit of background of what I am doing here. We are a dubai based company that has a subsidiary office in pakistan. Now the management has decided to implement an erp solution that consolidates all the different offices. Naturally this means that all the accounts will be consolidated. So I am here in Pakistan overlooking the set up for the pvt ltd local subsidiary in the erp. So you might hear from me often in the forums during the next couple of weeks

My first query has to do with kick back accounts and sales commission and even bribes (speed money). What is the suggested treatment recommended by you folks and secondly are they legal and allowed on the books.

My second question has to do with financial year. The pakistan office is following the pakistan tax year of June-May but our Dubai office is following Jan-Dec. I know for certain in other tax jurisdictions like US and Canada Jan-Dec tax year is permitted and all one has to do is submit a declaration to the Tax office justifying the reason for change. Now is the same possible in pakistan ie a taxation year of Jan -Dec and how do one go about getting it done. Also if it is possible ( I do think it would be possible) What will the tax due be at the close of government tax year in June going forward. Will we have to pay the due tax on Jan-Dec previous year or will it be Jul-Dec previous year and Jan-June this year

Thanks and I do appreciate the help and time

Cheers

kash rafiq
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01-25-2011, 11:13 PM,
#2
 
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 don’t 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 don’t 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,

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01-31-2011, 06:37 PM,
#3
 
Hey Kamran

I appreciate the reply and candor. I do wish that we did not have to account for the 'special issues' in pakistan but then again that is the reality of working in Pakistan.

Now I do have an intention of hiring a CA for auditing as well for the advisor role but there are "CA" and then there are "CA"s if you get my drift and I like to do my homework before I approach anyone so I will send you a private email for some the queries related to that.

Once again my thanks for the reply

Cheers

Kash
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01-31-2011, 10:25 PM,
#4
 

What I feel, we third world countries always tend to accept the burden of responsibilities for the acts which are not specific or limited to our set-ups. So, the things which you referred are not the reality for working ONLY in Pakistan. We learnt it from the very transparent and advanced West. You see who pays the largest amounts of the kick backs in the world; just a food for thought. On a number of fronts we learnt from the West that how the money makes the horses and mares to go.

Still, I attach high importance to your words being the words of an observer and don’t disagree with the factual existence of such situation.

Thanks for your trust.

Regards,
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02-04-2011, 12:10 PM,
#5
 
Hi
After read the forum i want to say that though we will have stay in that country,we have to go as their rule.
http//www.tradingforex.co.il/
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02-05-2011, 11:06 PM,
#6
 
All the things may not be very smooth in Pakistan, but it's not the case only in Pakistan. Our comments very often make situation sound more absurd than it really is, and you can think of what sort of image a person who doesn't know bout the actual picture can make after reading such threads.

Even after reading the thread twice I couldn't figure out the unique issues referred to and later on reinstated as 'special issues'. Speed money may be there in Pakistan since long but the words like Speed Money and Kick Backs were not formally introduced in Pakistan. And as said earlier we got to see where the largest amount of kick backs is coming from and how speed money is dealt with in the West. So where lies the uniqueness?
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02-06-2011, 04:49 PM,
#7
 
Shoaib

Although what you are saying is correct; yet if someone is criminal it does not make a reason for us to be a part of such crime.

A visit of some Islamic countries (specially Arabian belt) would help understanding that we (Pakistanis) tend and pose to be the biggest lease-holders of the relegion of peace and integrity. Believe you me it is a fact. No one on the globe is a bigger self-assumed leaseholder than us.

If we tend to pose this, then we should also correct the practices as well.

Whatever the facts about the West we find, are facts; yet this is not a reason for us to be a part and parcel. One offers the speed money for the mares to go, does it mean we are factually the mares who accept such speed moneys putting behind all the prophecies and claims we make.

My words may seem weird but at least one should think over it.

Regards,
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