Summary of the Order by M. M. Akram (Judicial Member)

Case Overview:
The appellant, Oracle Systems Pakistan (Private) Limited (OSPL), appealed against Federal Excise Duty (FED) demands on payments made to its non-resident parent company, Oracle CAPAC Services (OCAPAC) Ireland, for franchise services/royalty/technical service fees under the Federal Excise Act, 2005, for tax periods June 2016 to May 2020.

Core Facts:

OSPL is engaged in distributing software licenses, sublicensing software, and delivering related support services in Pakistan under a distribution agreement with OCAPAC Ireland.

The Department observed non-payment of FED on amounts paid to OCAPAC, considering these as fees for franchise services liable to FED.

Assessing Officer issued show cause notices, resulting in orders demanding FED, surcharge, and penalty.

The first appeal was dismissed by the Commissioner Inland Revenue (Appeals-I), leading to the present appeal.

Issues for Determination:

Nature of payment: Whether payments made by OSPL to OCAPAC constitute payment for "franchise" services as defined by the Federal Excise Act, 2005.

Exemption under Finance Act, 2016: Whether franchise services are exempt from FED due to amendments via Finance Act, 2016.

Constitutional competence post-18th Amendment: Whether FED on services (specifically franchise services) can be validly levied by the Federation, given that taxing rights on services have been devolved to provinces.

Issue 1: Franchise Relationship and Applicability of FED

The tribunal relies on a previous ruling (2023) 128 TAX 302 (Tribunal) that confirms the relationship between OSPL and OCAPAC qualifies as a franchise.

Definition of Franchise (Section 2(12a), Federal Excise Act, 2005):
“Franchise means an authority by the franchiser under which the franchisee is contractually or otherwise granted any right to produce, manufacture, sell or trade in or do any business activity in respect of goods or provide services identified with the franchiser against a fee including royalty or technical fee.”

OSPL's licensing and sublicensing rights, and the fees paid meet the criteria of franchise as per section 2(12a).

OSPL cannot be considered a mere distributor under section 2(8) since no transfer of ownership of goods occurs, only sublicensing of software rights.

The substance of the contractual relationship predominates over form — it is a franchisor-franchisee relationship attracting FED on franchise services.

Issue 2: Effect of Finance Act, 2016 Amendment

The Finance Act, 2016 introduced a Note to Serial No. 11 of Table II of the First Schedule of the Federal Excise Act, which reads:
“The duty on franchise services, royalty and fee for technical services shall not be levied where the service is provided in the province and provincial sales tax has been levied thereon.”

The amendment does not grant a blanket exemption from FED on franchise services.

It excludes FED only if:
a) The service is provided in a province; and
b) Provincial sales tax has been levied on that service in that province.

Since OSPL’s head office is in Islamabad (a federal territory, not a province), and no provincial sales tax was levied, the exemption note does not apply.

Therefore, FED liability on franchise services in this case remains intact.

Issue 3: Constitutional Validity of FED on Services Post-18th Amendment

The 18th Amendment devolved the right to tax services exclusively to Provinces. However, this applies to Sales Tax on Services, not Federal Excise Duty.

Relevant Constitutional Provisions:

Entry 44 of Part I, Federal Legislative List: Duties of excise including duties on salt (but excluding narcotics etc.).

Entry 49 of Part I, Federal Legislative List: Taxes on sale and purchase of goods except sales tax on services.

FED and Sales Tax on Services are distinct levies; FED is an excise duty, not sales tax. Thus, FED on services remains valid post-18th Amendment.

The machinery for FED collection may use the sales tax system, but it does not alter the nature of FED as a federal excise duty.

Case law cited:

M/s Telenor Pakistan (Pvt.) Ltd. v. Federation of Pakistan (2017 PTD 2269) — emphasized the distinction between FED and Sales Tax on Services and upheld FED post-18th Amendment.

The appellant failed to demonstrate provision of services in any province or payment of provincial sales tax; hence, no constitutional breach arises.

Final Conclusion and Directions:

The FED demand on franchise services paid to OCAPAC for tax periods June 2016 to May 2020 is lawful and sustainable.

The appeal is dismissed, with the possibility of relief if OSPL can later prove services were rendered in a province and subjected to provincial sales tax.

