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Tuesday, August 30, 2011


Accounting scandals

Accounting scandals, or corporate accounting scandals, are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates.
In public companies, this type of "creative accounting" can amount to fraud and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States.
Scandals are often only the 'tip of the iceberg'. They represent the visible catastrophic failures. Note that much abuse can be completely legal or quasi legal.
For example, in the domain of privatization and takeovers :
It is fairly easy for a top executive to reduce the price of his/her company's stock - due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative (eg. pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce share price. (This is again due to information asymmetries since it is more common for top executives to do everything they can to window dress their company's earnings forecasts). There are typically very few legal risks to being 'too conservative' in one's accounting and earnings estimates.
A reduced share price makes a company an easier takeover target. When the company gets bought out (or taken private) - at a dramatically lower price - the takeover artist gains a windfall from the former top executive's actions to surreptitiously reduce share price. This can represent tens of billions of dollars (questionably) transferred from previous shareholders to the takeover artist. The former top executive is then rewarded with a golden handshake for presiding over the firesale that can sometimes be in the hundreds of millions of dollars for one or two years of work. (This is nevertheless an excellent bargain for the takeover artist, who will tend to benefit from developing a reputation of being very generous to parting top executives).
Similar issues occur when a publicly held asset or non-profit organization undergoes privatization. Top executives often reap tremendous monetary benefits when a government owned or non-profit entity is sold to private hands. Just as in the example above, they can facilitate this process by making the entity appear to be in financial crisis - this reduces the sale price (to the profit of the purchaser), and makes non-profits and governments more likely to sell. It can also contribute to a public perception that private entities are more efficiently run reinforcing the political will to sell off public assets. Again, due to asymmetric information, policy makers and the general public see a government owned firm that was a financial 'disaster' - miraculously turned around by the private sector (and typically resold) within a few years.

Notable outcomes

The Enron scandal turned in the indictment and criminal conviction of one of the Big Five auditor Arthur Andersen on June 15, 2002. Although the conviction was overturned on May 31, 2005 by the Supreme Court of the United States, the firm ceased performing audits and is currently unwinding its business operations.
On July 9, 2002 George W. Bush gave a speech about recent accounting scandals that had been uncovered. In spite of its stern tone, the speech did not focus on establishing new policy, but instead focused on actually enforcing current laws, which include holding CEOs and directors personally responsible for accountancy fraud.
In July, 2002, WorldCom filed for bankruptcy protection, in what was considered the largest corporate insolvency ever at the time.
These scandals reignited the debate over the relative merits of US GAAP, which takes a "rules-based" approach to accounting, versus International Accounting Standards and UK GAAP, which takes a "principles-based" approach. The Financial Accounting Standards Board announced that it intends to introduce more principles-based standards. More radical means of accounting reform have been proposed, but so far have very little support. The debate itself, however, overlooks the difficulties of classifying any system of knowledge, including accounting, as rules-based or principles-based.This also led to the establishment of Sarbanes-Oxley.
On a lighter note, the 2002 Ig Nobel Prize in Economics went to the CEOs of those companies involved in the corporate accounting scandals of that year for "adapting the mathematical concept of imaginary numbers for use in the business world".
In 2003, Nortel made a big contribution to this list of scandals by incorrectly reporting a one cent per share earnings directly after their massive layoff period. They used this money to pay the top 43 managers of the company. The SEC and the Ontario securities commission eventually settled civil action with Nortel. However, a separate civil action will be taken up against top Nortel executives including Dunn, Beatty, Gollogly, Pahapill and Hamilton. These proceedings have been postponed pending criminal proceedings in Canada.
In 2005, after a scandal on insurance and mutual funds the year before, AIG was investigated for accounting fraud. The company already lost over 45 billion US dollars worth of market capitalisation because of the scandal. Investigations also discovered over a billion US dollars worth of errors in accounting transactions. The New York Attorney General's investigation led to a $1.6 billion fine for AIG and criminal charges for some of its executives. CEO Maurice R. "Hank" Greenberg was forced to step down and is still fighting civil charges being pursued by New York state.

