Page 48 - PakAccountantJan-Mar2017

Signature Qualification CA that Empowers to Lead PAKISTAN Accounting period for such companies is not specified in the 1. Jute goods manufacturers: year-end June 30 (SRO 133(R)/68 relevant corporate laws. Therefore, we would consider the dt. 31.07.1968) guidance available in Taxation Laws section below. 2. Sugar manufacturers: year-end September 30 (SRO 134(R)/68 dt. 31.07.1968) ▪ Corporations/body corporates: accounting period as defined in 3. Rice husking business: year-end August 31 (SRO 1153(I)/79 dt. relevant incorporation law. 10.12.1979) 4. Shawl manufacturers and traders, etc: year-end March 31 (SRO These are the entities that are incorporated under a specific 505(I)/80 dt. 15.05.1980) law e.g. Water & Power Development Authority (WAPDA) is 5. Insurance companies: year-end December 31 (SRO 878(I)/95 established under WAPDA Act 1958. The relevant law should be dt. 30.08.1995) considered for each such entity while determining the accounting period. Two, you make an application to the Commissioner Inland Revenue (CIR) for adopting a STY (such an application can only be Guidance for determining accounting period of these entities made if there is a compelling need for that). For example, neither may or may not be provided in the relevant incorporation laws. ITO nor Companies Ordinance 1984 has specified any STY for Therefore, we would also consider the guidance available in fertilizer manufacturing companies; therefore, these companies Taxation Laws section below. should follow the normal tax year i.e. June 30. However, as an industry practice these companies follow December 31 as year- ▪ Non-Profit Organisations: accounting period on the basis of end, which means they have to obtain special permission from the taxation laws. CIR, on case to case basis, for adopting December 31 as year-end. There are different laws under which NPOs can be formed. If The above discussion can be summarised in the form of a flow NPO is a (Sec. 42) company, the relevant corporate laws would be diagram for establishing the steps for determining the accounting Companies Ordinance 1984 and directives issued by SECP. If NPO period of an entity. is a society, trust or a social welfare agency, the relevant corporate laws would be Societies Registration Act 1860, Trust Act 1882 Check whether corporate laws have specified a and Voluntary Social Welfare Agencies (Registration and Control) special accounting period i.e. other than June 30. Ordinance 1961 respectively. If yes, obtain permission from CIR and follow that. If not, go to next step. Accounting period of NPOs is not specified in any relevant law i.e. Companies Ordinance 1984, Societies Registration Act 1860, Trust Act 1882, etc. Therefore, we would consider the guidance available in Taxation Laws section below. Check whether FBR has specified a STY for the business. If yes, it is your accounting period. If not, ▪ Un-incorporated structures e.g. sole proprietors and go to next step. partnerships: Accounting period on the basis of taxation laws. There is no specific incorporation law for such entities. However, Check whether it is industry practice to use a partnership relationships are governed by Partnership Act 1932. special accounting period i.e. other than 30 June. Guidance regarding determination of accounting period of NPOs If so, obtain permission from CIR and follow that. If not, you may use 30 June as accounting period. is available in Taxation Laws section below. Taxation Laws 3. Can Accounting Period be changed Although the first point of reference for accounting period later on? determination, as discussed above, is the relevant corporate laws, however, but not all corporate laws provide guidance for The answer is, yes. The accounting period determined by the determining the accounting period. Therefore, taxation laws are management can be changed later on. For that, you need to get equally important. Important provisions of Income Tax Ordinance the following approvals: 2001 (ITO) regarding accounting period (Tax Year - Section 74) are ▪ Get approval of change in the accounting period from those briefly explained below. charged with governance e.g. the board of directors. ▪ Get approval from relevant regulatory authorities (e.g. SECP), if As per Section 74 of ITO, every company should have a year-end such an approval is required by the relevant corporate law(s). which ends on June 30. In taxation terms it is known as Normal For example, in case of a company, application for change in Tax Year (for ease of understanding, you may use the terms accounting period to the Registrar of Companies, SECP under accounting period and tax year interchangeably). However, you Rule 30 of the companies (General Provisions and Forms) Rules will notice that some company laws have prescribed different 1985 is required; in case of a modaraba, approval from registrar accounting periods i.e. other than June 30. Therefore, there is a of modarabas, SECP under Rule 11(2) of Modaraba Companies provision of Special Tax Year (STY) in ITO. STY is any tax year other and Modaraba Rules 1981 is required. than normal tax year. STY can be adopted in two ways. ▪ Get approval from the commissioner Inland Revenue (Income Tax) under Section 74 of the Income Tax Ordinance 2001. One, FBR has specified a STY for the entire class of business. Given below is a list of STYs specified by FBR (only active SROs as on When all above approvals have been obtained, the accounting October 28, 2015). period of company is changed. 46 The Pakistan Accountant January - March 2017