( A QUESTION FOR MR.KAMRAN REGARDING TAX )

[[email protected]]

Dear Amir,
I read few replies of you.I am a new user and i have one query to resolve.

We have hired consultant in Feb,07 who came from Canada.on terms $5,000 per month.We havent paid anything to him else some pocket money every week.We also arrange furnished accomodation, Cook,Security guard and traveling from place to office and back to his residence.That contract was of 6months,which has been completed and now we have to clear his liability.Now my question is, How could we pay him,as he has no bank account and operating any account and what will be the tax deduction in this case.

Your immediate reply will be highly appreciated

Regards

Farhan

[kamranACA]

Dear,

Notwithstanding to which person u have addressed ur message, I invite your attention towards deduction of tax from the amount payable to non-resident consultant.

This deduction is covered under section 152 of Income Tax Ordinance 2001. You have to check the nature of your contarct with the consultant to establish that would it be covered under subsection 1 or 1A of section 152. Tax rates for different sort of services are different. However, tax deduction has to be made on gross amount. Of course any out of pocket expenses or other facilities given to him under the contract are not subject to deduction of tax. Only the gross amount of his fee or charges excluding out of pocket expenses are subject to deduction.

Following are the rates applicable to different situations

Royalty payments 15%

Fee for technical services 15%

Payments against Certain contracts 6%

Others 30%


You must study section 152 and relevant clauses of first schedule along with establishing the nature of services your consultant have provided to you.

If you will apprise the details, I may advise you further.

Regards,


Kamran

[[email protected]]

Thanks Kamran Bhai,

I wanted to address you but... anywaz thats for your kind assistant.I will come to you in future as well .

Farhan

[[email protected]]

Dear Kamran Bhai,

One thing u didnt reply, what about making payment to him.As, he is not operating any bank account.Will it works if we make payment to him in his canda bank account in form of USD's after deduction 30% on gross amount?

Farhan

[zurpk]

You can issue a cheque in his name. He shall deposit that cheque in his bank account in Canada. It will take approximately one month in clearing the cheque.
The second option is to make a FTT in his Canadian Account. This is the easiest method but costly as compared to the first one. Here bank will charge you bank charges.

However, comments of Mr. Kamraan will be more valuable.

Best Wishes
Zia ur Rahman

[kamranACA]

Dear,

Zia's advice is correct.

However, if you will adopt banking channel to remit dollars, you will have to get involved in very complex situation which has so many requirements and needs intimation to SBP and its approval etc under Foreign Exchange Regulations.

Instead, simply issuing a cheque or remitting money using money market option is much more easier and fast going.

Regards,

Kamran.

[zurpk]

Kamraan Sahib,

You are right that banking channel method is complicated. but the open market option is not a legal method. so if the payment is more than Rs.10,000/- then the company can't claim it as addmissible expenses.

Please correct if there is anything wrong in my statement.

Best Wishes
Zia ur Rahman

[kamranACA]

Dear Zia,

This depends upon taxation status of the company making such payment. If it is filing statement under section 115 (4) following presumptive taxation regime (PTR), then there would be no consequences of using such money market channel and in fact this happens typically in all such companies which fall under PTR.

Further, where taxation is made under normal law (NTR), your observation appears to be correct. However, it again depends upon available tax losses and selection of such entity for detailed scrutiny/tax audit by FBR. All returns are now filed in the manner and style of universal self assessment scheme and very few cases having exceptional and noticable profile are selected for detailed audit by tax authorities.

Still, you are correct that there remains a reason to declare such expenses/costs paid through money market as in-admissible by taxation authroities under NTR.

However, so much happens practically everywhere to resolve or hide such transactions, which being un-ethical, I would not discuss.


Best regards,



Kamran.

[zurpk]

Dear Kamran Sahib

If a company makes such transaction then what is the solution? How shall the company legalize these transactions? Please discuss.

Best Wishes
Zia ur Rahman
[email protected]

[kamranACA]

Dear Zia,

Hiding or making over of some illegal transaction remains un-ethical by all means unless there is some legal way out.

So much happens every where, which we see in practical life.

However, being un-ethical, I cannot explain how to hide or make over such transactions. Still, if something is disallowed by taxation laws as admissible expense, it cannot be totally declared as unethical or illegal. Of course so many laws are conflicting and over rule each other in so many issues. Either such payment is made by cross banking channel or by money market, the transaction remains genuine, bonafide, verifiable and for the purpose of the business of the entity. However, taxation laws do not allow deduction in respect of such expenses against business income.

I cannot advise anything which may motivate evasion of tax or non-compliance with any applicable law. I pay tax on all taxable sources of my income and do not hide even a penny. If we have to make our nation prosperous, we have to do it.

Irrespective of whatever basis one may develope to negate it, but my concept is very much clear on this issue.

However, keep on seeing whatever happens all around, and you will learn so much.

Best regards,



Kamran.

[zurpk]

Dear Kamran Sahib

First of all, I appreciate your comments not to do so.
Secondly, I also don’t have any intention to hide tax. However, I can’t trust on our govt. Our govt. purchases weapons through these amounts and then uses these weapons against our innocent brothers & sisters. You can see the today newspaper in which 40 civilian were killed in North Waziristaan.

Best Wishes
Zia ur Rahman

[kamranACA]

Dear Zia,

This makes no sense if we leave fulfilling our part of responsibility just for the sake of failure on any one else's part. They will always be buying out such ammunition irrespective of paying or not paying taxes by us.

By the way, I dont want to get involved in lengthy discussion, but I cannot consider every one innocent who is killing or is being killed. Problems exist on both sides and no one is milk washed to be portrayed as incapable, innocent and fault-less.

For my own sake, I am very much clear on it and for others I dont want to argue too much.

Regards,


Kamran.

[zurpk]

Dear Kamran sahib

Thank you very much for your valuable comments.

Zia ur Rahman