Friday, August 26, 2011





Khula’ is not regarded as a talaaq even if the word talaaq is used

Khula’ is not regarded as a talaaq even if the word talaaq is used
لا يعد الخلع طلاقا ولو مع التلفظ بالطلاق
( إنجليزي )

Sheikh Muhammad Salih Al-Munajjid
محمد صالح المنجد

“My question is regarding khula. I have gotten khula from my husband in front of shaikh and two witnesses. After 6 months we decided to get back together and got married with a new marriage contract. Then again after about two years I asked for khula and it has been about 10 months now since then. We do have one child together, inshallah his dad told me he promises Allah and me that he wouldn't give me a hard time like he did before. So for Allah's sake and my son I am willing to marry him again. My question is since I had khula done twice (this would be our "third" marriage contract if we got married again). I was just wondering if it’s OK in Islam for us to get married again. Does this count as three divorces? if not does it count as divorce at all? Please advise us as to what has to be done”.
Praise be to Allaah.
Khula’ is not regarded as a talaaq even if the word talaaq is used, according to the more correct opinion.
This may be explained as follows:
1. If khula’ takes place without using the word talaaq, and is not intended as a talaaq, then it is an annulment (of the marriage contract) according to a number of scholars. This is the view of al-Shaafa’i in his old madhhab, and it is the view of the Hanbalis. The fact that it is an annulment means that it is not counted as a talaaq. The one who separated from his wife by khula’ twice may go back to her with a new marriage contract, and it is not counted as a talaaq at all.
An example of that is if the husband said, “I separated from my wife by khula’ in return for such-and-such an amount of money” or “I annulled her marriage in return for such and such.”
2. But if the khula’ involved the word talaaq, such as saying “I divorce (talaqtu) my wife in return for such-and-such an amount of money”, then it is a talaaq according to the majority of scholars. See al-Mawsoo'ah al-Fiqhiyyah (19/237).
Some of the scholars are of the view that this is also an annulment and is not counted as a talaaq, even if the word talaaq is used. This was narrated from Ibn ‘Abbaas (may Allaah be pleased with him) and was the view favoured by Shaikh al-Islam Ibn Taymiyah, who said: It is the stated view of Imam Ahmad and his oldest companions. See: al-Insaaf (8/393).
Shaikh Ibn ‘Uthaymeen (may Allaah have mercy on him) said: But the more correct view is that khula’ is not talaaq, even if the actual word talaaq is used. This is indicated by the Holy Qur’aan. Allaah, may He be glorified and exalted, said (interpretation of the meaning):
“The divorce is twice, after that, either you retain her on reasonable terms or release her with kindness…” [al-Baqarah 2:229] i.e., within the first two times, either keep her or let her go, it is up to you.
“… And it is not lawful for you (men) to take back (from your wives) any of your Mahr (bridal-money given by the husband to his wife at the time of marriage) which you have given them, except when both parties fear that they would be unable to keep the limits ordained by Allaah (e.g. to deal with each other on a fair basis). Then if you fear that they would not be able to keep the limits ordained by Allaah, then there is no sin on either of them if she gives back (the Mahr or a part of it) for her Al-Khul‘(divorce)” [al-Baqarah 2:229]
So this is a separation on the basis of giving back (all or part of the mahr). Then Allaah, may He be glorified and exalted, says:
“And if he has divorced her (the third time), then she is not lawful unto him thereafter until she has married another husband…” [al-Baqarah 2:230].
If we count khula’ as a talaaq, then these words “And if he has divorced her…” would refer to a fourth talaaq, and this is contrary to scholarly consensus. The words “If he has divorced her…” mean a third divorce, “...then she is not lawful unto him thereafter until she has married another husband…”
The evidence in the verse is clear. Hence Ibn ‘Abbaas (may Allaah be pleased with him) was of the view that any separation in which compensation is paid is khula’ and not talaaq, even if the word talaaq is used. This is the correct view. End quote from al-Sharh al-Mumti’ (12/467-470).
And he (may Allaah have mercy on him) said:
Every wording that points to a separation in return for compensation is khula’, even if the word talaaq is used, such as saying for example, “I divorce (talaqtu) my wife in return for compensation of one thousand riyals.” We say: this is khula’, and this is what was narrated from Ibn ‘Abbaas (may Allaah have mercy on him), that everything in which compensation is involved is not talaaq. ‘Abd-Allaah ibn al-Imam Ahmad said: My father thought the same about khula’ as Ibn ‘Abbaas (may Allaah be pleased with him) did, i.e., it is an annulment, no matter what wording is used, and it does not count as a talaaq.
An important issue stems from this: if a man divorces his wife (talaaq) on two separate occasions, then khula’ takes place using the word talaaq, then according to the view of those who say that khula’ using the word talaaq counts as talaaq, she is irrevocably divorced from him, and she is not permissible for him until she has been married to someone else.
According to the view of those who say that khula’ is an annulment even if the word talaaq is used, she becomes permissible for him with a new marriage contract even during the ‘iddah. This view is more correct.
But nevertheless we advise those who write down the khula’ not to use the word talaaq when recording it, rather they should say “he separated from his wife by khula’ in return for compensation of such and such value”, because most judges in our country, and I think even in other countries, believe that if khula’ occurs using the word talaaq, it is counted as talaaq, and this may be detrimental to the woman, because if it is a final talaaq she will become irrevocably divorced, and if it is not the final talaaq it will still be counted against him. End quote from al-Sharh al-Mumti’ (12/450).
Based on this, if you want to go back to your husband, then it is essential to have a new marriage contract and no talaaq is counted against you.
And Allaah knows best.

