History of Income Tax in Pakistan

Announcement of Income Tax Act, 1922: For the regulation of taxation system as amended up to date after Pakistan came into being the Government of Pakistan had announced Income Tax Act 1922.

Applicability of the Income Tax Act, 1922: After the announcement of Income Tax Act 1922 the provisions of this act was extended to the whole of Pakistan except specific areas.

Making of the Taxation Inquiry Committee: In 1958 the committee was formed which was named as Taxation Inquiry Committee this includes the members of trade or commerce.

Recommendations of Taxation Inquiry Committee: "Taxation Inquiry Committee" submitted a report after extreme analysis of fundamental tax system and suggested some recommendations. Some of the recommendations were lodged which resulted in the amendment of Income Tax Act, 1922.

Super Tax: Super-tax was imposed on the incomes of all the persons before 1959 but in already registered firm and corporations.

The manifestation of Rate Slab as a Percentage of Income. In 1959, the rates of each slab were articulated as a percentage of income seeing the commendations of "Taxation Inquiry committee".

Change in Financial Year: The financial year was considered from 1st April to 31st March Before 1960, but in 1960, the financial year was changed from 1st July to 30th June.

Institution of Income Tax Committee: FBR introduced an "Income Tax Committee" In 1961. The most important purpose of this committee was to give the recommendations of the Income Tax Act 1922 and also tells the procedure of taxation.

Self-Assessment Scheme: Self Assessment scheme was introduced in 1965. Before 1965 an assessment officer assessed the income and also tell the liability of the person.

Declaration and Enforcement of the Income Tax Ordinance, 1979: There were lot of amendments in the context of the Income Tax Act 1922 as a result of these amendments the Act became a complex law and because of this difficulties arises in its implementation till 1979. Considering all these difficulties the Government the announced the new Income Tax Law called as the Income Tax Ordinance, 1979 through the Finance Ordinance on June 28, 1979 and included all the basic concept of the annulled Act, so that the benefit of the whole case law built up over the last 57 years is not extracted useless.

Creation of National Tax Reform Commission: National Tax Reform Commission. In 1985 was formed by the Federal Government. It contains members of Senate and National Assembly, high government officials and well-known industrialist Major aim of such commission was to give suggestions ways and means to improve the existing organization of tax laws in Pakistan.

Income Tax Survey 1999-2000: In 1999-2000, under the Income Tax Ordinance, 1979, an income tax survey was conducted to analyze the prevailing taxation structure and to give the suggestions and recommendations from surveyors.

Introduction of Tax Pardon Organizations: Many tax pardon schemes were introduced under the Income Tax Ordinance, 1979. These schemes were introduced to provide a chance to black money holders, so that they can change their black money into white money. Latest organization was introduced in the year 2002.

Announcement of the Income Tax Ordinance, 2001: After 22 years of the announcement of the Income Tax Ordinance, 2001, to renovate the taxation system, a government of Pakistan introduced a new income tax law namely, "The Income Tax Ordinance, 2001" which was publicized on September 13, 2001. It was published in the Extraordinary Gazette of Pakistan at pages bearing Nos. 969 to 1217.

Short Title of the Income Tax Ordinance, 2001: Under section 1, the Ordinance specifies that "The Income Tax Ordinance, 2001" shall be the short title of the law.

Applicability of the Income Tax Ordinance, 2001: Under section 1, the Ordinance specifies that the Income Tax Ordinance, 2001 shall extend to the whole of Pakistan.

Date of the Enforcement of the Income Tax Ordinance 2001: Section 1 of the Ordinance, gives power to the Federal Government to notify the date from which the Income Tax Ordinance, 2001 shall came into being.

The Federal Government, vide its notification No. S.R.O. 381 (1)/ 2002, dated 15th June, 2002, announced that the Income Tax Ordinance, 2001 shall came into force on the first day of July, 2002.

Position of the Income Tax Ordinance, 2001: According to section 3 "The Income Tax Ordinance, 2001" overrides other laws enforceable in Pakistan. It means, in case of any contradiction between the provisions of the Income Tax Ordinance, 2001 and any other law of the country, the provisions of the Income Tax Ordinance, 2001 shall prevail.

Purpose of the Income Tax Ordinance, 2001: The preamble of the Ordinance specifies the object of law. It specifies that the Income Tax Ordinance, 2001, is publicized to unite and to amend law relating income tax and provide for matters ancillary to and connected with the income tax.

Income Tax Rules, 2002: The FBR under the authority of section 237 of the Income Tax Ordinance, 2001 made the Income Tax rules, 2002. These rules were published on July1, 2002 in Extraordinary Gazette of Pakistan at pages 1819 to 1966.

Finance Act, 2009: To apprise the income tax law in Pakistan according to the situations, different methods of changes have been accepted by competent income tax authorities like S.R.O's and Circular’s etc. Finance Act is the regular way of change, it is offered in the month of June in each year.

Finance Act, 2009 is one step to maintenance process of change. Reforms: Different phenomena’s like merger amalgamations have been introduced. Payment tax credit was allowed. Audits strict penalties and prosecution have been stated where prosecution is to be launched the penalty amount is to be refunded. The income earned under the various heads of income as well as exempt and non-exempt income are allocated by providing expenses. Second schedule was retained with exemptions made in the statue in which powers are in the hand of the administration who can amend create or modify exemption clauses.