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GHAZANFAR NAUMAN’S

INTRODUCTION TO TAXATION

Meaning, History and Logic of taxation:

The word “tax” means “burden, strain or duty”.

In Pakistan, system of taxation was introduced due to the British rule ages ago.

However, at present, everyone considers a government as an independent entity/ organisation. The system of taxation is therefore considered as a way of earning income by the governments so that after its collection governors on behalf of public may spend it prudently for their welfare. The system has therefore become a necessity as without sufficient income governments cannot deliver what they are supposed to deliver, i.e. cheaper or free utilities, infrastructure, etc. The essence of the system is to therefore collect sufficient funds from public (richer should contribute more than the poor) and then use those funds prudently for the welfare of the same public.

Zakat or almsgiving

Zakat, or almsgiving is the third pillar. Its a religious obligation and considered as an expression of devotion to God. It offers a means for a Muslim to purify his or her wealth and attain salvation. The system attempts to provide for the poorer sectors of society.

Zakat is a tax charge on the money or produce of Muslims. There are specific ways in which this tax can be spent, including spending on the poor/ needy, on those who collect and distribute it, on those whom Muslims hope to win over and convert to Islam, on travelers, on the ransom of captives, to relieve those who are burdened with debts, and on the cause of God.

Items subject to Zakat and information on deductibility (quantity and type) of Zakat are less-detailed in Quran. However some elaborations are available from the traditions of our prophet Muhammad s agreed by our scholars and jurists. For example, one-fortieth (2.5 percent) of the assets accumulated during the year (including gold, silver, and money) is payable at the end of the year, while one-tenth of the harvest of the land or date trees is payable at harvest time. Cattle, camels, and other domestic animals are subject to a more complex taxation system that depends on the animals in question, their age, the numbers involved, and whether they are freely grazing. Traditional zakat laws do not cover trade, but commercial taxes have been imposed by various Muslim governments throughout history.

 

Taxation laws that I know of, applicable in Pakistan and for I’ll be giving notes are listed below:

1. Income Tax Ordinance 2001 (Formerly Income Tax Ordinance 1979).

2. Sales Tax Act 1990

3. Federal Excise Act 2005