The constitutional and statutory framework supports the continued imposition of FED on franchise services in Islamabad.

Relevant Law Sections and References:

Federal Excise Act, 2005:

Section 2(12a): Definition of Franchise

Section 2(8): Definition of Distributor

Section 3(5)©: Liability for FED on services rendered by non-resident — recipient in Pakistan liable to pay.

Table II, First Schedule, Serial 11: Franchise services liable to FED.

Finance Act, 2016: Amendment inserting Note to Table II para exempting FED where provincial sales tax applied.

Constitution of Pakistan:

Entry 44 — Duties of excise (Federal)

Entry 49 — Sales tax on goods except services (Provincial)

18th Amendment: Devolution of service taxation powers to Provinces.

Income Tax Returns

What is a Tax Return?
A tax return is a document submitted to the Federal Board of Revenue to declare an individual's or entity's income, deductions, taxes paid, and any tax due. Filing is a legal obligation for those who meet specific criteria under the Income Tax Ordinance, 2001.
What is Taxable income? Taxable income may be defined as total income for the year reduced by the total of deductible allowances for the year (Section 10).
Where Total income may be defined as income from all heads as per Section 11 including salary, income from property, business, capital gains, income from other sources; and deductible allowances may be found in Part IX of the ITO.

Who is Required to File a Tax Return?

The following individuals and entities are required to file an income tax return according to Section 114 of the Income Tax Ordinance, 2001:

1)     Every Company
Company is defined under section 80(2)(b) of ITO as companies under the Companies Act, 2017, foreign corporations, trusts, and cooperatives deemed to be companies.

2)     Individuals Whose Income Exceeds the Tax-Free Threshold
Where income above Rs. 600,000/year for all individuals and Association of Persons is taxable income.
Associations of persons would include a firm, a Hindu undivided family, any artificial juridical person and anybody of persons formed under a foreign law, but does not include a company as per section 80(2)(a).

3)     Individuals with Income Subject to Final Taxation
Applies to contracts, exports, dividends, etc, defined in section 169.

4)     Persons Charged to Tax in Any of the Last Two Tax Years
If a person has filed tax in the fiscal year of 2023 and 2024, they must file in 2025 as well.

5)     Persons Who Wish to Carry Forward a Loss
If loss is incurred within a tax year and has to be carried forward, it must be reported in the same tax year for it to be carried forward to the next.

6)     Any person who owns immovable property of land area ≥ 500 Sq yards or owns a flat in municipal limits, cantonments, or ICT. *


7)     Any person who owns immovable property with a land area ≥ 500 square yards in a rating area.*

8)     Any person who owns a flat with covered area ≥ 2,000 sq. ft in a rating area.*

9)     Any person who owns a motor vehicle with engine capacity above 1000cc.*


10) Holders of National Tax Number (NTN)
Anyone who holds a National Tax Number as prescribed by the Federal Board of Revenue (FBR) must file tax returns.


11) Individuals With High Electricity Consumption
 I.e. the Annual commercial/industrial bill exceeds Rs. 500,000.

12) Professionals Registered with Regulatory or Professional Bodies
a.      Chamber of Commerce and Industry
b.     Any trade or business association
c.      Any market committee
d.     Any professional body such as Pakistan Engineering Council, Medical & Dental Council, Bar Councils, Institute of Chartered Accountants Pakistan, Institute of Cost and Management Accountants of Pakistan
 
13) Resident Individuals with Foreign Income or Assets
To be considered a resident in the tax year, the individual must be present in Pakistan ≥183 days with foreign income/assets (82).
For foreign income, a person with
a. an income more than 10,000 USD
b. foreign assets valued more than 100,000 USD, must file a return in Pakistan as well (116A).

14) Persons Notified by the FBR
As notified by FBR with Minister’s approval you must file returns.

15) Individuals Earning Business Income Between Rs. 300,000 and Rs. 400,000

Who is Not Required to File?

