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In The name Of Allah The Most Merciful & The Most Beneficent Assignment of: Principle & Practice Income Tax Topic: Need of Tax Exemption [pic] Question: What is the need of Tax Exemption or Tax Concession in income tax from government point of view? And Does present income tax exemption policy of Pakistan effective in achieving its objectives give comments? TAX EXEMPTION According To “Community Benefit” theorists
Tax-exemption contributes to pluralism “by providing the public goods and services that either are undersupplied by the private market or by the government or else not provided in the same socially desirable manner” NEED OF TAX EXEMPTION Tax Exemption is provided for various purposes discussed below which are: ? To Promote Economic activity ? To Provide Benefit to society ? To Provide Corporate Welfare ? To Attract Businesses ? To Promote Organizations ? To Encourage Religious Activities ? To Encourage Economic Activities ? To Encourage Retirement-Led Investment ? To Promote Economic activity
Tax exemptions are usually meant to either reduce the tax burden on a particular segment of society in the interests of fairness or to promote some type of economic activity through reducing the tax burden on those organizations or individuals who are involved in that activity. ? To Provide Benefit To Society Tax Exemptions are accorded to certain organizations because they provide a benefit to society which the government is unable or unwilling to provide. ? To Provide Corporate Welfare Tax Exemption to specific businesses such as Big Oil is for corporate welfare. To Attract Businesses Exemption from property tax and other local tax is used as a tool for attracting business to areas suffering from economic down turn or depression. ? To Promote Organizations Tax Exemption is provided to individuals and organizations to promote economically. ? To Encourage Religious Activities Tax exemption is provided to encourage certain social and religious activities. ? To Encourage Economic Activities Tax exemption is provided to encourage certain economic activities. ? To Encourage Retirement-Led Investment
Tax Exemption is provided on amount of gratuity or commutation of person to encourage retirement-led investments. COMMENTS Ignoring all other factors and emphasizing particularly on tax exemption we can comment that, ? Tax exemption has promoted agriculture sector. Tax is not applied on income generated up to Rs. 80,000, income exceeding from R. s 80,000 will b taxed. The total number of such farmer assesses is reported to be only about 20,000 in the entire country with an average of no more than 200 such agriculture income tax payers per district.
Thus tax exemption provides relief to people engaged in tax exemption. ? Tax exemption has promoted scholarships in the country as the ratio of scholarships have increased from last decades which is providing opportunities to many students to not only study in Pakistan but also abroad. Tax exemption from scholarships is beneficial for both students and country. ? Tax exemption has promoted immense foreign investment in Pakistan as China has started many projects in Pakistan not only because of cheap labor but also because of tax exemption. Similarly many other foreign projects are practicing in Pakistan. Tax exemption has promoted many investment banks as Modarba, macro finance bank, national investment trust etc which provide many easy loans to people and firms which in turn contribute in promoting society. ? Tax exemption policy has promoted many sectors as businesses, educational sector, foreign investment, NGO’S etc Thus, We can conclude that present tax exemption policy is providing many incentives to people, starting new businesses and is encouraging people to invest more and more in various sectors which in turn are generating income to the economy.
It is because of tax exemption that many projects have started in special industrial zones in Pakistan as Export processing zone, North Western Industrial zone, Eastern Western Industrial zone and many more. Tax exemption policy in many areas as income earned from foreign enterprise, capital gain by foreign institutional investor, income from transport businesses has widened the approach of business. So present income tax exemption policy of Pakistan is effective in achieving its objectives. [pic]