Tax Book 2023

Taxation System Chapter- 01

3 .7 Example

Explain which type of Tax strategy is being employed by following persons and what are its

legal consequences:

Tax Law Objective

Mr. Babar has earned Turnover of Rs. 5 (M), however,

he kept its cash in his bank locker and hide that from

Tax authorities. He paid all its related expenses from

cash.

Tax avoidance, Criminal Act,

He cannot buy any asset or

settle liabilities unless he

declare this income

Mr. Tanveer earned income of Rs. 6 (M), however, he

declared only so much of income which is verifiable

from the banks i.e. 4 (M), remaining amount he has

hidden in a separate bank account

Tax evasion, understatement

is similar to Tax avoidance

Mr. Yousaf has earned Rs. 7 (M), however, he recorded

expenses incurred against such receipts, and

accordingly, he offered the remaining income of Rs

3 (M) for Taxes. He paid salary to his brother to the

extent it remain taxable below the tax rate of 10%. In

such way that he get reduction in tax rate.

Tax planning, it is legally

permissible and appreciable

Act.

4. OBJECTIVES OF TAX LAWS

4 .1 Definition of taxation and its revenue objectives

Taxation is defined in many ways, common definition are as under:

 It is the process by which the sovereign, through its law making body, raises revenues in

order use it for expenses of government.

 It is a means of government in increasing its revenue under the authority of the law,

purposely used to promote welfare and protection of its citizenry.

 It is the collection of the share of individual and organizational income by a government

under the authority of the law.

4 .2 Non-revenue objectives

Taxes are primary revenue yielding tools of the Government of modern ages. The government

levy taxes in order to achieve following objectives:

 For collection of revenue to run and administer the Government;

 To use as a tool for implementation of its policies; and

 For fair distribution of wealth.

Aside from purely financing government operational expenditures, taxation is also utilized as a

tool to carry out the national objective of social and economic development.

 To strengthen anemic enterprises by granting them tax exemptions or other conditions or

incentives for growth;

 To protect local industries against foreign competition by increasing local import taxes;

 As a bargaining tool in trade negotiations with other countries;

 To counter the effects of inflation or depression;

 To reduce inequalities in the distribution of wealth;