Chapter 1

Tax Year and

Residential Status
a) Tax year: Normal tax year and Special tax year.

b) Normal Tax Year: A period of 12 months from 1 July to 30 June

denoted by the calendar year in which the normal tax year ends.
For the year ending 30.6.2022 the tax year shall be 2022.
Special Tax Year: Any income year ending other than 30th June is special tax year and
denoted by the calendar year relevant to the normal tax year in which the closing date
of the special tax year falls.
1.7.2016 – 30.6.2017 Normal Tax Year 2017

01.01.2016 – 31.12.2016 Special Tax Year 2017

01.04.2016 – 31.03.2017 Special Tax Year 2017
01.10.2016 – 30.09.2017 Special Tax Year 2018
Special Tax Year:

The FBR has authority to prescribe any special tax year in respect of any
particular class of taxpayers such as 30th September in case of sugar mills
and 31st December in case of banks and insurance companies.

If the tax year is not specified by the FBR and a taxpayer wants to have
any special tax year then he is required to make an application to the FBR
specifying the reasons for the purpose.
 Special Tax Year

Specified by the FBR e.g. 31st At the discretion of the

Dec for insurance and banking taxpayer with the permission
companies of the FBR
Change in the Tax Year:
(a) A person using normal tax year may apply to the Commissioner to allow him to
use any special tax year;
(b) A person using special tax year may apply to the Commissioner to allow him to
use any other special tax year or normal tax year;
(c) The Commissioner shall grant permission only if the person has shown a
compelling need for the change;

(d) If the Commissioner wants to reject the application he shall provide an

opportunity of being heard to the person and shall record in the order the reasons
for such rejection. In this case the person may file a review application to the FBR
and the decision of the FBR shall be final.
 Chapter 1
Residential Status
Residential status of an Individual – Section 82
Residential status for tax purpose generally has no relationship with
nationality.
Residential status of an individual is generally based on number of days
he is physically present in Pakistan during a tax year.
Therefore, a foreigner can also be a resident person for Pakistan tax
purpose. On the other hand, a Pakistan national may become non-
resident for tax purpose.
Resident criteria for an individual:
Residential criteria for an individual:
An individual would be a resident person for Pakistan tax purposes if
the individual:
(a) is present in Pakistan for a period of, or periods amounting in
aggregate to, 183 days or more in the tax year; or
(b) is an employee of the Federal Government or a Provincial
Government posted abroad in the tax year; or
(c) being a citizen of Pakistan, is not present in any other country for
more than 182 days during the tax year or who is not a resident
taxpayer of any other country.
 Rule 14 of the Income Tax Rules 2002:
• Part of a day that an individual is present in Pakistan counts as a whole day
including:
– A day of arrival in Pakistan
– A day of departure from Pakistan
– A public holiday
– A day of leave
– A day that the individual’s activity in Pakistan is interrupted because of a strike etc.
– A holiday spent in Pakistan before, during or after any activity in Pakistan

• A day or part of a day where an individual is in Pakistan solely by reason of being in

transit between two different places outside Pakistan does not count as a day present
in Pakistan
Residential
status of a
Company
a) A company incorporated in Pakistan is resident without any
condition.

b) Other company (i.e. a company incorporated outside Pakistan)

is resident if control and management of the affairs is situated
wholly in Pakistan in the year.
“company” means –
(i) a company as defined in the Companies Act 2017;
(ii) a body corporate formed by or under any law in force in Pakistan;
(iii) branch office of a foreign company;
(iv) a society including a co-operative society and a non-profit organisation; or
(v) a Provincial or Local Government in Pakistan.
 Residential status of Association of Persons (AOP)

AOP shall be considered as resident if control and management of the

affairs is situated wholly or partly in Pakistan in the year.

Note: Partnership Firm and Joint Venture are the common examples of AOP
Income with reference to Resident and Non-Resident (i.e.
Scope of Taxable Income)
A resident person is taxable for his worldover income subject to
agreement for the avoidance of double taxation (Tax Treaty).
A non-resident person is taxable only for his Pakistan-source
income subject to tax treaty.
5.2 Foreign source income of a short term resident – section 50
A foreigner shall be exempt in respect of his foreign-source income which
is not brought / received in Pakistan if he is resident only by reason of his
employment and he is present in Pakistan for not exceeding 3 years.

