HAQ Associates

27/04/2026

Section 5A — Tax on undistributed profits (Income Tax Ordinance,2001) simplified version
What is this law about?
This rule was made to encourage companies to distribute profits (dividends) instead of keeping all earnings to themselves.
1. When does this tax apply?
This tax applies only for Tax Years 2017–2019 if:
• The company is a public company
• It is NOT:
o a scheduled bank
o a modaraba
• The company earns profit, BUT
• It does NOT distribute at least 20% of after-tax profit within 6 months
👉 If all these conditions are met → extra tax is charged
2. How much tax is charged?
✔️ 5% of accounting profit (before tax)
👉 Important:
Tax is calculated on profit BEFORE tax, not after tax.
3. Special Rule for 2017
For Tax Year 2017 only:
• Companies could distribute:
o Cash dividends, OR
o Bonus shares
• And they had time until the return filing due date
👉 More flexibility compared to other years
4. Who is EXEMPT from this tax?
This tax does NOT apply to:
(a) Companies already exempt under a specific law (Second Schedule, Part 1, clause 132)
• Companies where:
Government owns ≥ 50% shares

20/04/2026

Section 4 Tax on Taxable Income (of Income Tax Ordinance 2001) — Simplified Explanation
Sub-section 1. Basic Rule
Income tax is charged every year on taxable income at the rates given in the law (First Schedule).
👉 If you earn taxable income, you must pay tax.
Sub-section 2. How Tax is Calculated
Think of it as a 3-step process:
Step 1: Calculate your taxable income,
Step 2: Apply the relevant tax rate(s)
Step 3: Subtract any tax credits
✔️ Final formula:
Tax Payable = (Taxable Income × Tax Rate) – Tax Credits
Sub-section 3. Order of Tax Credits
If you qualify for multiple tax credits, they are applied in this order:
1. Foreign Tax Credit (Section 103)
2. Other Credits (Part X, Chapter III)
3. Credits under Sections 147 & 168
👉 Order matters because earlier credits reduce tax first.
Sub-section 4. Special Types of Income
Some income is treated differently:
•Taxed separately, OR
•Tax is deducted/collected at source as final tax
👉 This means:
You don’t include this income in your normal taxable income.
Sub-section 5. Exclusion Rule
Income taxed under special rules:
•❌ Not added to total taxable income
•✅ Taxed independently
Sub-section 6. Advance & Withholding Tax
If tax is:
•Deducted at source, OR
•Collected, OR
•Paid in advance
👉 It must be done accordingly as required by law.

16/04/2026

Section 120B – Restriction of proceedings of the Income Tax Ordinance, 2001 in plain language
•Clause (1)
If a person declares their hidden (undisclosed) assets, expenses, or sales under the Assets Declaration Act, 2019, and pays the required tax, then:
The tax authorities will not start any further legal or tax proceedings against that person for those declared items.
In short:
If you honestly declare and pay tax on previously hidden things, you won’t be punished or investigated for them under this law.
•Clause (2)
This part is about confidentiality (privacy):
The details of people who make such declarations, and the information they provide, will be kept secret.
These details cannot be shared publicly, except in very limited situations mentioned in section 216 sub-section 3 (specifically clauses a and g).
In short:
Your declaration stays confidential and protected, with only a few legal exceptions.
 Overall, Simple Meaning:
 Declare hidden assets → No legal trouble for those items

16/04/2026

Sec 7E of Income Tax: Levy of tax on deemed income unconstitutional, FCC told - Pakistan - Business Recorder

ISLAMABAD: The Federal Constitutional Court (FCC) was informed that the levy of tax on deemed income under Section...

16/04/2026

The Federal Constitutional Court was informed on Wednesday that the controversial tax imposed on “deemed income” from immovable property under Section 7E of the Income Tax Ordinance, 2001, violates the Constitution and should be declared invalid.

A two-member bench headed by Chief Justice Amin-ud-Din Khan heard multiple appeals stemming from decisions of the Sindh, Lahore, Peshawar, and Islamabad High Courts regarding the legality of the levy introduced through the Finance Act 2022.

Section 7E requires taxpayers owning more than one property to pay tax even if the property does not generate any real income. Under the law, such properties are assumed to earn rental income equal to 20 percent of their FBR-determined value. A five percent tax is then applied on this amount which makes it equal an annual tax close to one percent of the property’s declared capital value.

https://propakistani.pk/2026/04/16/govt-accused-of-forcing-pakistanis-to-pay-tax-on-property-income-they-never-earned/

10/04/2026

Simple Explanation of Section 11A of the Sales Tax Act,1990: Short-paid amounts recoverable without notice.
If a registered taxpayer:
•Files a tax return
•But pays less tax than what is actually due
Then the tax authority can:
•Immediately recover the short amount
•Add default surcharge (extra charges)
•Take strict actions without sending a notice, such as:
•Stop the movement of goods from the business
•Freeze or attach bank accounts
⚠️ However:
•No penalty will be imposed unless the person is first given a show-cause notice.
🔑 Key Idea
•Recovery = Immediate (no notice needed)
•Penalty = Only after notice

10/04/2026

Summary of section 8A (of the Sales Tax Act,1990) Joint and several liability of registered persons in the supply chain was for unpaid tax.
🔹 Basic Idea
If you buy goods from another registered seller, and:
•You know, OR
•You have good reason to suspect
that the sales tax on those goods will not be paid (either by that seller or somewhere in the supply chain),
👉 Then you and the seller BOTH become responsible for paying that unpaid tax.
🔹 “Joint and Several Liability” (simple meaning)
This means:
•The tax authority can recover the full unpaid tax from either person:
*the seller, OR
*the buyer, OR
*both
👉 Even if you are just the buyer, you can still be asked to pay.
🔹 Important Condition
•The tax department must prove that:
* You knew, or
*You had reasonable grounds to suspect tax would go unpaid.
👉 So you’re not automatically liable — only if suspicion/knowledge is proven.
🔹 Exception
•The government (FBR) can exclude certain transactions from this rule through an official notification.
🔹 Simple Example
•You buy goods at a very low price from a supplier.
•This makes you suspect the supplier may not pay sales tax.
👉 If tax is later found unpaid:
•Both you and the supplier can be forced to pay it.
🔹 In One Line
👉 If you knowingly deal in goods where tax is likely to be avoided, you can be held equally responsible for that unpaid tax.

06/04/2026

Core Principle of Section 5 of the Sales Tax Act,1990.