Advance Tax – Part I
Advance tax is a form of taxation that requires individuals, businesses, and corporations to pay a portion of their estimated tax liability in advance.
It is mandatory for certain categories of taxpayers to pay advance tax, and failure to comply with the requirements can result in penalties and legal consequences.
In this article, we will explore the concept of quarterly advance tax on individuals, companies / AOPs in Pakistan, advance tax on capital gain, on registered sales tax persons.
Advance Tax Payment on a quarterly basis – Sec 147
An individual with an assessed income of Rs.1,000,000 above other than Income from FTR and Salary Income shall pay quarterly amount.
Formula for Calculation of the Advance Tax on Individuals:
(A / 4) – B
Where A = Assessed tax amount for the last year, including the effect of minimum tax u/s 113.
4 = Per Quarter
B = Tax paid during the quarter (withholding).
Payment Date – Individual
- September 15th
- December 15th
- March 15th
- June 15th
Company / AOP
A company or AOP is required to pay an amount except for Income under FTR based on below formula;
(A x B/C) – D
A = Turnover during the quarter.
B = Assessed Tax for the latest Tax Year
C = Turnover for the latest Tax Year
D = Tax Paid in the quarter
Where the turnover for the quarter is not known to the company. It shall be calculated as taking 110% of the latest assessed turnover (including the effect of minimum tax u/s 113) divided by 4.
Payment Date – Company / AOP
- September 25th
- December 25th
- March 25th
- June 15th
Absence of latest assessed Income
In the absence of the latest assessed income or declared turnover, individuals, and companies shall pay advance tax on the basis of estimated profit/turnover including minimum tax u/s 113.
Current Income is likely to be Less / More than the latest Tax Year
Current Income likely to be LESS than the latest Tax Year – Individual / Company / AOP
If a company or an individual is of the view that his current income is likely to be less than his latest tax year then he can file estimated income with the commissioner before the due date. An estimate shall include turnover for the completed quarters, and estimated turnover for the remaining quarters accompanied by documentary evidence.
Current Income likely to be MORE than the latest Tax Year – Only for Company / AOP
If a company or an individual is of the view that his current income is likely to be more than his latest tax year then he can file estimated income with the commissioner before the end of 2nd quarter. Payment of additional advance tax shall be 50% in the 2nd quarter and 50% in the 3rd and 4th quarters.
Default Surcharge – Section 205
After filing an estimate both for Less or More, it is found that if the quarterly advance tax payment is less than 90% of the tax liability of the current tax year, the individual/company / AOP shall pay a default surcharge.
The unpaid advance tax amount will incur a default surcharge of 12%. You will calculate this surcharge from April 1st until the earlier of either the 1) date of assessment or 2) June 30th.
For the special tax year, a default shall be calculated from the 1st day of the 4th quarter till the earlier of 1) the special tax year end or 2) date of assessment.
What is Special Tax Year
An income year that does not end on June 30th is called a special tax year. For instance, the sugar industry uses the 30th of September, while the insurance/banking industry uses the 31st of December.
Advance Tax on Capital Gain – Section 147 (5b)
An adjustable advance tax on the capital gain is payable by the companies / AOPs. The payment period is within 21 days of the end of each quarter.
Rate on Capital Gain
The holding period of the security is;
- Less than 6 months – 2% of capital gain during the quarter.
- More than 6 months but less than 12 months – 1.5% of capital gain during the quarter.
Advance tax on Sales Tax Registered Person (Provincial) – Section 147A
Every provincial sales tax registered person (whose name is not appearing in the active taxpayers’ list on 30th June of the previous tax year) shall pay quarterly advance tax @3%.
Calculate the advance tax based on the monthly turnover declared in the sales tax return.
You can adjust the excess amount from your tax liability or carry it forward for a refund.
Advance Tax – Part II