This section does not apply on business established in Pakistan by an

individual foreigner.
Foreign source income of a returning expatriate

If an individual citizen of Pakistan (returning expatriate) is resident

in the current tax year but was non-resident in the 4 preceding tax
years, his foreign-source income shall be exempt in the current tax
year and in the following tax year.
Foreign source salary of resident individual

Foreign source salary by a resident individual is exempt in

Pakistan if he has paid foreign income tax on foreign source
salary or his employer has deducted tax at source from salary
Foreign source salary of resident individual

Salary earned outside Pakistan shall be exempt if a citizen

of Pakistan leaves Pakistan during a tax year and remains
abroad during that tax year
Foreign source income of a resident person is exempt:

 Tax Treaty For income

other than
 Short Term Resident salary

 Returning Expatriate
For salary
 Tax paid in the foreign country income

 A citizen of Pakistan leaves

Pakistan during a tax year and
remains abroad during that tax
year
Questions
Chapter 1
Question [Tax Year 20X7]
Mr. FH, a citizen of Burma, entered into an employment contract with a
Pakistani company.
The employment contract was effective from 1.11.20X6. However, Mr. FH
arrived in Karachi on 2.11.20X6. There was a strike in Karachi on 3.11.20X6,
he could not join his office. On 4.11.20X6 he became ill and could not attend
office for the next 5 days and joined office on 9.11.20X6. Due to his
continuous illness he took sick leave and went back to Burma on
10.11.20X6.
Mr. FH came back to Karachi on 3.1.20X7 and remained in Pakistan for the
purpose of his employment till 30.6.20X7.
Required: Determine the residential status of Mr. FH with reasons for the tax
year 20X7 in accordance with Rule 14 of the Income Tax Rules. (Marks 6)
 Days
2.11.20X6 to 10.11.20X6 9
3.01.20X7 to 30.06.20X7 179
188

Reason:
Mr. FH is a resident person for Pakistan tax purpose as only the
physical stay in Pakistan is to be considered including days present in
Pakistan before joining the work.
Question [Tax Year 20X8]

(1) Mr. M came to Pakistan for the first time on a special assignment from his
company on 1.4.20X7 and left the country on 30.9.20X7.

Answer:
An individual is resident for Pakistan tax purpose if his stay in a tax year is 183
days or more.

Physical stay of Mr. M in Pakistan in the tax year 20X8 is 92 days (1st July to
30th September) and therefore he is a non-resident person in the tax year 20X8.
(2) [Tax Year 20X8]
Mr. R, who had never travelled abroad in his life, got a job in Canada. He went to
Canada on 29.12.20X7 to assume his responsibilities as a CFO. In June 20X8 his
company sent him to Dubai on a training workshop. On 30.6.20X8 on his way back
to Canada he had to stay in Karachi for a whole day in transit.
Answer:
A day in Pakistan solely by reason of being in transit does not count as a day
present in Pakistan.
Physical stay in Pakistan of Mr. R in the tax year 20X8 excluding a day in transit is
182 days (1st July to 29th Dec) and therefore he is a non-resident person in the tax
year 20X8.
(3) [Tax Year 20X8]
Mr. B, a Federal Government Employee was posted to the Pakistan
mission in Geneva from 1.7.20X7 to 30.6.20X8.

Answer:
A government employee posted abroad in the tax year is resident
irrespective of his physical stay in Pakistan.

Therefore, Mr. B is a resident person in the tax year 20X8 for Pakistan tax
purpose.
(4) [Tax Year 20X8]
Mr. F, a dealer in Brazil, came to Pakistan for the first time on 31.7.20X7.
During his visit he stayed at Lahore for 60 days and spent the rest of the
days in Karachi. He left the country on 31.1.20X8. Assume that the
Commissioner has granted him permission to use calendar year as a special
tax year.

Answer:
Physical stay of Mr. F in Pakistan in the tax year ended 31.12.20X7 (special
tax year granted by the Commissioner) is 154 days i.e. 31 st July to 31st
December and therefore he is a non-resident for Pakistan tax purpose.