Section 115 of the Income Tax Ordinance, 2001
A person covered under starred items (e.g., owning a vehicle or property) may be exempt if they are:
1.     A widow
2.     An orphan below the age of 25
3.     A disabled person (certified as per applicable law)
4.     A non-resident (less than 183 days in Pakistan during the tax year)

Business Recorder published this article (Click to Read Full)

Summary: Pakistan's Tax System and Budget Challenges
By Muhammad Raza, Chartered Accountant

With federal and provincial budgets due soon, there’s rising concern over Pakistan’s fiscal direction. The IMF projects revenue at Rs 20 trillion for next year—a steep rise from the current Rs 17.8 trillion. While this aligns with inflation (7.7%) and GDP growth (3.6%) forecasts, it masks deep structural and behavioural issues in the tax system.
Key Problems:

• Complex and Contradictory Tax System:
  • Unlisted capital gains taxed up to 59.5%, deterring investment.
    
  • Tax burdens vary greatly depending on legal structure and other variables.
    
  • Frequent major budget changes discourage long-term business plans.
    
• Erosion of the Four Tax Equity Pillars:
  • Horizontal Equity: Unequal treatment across sectors and income sources.
    
  • Vertical Equity: Progressive taxes become punitive (55%+ effective tax on corporates).
    
  • Exchange Equity: Citizens pay high taxes but receive poor public services.
    
  • Process Equity: Taxpayers face audits, penalties, and uncertainty despite self-assessment rules.
    
• Disengagement from the Formal Economy:
  • High taxes and complexity push people toward informal sectors.
    
  • Documented, compliant taxpayers feel unfairly targeted.
    
  • Foreign investors shy away due to unpredictability.
    

Reform Recommendations:

1. Unified Direct Tax Regime: Remove presumptive/minimum taxes; focus on net income.
   
2. Fairer Personal Taxes: Progressively applied to all income sources with lower top rates.
   
3. Capital Gains Reform: Lower long-term capital gains taxes with cost indexation.
   
4. Lower Corporate Tax Rates: Align with regional averages.
   
5. Intercorporate Dividend Relief: Remove double taxation and encourage holding companies.
   
6. Streamline Withholding Taxes: Reduce and rationalize; exempt sales tax filers.
   
7. Clarify Constitutional Tax Structure: Differentiate direct vs. indirect taxes legally.
   

Final Thought:
Pakistan risks crossing the Laffer Curve’s inflection point—where higher taxes reduce revenue due to taxpayer disengagement. The solution lies not in raising targets but in building a fair, simple, and growth-oriented tax system. Without meaningful reforms, the tax base will continue to shrink despite increasing demands.

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Last updated April 9, 2025

Topics:

• Postal Ballot
  
• Section 141 vs SRO 451(I)/2025
  
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Contents - ( Last upate:  July 2, 2025 ) :

1. The Related Law
   
2. Nomination by the Shareholder under Section 79 of the Companies Act 2017
   
3. Transfer of Shares to the Nominee and his Appointment as a Director
   
4. Filing of Form-3 and Form-9
   
5. Regulatory Compliance Update & SECP Communication
   
6. The Company’s Response to the Objection Raised by the SECP
   
7. The SECP's Objection and the Company's Response regarding the Ongoing Demand for
   a Succession Certificate
   
8. Company's Formal Response to SECP Objection of 05-05-2025
   
9. SECP's Persistent Objection: Company's Response on the Succession Certificate
   Demand
   
10. Company's Supplemental Submission (19-05-2025):
    
11. SECP's Persistent Objection
    
12. Company's Submission (10-06-2025):
    
13. Formal Resolution Proceedings with SECP
    
14. Recommended Resolutions for SECP: Managing Future Cases
    
15. Company Action to Fulfill SECP's Final Requirement
    
16. Resolution and Regulatory Compliance
    
17. Share Transfer Procedure under Section 79 Nomination
    

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An unlisted public company has missed Statutory Meeting. Now it is holding its Annual General Meeting.

The Law requries that if AGM is held , the requirement of Statutory meeting do not arise.

Question: If the Statutory meeting is not being held , then do the requirement of Statuory Report still exists or the presentation of financial statements will serve the purpose?

A query has been raised.

Applicaiton for Refund 2024 is pending with FBR.

When in 2025 Return , Refund amount is entered in previous year refund adjustment Field, it automatically turns to ZERO.

Any insights, is it system check or error?