Chapter-1 Introduction to Tax Accounting

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Chapter-1Introduction to Tax Accounting

• Purpose of Tax Accounting
• The primary purpose of tax accounting is to
  determine taxable income, preparation of federal
  state income tax returns, planning of
  operations along lines that will hold
• As income tax (IT) rates have gone up the
  determination of Taxable income has become more
  complex, both internal accountants independent
  public accountants have devoted more time to
  problems of taxation. Although many companies
  rely on CPA firms for tax planning the
  preparation of IT returns, larger companies also
  maintain their own tax departments.

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Meaning of tax

• Tax is a compulsory payment to the government by
  a tax payer
• Tax shall means any tax which must be paid by
  virtue (by force or authority) of this Law
  shall include any fine, interest or any other
  burden stipulated (terms of agreement or
  contract) by virtue of this Law with the
  exception of any penalty (punishment).
• All countries in the world charge taxes of some
  sort and there is no country in the world which
  does not charge any tax

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Types of taxes

• There are two types of taxes, they are-
• i) Direct Tax ( Income Tax, Gift tax, Wealth
  tax )
• Ii) Indirect Tax ( sales, excise, custom taxes,
  Excise tax etc.)
• Direct tax
• Taxation, the effect of which is intended to be
  borne by the person or organization that pays it.
  Examples are Income tax, corporation tax etc.
• In other words direct tax reduces the income
  directly.
• Indirect Tax
• Taxation that is intended to be borne by persons
  or organizations other than those who pay the
  tax. The principal indirect tax is value added
  tax VAT, which is paid by traders as goods
  services enter into the chain of production, but
  which is ultimately borne by the consumer of the
  goods services.
• One of the advantages of indirect taxes is that
  they can be collected from few sources while
  their economic effects can be wide spread.

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Oman Income tax Law

• There is no personal income tax in Sultanate of
  Oman. However, the government of Oman charges
  income tax on joint stock companies
• This law shall be called the Law of Income Tax on
  Companies NO.47/1981 and its Amendments. (change
  for the better a law, bill or motion).
• This law shall have effect in all parts of the
  Sultanate of Oman.
• Without prejudice (a judgment or opinion formed
  without due examination of facts) to the
  provisions of Paragraph (3) of the Fourth
  Schedule to this law, this law shall have effect
  as from 1st January 1981, shall apply to income
  chargeable to tax for the tax year ending on 31st
  December 1980 the following tax years.

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Fourth schedule in Oman Income tax law

• The fourth schedule of Oman Income tax law says
  Income chargeable to tax the procedures of
  Assessment in relation to which have not been
  completed at the date on which this Law comes
  into effect shall be subject to the provisions of
  this Law.
• Important definitions
• What does The Sultan mean in Law?
• The Sultan shall mean His Majesty the Sultan of
  Oman and his Successors.
• What does Accounting Period shall mean?
• The Accounting Period means the period for which
  the company accounts are prepared.

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Q6. What is Permanent Establishment?

• Permanent Establishment shall mean the fixed
  place of business. It include the following
• a) A place of Sale b) A place of Management c)
  Branches d) Offices e) Factories f) Workshops
  g) Mines or any place of natural resources h) A
  building site, place of construction, Assembly
  plant.
• Q7. What is Not included in Permanent
  Establishment?
• The expression Permanent Establishment shall Not
  include the following
• a) The mere use of facility for the purpose of
  storage, display or delivery of goods or products
  of the company.
• b) The preservation of goods or product in a
  store for the purpose of storage, display or
  delivery.

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c) The preservation in a store of goods or
products of the company for the purpose of
their manufacture alone by means of another
company.

• d) Storage of goods or products of the company in
  a fixed place for a business which does not by
  its nature intend to make profit, it is only used
  for collecting information or scientific studies.
• Q8. What does Petroleum mean?
• Petroleum shall mean any crude oil, natural gas
  asphalt (By product) or petroleum derivatives or
  additives.
• Q9. Who is The Director or Officer Responsible?
• The Director or Officer Responsible with relation
  to any Company shall mean, a member of the Board
  of Director, an officer, manager or any other
  person

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who has received a notification from the
Secretary General to represent the company.

• Q9. What do you mean by Income Chargeable to
  Tax?
• The Income Chargeable to Tax shall mean the gross
  sum of revenue Less allowable deduction.
• Q10. What is the meaning of The Tax Year?
• The Tax Year shall mean the period of Twelve
  months commencing from the 1st day of January
  ending on the 31st December following.
• ARTICLE (3) Management
• Q11. Who is responsible for the Implementation of
  Income Tax Law?
• The Secretary General shall be responsible for
  the implementing this Law. He shall be
  responsible also for

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control supervision on director general,
directors other employees of Secretariat
General for the purpose of implementing this Law.

• Q12. Does Secretary General authorize other
  person to assume any of his functions?
• The Secretary General may authorize director
  general, directors or other employees of his
  Secretariat to assume any of his functions
  specified in the Law, or to carry out specific
  assignment entrusted originally to the Secretary
  General for the purpose of implementing this Law.

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ARTICLE (4) TAX COMMITTEE

• Q13. What is the formation of Tax Committee?
• The Committee shall be formed of a President
  Three(3) Members, Technical Expert Secretary,
  appointed by a decision from the Minister.
• Q14. What are the powers of the committee?
• The Committee shall be empowered to view the
  appeals against the Secretary Generals decisions
  in implementing the provision of Article 46
  (Appeals submitted to the Tax Committee) of this
  law, in addition to other functions as stipulated
  in this law.
• Q15. How the committee works?
• Committee operation system shall be issued by a
  decision from the Minister committee sessions
  shall be confidential.

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ARTICLE 4(bias)

• Q16. What are the Principle Jurisdiction of the
  Secretary General?
• The Principle Jurisdiction of the Secretary
  General shall be to
• Take necessary action for tax assessment or
  exemption as specified by the law.
• Take necessary procedures to collect taxes,
  duties other amounts due to the administrative
  units of the government.
• The departments listed in the organizational
  structure of the Ministry of Finance shall be
  under the Secretary General. The Departments are
  as follows
• 1.Dept. of Investigation Assessment
  2.Directorate General of Collection
  3.Directorate General of Tax Survey
  Administration.

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Article (5)

• Q17. Who is responsible for the Confidentiality
  of documents used as evidence in the Law?
• Every employee who, while performing his job,
  have an affair in implementing this law or
  settling its dispute is bound to observe the
  confidentiality of the trade in respect of
  documents, instruments data related to any
  company, also all the confidential instructions
  came to his knowledge while performing his
  duties.
• Q18. What shall not deemed to be breaches of
  confidentiality?
• The following shall not be deemed to be breaches
  of confidentiality-
• a) The giving of confidential statements demanded
  in the criminal court or in the courts connected
  with this law.