Evolution of Tax Culture in Pakistan

It was more than 70 years ago that Schumpeter used the term “Tax Culture” in his celebrated article “Economic and Sociology of the Income Tax”.
Schumpeterian view point is that “Tax Culture is an expression of human spirituality and creativity”. Some work on “Tax Culture” can also be found as undertaken by Armin Spitaler (1954) and he does have his own perspective while defining this term. Similarly Tax Culture can be found with the writings of other economists like Pausch (1992), Hartmann and Harbner (1997).

According to Spitalar’s insight “Taxation is influenced by economic, social, cultural, historical, geographical, psychological and further differences prevailing in the individual countries and their societies”. Alfons Pausch understands the Tax Culture of the country as being connected with the personalities, determining the evolution of tax system.

However, the most authoritative work on this term and topic in recent times has come to limelight of a German Scholar, Birger Nerre of University of Hamburg. According to him, the topic of Tax Culture appears precisely at the intersection of the disciplines, economics, sociology and history. In this article as surfaced in the year 2001 naming “The Concept of Tax Culture”, he defines and elaborates the term of Tax Culture by saying: “A country-specific tax culture is the entirety of all relevant formal and informal institutions connected with the national tax system and its practical execution, which are historically embedded within the country’s culture, including the dependencies and ties caused by their ongoing interaction”.

The phenomenon of Tax doesn’t exist in vacuum or otherwise it isn’t something that is abstract. This is rather very much concrete which is rooted in the very fiber of the society or what Birger Nerre calls it that there is an embeddedness of Tax Culture. Moreover, the Tax Culture of a country or community isn’t the outcome of any single factor and the definitions which outlined such restrictive and narrow approaches have worn out over time. Now this has commonly shared understanding among the browsers of this topic that Tax Culture is the sum total emerging out of: 1. Tradition of Taxation, 2. Interaction of Actors including Politicians, Academics, Tax Officials, Taxpayers, Tax Experts and 3. The Cultural Values like “Honesty, “Justice”, and “Sense of Duty” etc.

This three pronged agglomeration tends to make out the tax culture of a particular country and this interplay has been vividly explained by Mr. Birger Nerre in the instant figure representation. The arrows indicate interaction between different groups of players as well as between the members of one and the same group. The author of this representation has shown the direct interaction among all the groups / actors except between the “taxpayers” and “academics” on the analogy that he was not sure about the existence of any (Direct) relationship between these two groups. However, with particular social milieu of Pakistan, you would concur with my observation that the role of “tax experts” is relatively more crucial and pivotal demanding more solicitation as without their active participation, concurrence and authentication, any formulation of opinion or code and any execution of programme of action would doom its failure.

While talking about “tax”, we are of course divulging on something which is intensely “disliked”. This is not only the case with Pakistan and Pakistani Taxpayers but this syndrome is very much there in rest of the parts of the world including country like U.S. While reading the paper on the “New Hope for the Future Delivering on Pakistan’s Economic Reform” this “disliking” of the tax by the Americans was even acknowledged and conceded by Mr. Thomas W. Simons, Jr. Former U.S. Ambassador to Pakistan.

