Sample Advance Tax Memo to Clients - Income Tax Ordinance 2001 (Pakistan)

Dear Client

The company is required to pay advance tax for the March Quarter (January 01, 2016 to March 31, 2016) installment by March 25, 20XX under section 147 of the Income Tax Ordinance, 2001 Ordinance).

The mode of determining the advance tax liability under section 147 has been amended through Finance Act, 2009. Advance tax in the cases of Company is now payable on ‘turnover basis’ as per the following formula:

(A x B/C) – D

Where --

A is the taxpayer’s turnover for the quarter;
B is the tax assessed to the taxpayer for the latest tax year;
C is the taxpayer’s turnover for the latest tax year; and
D is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax deducted under section 155 (Income from Property).

Through Finance Act 2010, the due dates are changed as follows:

 September 25
 December 25
 March 25
 June 15

Through Finance Act 2015 a taxpayer shall estimate the tax payable for the relevant tax year, at any time before the second installment is due. In case the tax payable is likely to be more than the amount that the taxpayer is required to pay the taxpayer shall furnish to the Commissioner on or before the due date of the second quarter an estimate of the amount of tax payable by the taxpayer and thereafter pay fifty per cent of such amount by the due date of the second quarter of the tax year after making adjustment for the amount, if any, already paid. The remaining fifty per cent of the estimate shall be paid after the second quarter in two equal installments payable by the due date of the third and fourth quarter of the tax year.

In this regard, it is stated that the basis of calculating the payment is the declared turnover and latest tax assessed for the Tax Year 20XX, being Rs. XXXXXXX/- and Rs. YYYYYY/- respectively.

Accordingly, the gross advance tax payable by the company for the said quarter is arrived at by multiplying tax to turnover ratio for the Tax Year 20XX i.e. 1.54% with actual turnover for the current quarter after adjustment of any tax deductions / payments during the quarter and net amount is to be paid on or before March 25, 20XX.

Consequent to the insertion of sub-section 4A by the Finance Act, 2006, companies discharging advance tax liability on the aforesaid basis are required to “estimate” tax payable for the relevant tax year any time before the last installment is due and where such estimate is more than the amount computed in accordance with above basis, The taxpayers should furnish to the Commissioner of Income Tax as estimate of the amount of the tax payable and payment of tax is to be made in line with such estimate over the remaining installments. The option of filing an “own estimate” is available before last installment.

The Gross amount of quarterly advance tax liability for the First Quarter as mentioned above should be adjusted with the taxes already paid / deducted at source under various sections of the Income Tax Ordinance, 2001 during the period starting from January 01, 2016 till to date.

Any determined refunds due to the company may also be adjusted with the advance tax liability of the quarter and the balance amount of advance tax shall be paid on or before the due dates mentioned above.

As per the provisions contained in section 205(1A) of the Ordinance, non-payment of advance tax under section 147 of the Ordinance, leads to liability for additional tax at a rate equal to KIBOR plus three per cent per quarter on the amount of tax unpaid computed for the period commencing on the date on which it was due and ending on the date on which it was paid or date on which the return of income for the relevant tax year is filed, whichever is earlier.

Furthermore, please note that as per the provisions contained in section 205(1B) of the Ordinance, where advance tax payable on the basis of the “estimate” is not paid or falls short of 90 per cent of the tax chargeable for the relevant tax year, additional tax will be payable at KIBOR plus three per cent per quarter on the amount so chargeable or the amount by which the tax paid falls short of the 90 per cent, as the case may be from October 1 in that year to the date of assessment or December 31 of the next financial year whichever is earlier.

Further, non-payment of advance tax could also expose the company to penalty under section 183. It may be noted that under the Ordinance, advance tax is recoverable as tax due under the Ordinance.

We are enclosing along with this letter Annexure “A” showing calculation of advance tax liability under the provisions of section 147 of the Income Tax Ordinance, 2001, and you are requested to follow the pattern while calculating the advance tax liability for each quarter.

Please send the advance tax computation for the First Quarter on the basis of above annexure “A” by March 22, 2016 to the under signed.

Should you require any further clarification or explanations, please do not hesitate to contact us.

Regards