Exemptions and Tax Concession: How to Legitimately Remain Safe by Paying in Less or No Taxes

There are some special exemptions and concessions in the second schedule; we will see what they are and how they will influence you.

Subsection 1 of section 53, the income or classes of income, or persons or classes of persons specified are enlisted in the Second Schedule and have some special rates, tax exemption or concession from tax.

What kind of relief could be, we are going to discuss them ahead, they shall be of: 

(a) (exempt from tax under this Ordinance, subject to any conditions and the extent specified therein.)

You could be given a tax exemption, but how you will be exempted is supported by some specific conditions mentioned in the second schedule. Furthermore, at what level you can be tax exempted? At this stage, you are required to be declared; tax exempted.

(b) (subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein;)

Now in the first schedule, there is tax to rate clauses, in which you can choose according to those tax clauses. The tax rates that are available in the first schedule; which taxes have whatever rates? You will be taxed on those rates which are up to to your requirements.    

(c) (allowed a reduction in tax liability under this Ordinance, subject to any conditions and the extent specified therein; or.)

Your tax liability, which is calculated, can be reduced. Many examples are there whether you are a scientist, full-time researcher, specific teacher, etc. You will be facilitated with a reduction in tax liability. You need first to calculate the tax on your income and then apply the tax rebate of 33% on your total annual income.     

(d) (exempted from the operation of any provision of this Ordinance, subject to any conditions and the extent specified therein.)

You are tax exempt from this specific tax section as it does not apply to you. So this is how you got a tax concession.

Subsection 2 of section 53 is specially designed for specific situations. For example, taxation in Pakistan is the homework of the National Assembly. The National Assembly of Pakistan formulates the taxes. But sometimes, the situation becomes critical, and the work has to be done in an emergency, at a very fast pace and in a strict manner. For this, requiring approval from NA becomes difficult. So that’s why a particular condition is taken into consideration. 

The Board with the approval of the Federal Minister- in charge may, from time to time, along with the approval of the Economic Coordination Committee of the Cabinet whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations, protection of national economic interests in cases arising out of unusual fluctuation in international commodity prices, implementation of bilateral and multilateral agreements or granting an exemption from any tax imposed under this Ordinance including a reduction in the rate of tax imposed under this Ordinance or a decrease in tax liability under this Ordinance or an exemption from the operation of any provision of this Ordinance to any international financial institution or foreign Government-owned financial institution operating under an agreement, memorandum of understanding or any other arrangement with the Government of Pakistan, by notification in the Official Gazette (newspaper), make such amendment in the Second Schedule by:

(a) addition of any clause or condition therein;

(b) omission of any clause or condition therein; or

(c) making of any change in any clause or condition therein,

As the Government may think fit, all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued.

Subsection 3 of section 53, the Federal Government shall place all amendments made by it to the Second Schedule before the National Assembly in a financial year.

The worth of subsection 4 has been finished. Accordingly, its time duration has ended.

Subsection 4 of section 53, Any notification issued under subsection 2 after the commencement of the Finance Act, 2015, shall, if not earlier cancelled, remain cancelled on the expiry of the financial year in which it was issued.

Provided that all such notifications, except those earlier cancelled, shall be deemed to have been in force with effect from the first day of July 2016 and shall continue to be in force till the thirtieth day of June 2018, if not earlier rescinded. 

Provided further that all notifications issued on or after the first day of July 2016 and placed before the National Assembly as required under subsection (3) shall continue to remain in force till the thirtieth day of June 2018, if not earlier cancelled by the Federal Government or the National Assembly.

Concluding Remarks:

If the Government wants, they can make a few amendments to the second schedule. The procedure is simple. There must be approval of the federal minister, the ECC’s approval in the cabinet, and the notification to be issued in the official Gazette (newspaper). After that, any changes can be made to the second schedule.