Georgi Boss (1999) Minister for Taxes & Duties of the Russian Federation remarked that “There is not any country where people are happy to pay taxes but they do pay taxes because of their tax culture”. However Economic strategy Minister German Graf (2000) is very apt when he states that he fully understands that “a tax culture can’t be inculcated in one year”.

Going into the inner causation of this phenomenon, Dr. Ignacio Ruiz Jarabo, in his paper presented at the 33rd General Assembly of Inter – American Centre of Tax Administration (CIAT), explicitly stated that there are factors that render difficult the social acceptance of the tax system, beginning with the fact that the relationships between the tax administration and the citizen are marked with a certain level of tension and conflict.

According to him, this marked tension and conflict are due to the fact that taxes are economic burdens of an obligatory nature from which the taxpayer does not drive a direct, personal and immediate benefit.

At this juncture, I would like to borrow the words of Mr. Alain Zenner, Government Commissioner of Belgium who’s very frank and direct in saying “… the tax administrations too often give me the impression as if they would only have one important task and that is: taxation ! … taxation is often seen as a divine mission, an ideal that would justify all means. (However) … this can last no longer! The mission of the tax administration is not to tax at all costs, but to recover the fair tax. From there the need to redefine the values that should be complied with by the tax administration in the exercise of its duties.”

Before proceeding further, this would be advantageous to have a cursory analysis of historical developments in to the formal efforts for the codification of the taxation laws. First of all, I would like to put the case of Income Tax and 1860 is the crucial year when the colonial forces promulgated the first Income Tax Act. This was very much patterned after the scheme of taxation observed in United Kingdom; however, talking in the perspective of sub-continent, this was a deliberate effort to end the budgetary deficit which followed the war of independence of 1857.

This very Act lasted five years when this had to be completely withdrawn followed by a Vacuum period of two years when there was no Income Tax Law in force. However, this was re-enforced with a new title of The License Tax Act 1867 and this would be for the interest of the participants that income earned more than Rs. 200 per annum was made taxable at the rate of 2 per cent. Subsequently developments gave rise to a new Income Tax Act in 1886 which in turn had to give way to the substituted Income Tax Act of 1918 and during the intervening period only one major amendment was made in the year 1903.

Certain difficulties emanated out of this latest legislation, where upon Income Tax Act 1922 was promulgated and the same was adopted by our country after winning independence in the year 1947. This very Act remained very much in the field to be replaced only by the Income Tax Ordinance 1979. Between 1922 and 1979, as many as 71 amendment acts were passed by the legislators. Here comes the most controversial code of Income Tax Ordinance 2001 and this is very unique feature of this piece of legislation that before the date of its enforcement, the government made as many as 322 changes in it through Finance Ordinance 2002. The controversies over it run through the areas of typographical errors, drafting blunders, legal lacunas, inconsistencies, conceptual fallacies / dichotomies so on and so forth.

The excise laws goes back to the year 1934 when a compendium was drafted which agglomerated more than ten separate excise acts which had grown up piecemeal over many years. Another useful effort was made in the year 1944 when a consolidated and single enactment saw the light of the day and which still holds the field in the excise laws to be called as the Central Excise Act, 1944.

The custom laws, which in common parlance, is also termed as the “Law of Notifications” due to the rapidity and frequency of repeated notifications. This branch of law has been on the statute books for more than a century. The Sea Customs Act was enacted in 1878. It covered sea side of the country. Import and export through land routes were dealt under the Land Customs Act, 1924 whereas the air traffic was governed by the rules framed under the Air Ship Act, 1911. The current Customs Act 1969 consolidated all such laws on the subject into one statute.

Last but not the least is sales tax which according to its contribution in the total revenue qua the remaining taxes surpasses the all. According to Govt. of India Act 1935, as adopted for Pakistan on independence, sales tax was a provincial subject. As the exigency of the situation demanded, the federal government enacted law called the Pakistan General Sales Tax Act 1948 by virtue of which the sales tax became a central subject. Again this would be information for the distinguished participants that according to this act, every dealer with an annual turn over of more than Rs. 5,000 was amenable for assessment.

This created resentment among the dealers where upon a sales tax committee was appointed by the government and on its recommendations, the Sales Tax Act 1951 was adopted. As against the levy of sales tax at multiple stages as was the case with the former Act, instead the latter law accommodated the demand of the traders to levy the sales tax only at one stage. In order to fashion the sales tax in accordance with the changed economic and social realities, a need was strongly felt over time to re-enact this branch of the law where upon the instant Sales Tax Act 1990 came into being. Progression of the sales tax into Pakistan’s key revenue earner is more than manifest from the recent statistics released by the CBR.

While talking about the state of taxes in our country, I would quote the data collected by the Chamber of Commerce & Industry, Karachi in the year 1996, it was found that there were 79 taxes in all, in Pakistan – 20 federal, 21 provincial, 14 municiple and 24 others. This is again a stark reality that the major chunk of the effectees belongs to the poor class. Let us see how Mr. Shaukat Aziz, the highest economic manager in the country enumerates this malady “a society where a large segment of the population, particularly the poor, bears the greater burden of cost of governance while a small group of influential rent seekers reap its benefits is bound to promote upheavals.” Far from suffering from a culture of tax evasion, as somebody quotes it, Pakistanis, particularly the poor are the most indirectly taxed people in the world.

Let’s go into some observations regarding the Evolution of Pakistani’s Tax System as made in the famous report of Mr. Shahid Hussain, Chairman of The Task Force on Tax Administration (2000).

First, legal and administrative changes are frequent and ad hoc. Taxpayers have insufficient knowledge of their obligations and tax collectors have substantial discretion.

Second, major tax policy changes are not accompanied by adequate changes in administrative framework.

Third, the relationship between the taxpayer and tax collector is largely adversal.

Fourth, organization, business processes, systems, facilities and budget have not kept pace with the growing demands on tax administration.

Fifth, the management of human resources is severely deficient. Most tax officials are not paid a living wage; nobody is paid a middle class wage. For most, honesty is an impossible proposition. Most of the 33000 persons employed in the tax administration are in lower ranks with low productivity and are a drag on the system.

In particular case of Pakistan, we inherited the legal system of the colonial era and the tax code is no exception in any way. We will have to appreciate that the colonial masters promulgated such fiscal and tax laws which were better suited to their own vested interests. They extracted maximum out of the minimum from the local populace for furthering their imperialistic designs. However, after winning independence, this was an uphill task to refashion and remodel the taxation laws according to our own peculiar socio – economic and politico, religio – cultural circumstances. Although various efforts were made and multiple commissions and task forces were constituted but I’m sorry to say, that all these exercises could not be channelised for the greater aim of enacting a true and workable tax code sensitive to the genuine objective conditions of the local population particularly that of the poor class. Despite of recent additions of withholding, presumptive, capital value and turnover taxes, the situation has not improved.

There are certain salient features of our Tax Culture and without their proper appreciation and understandings, I’m afraid; we would remain yearning for the quest of maximum revenue collection but without the actualization of the insurmountable targets.

This is also heart burning that while formulating tax code in our country, the experts and legislators either have not taken due care of the sensitivities of our cultural norms or otherwise they have completely ignored this vital aspect of social reality. Due to this very reason, the tax code could not ingrain in the attitudes and behaviour patterns of the taxpayers or in other words what the Birger Nerre called it the process of the “embeddedness of the tax culture” could not be realized. The recent prominent example of not taking care of the sensitivities of local population of Pakistan can be found in the very enactment of Income Tax Ordinance 2001 which as the saying goes has been enacted by a foreigner who was oblivion of the socio economic and political, religio-cultural realities of the land and its populace. Now the question arises, what are those realities which need to be understood while enacting any code or formulating any policy in the corridors of tax administration. Now I try to give a brief account of those features and I would say that the list is not complete however this would give an understanding for giving due accommodation to the socio economic and politico, religio-cultural sensitivities very much pervasive in our society.

(1) Tax Illiteracy

This is very much known that according to official statistics, the literacy rate in our country is not more than 36% and in this figuration there are those people who can merely read or write their names. When this is the state of literacy in our country, we can very well judge that to what extent our population or otherwise the taxpayers would be equipped with the proper understandings and education of our tax code. While talking about the evolution of tax culture of our country, we’ll have to launch a mass campaign of tax literacy.

(2) Complexity of the Tax Code

Keeping the overall low level of literacy among the population aside, the problem of proper understanding of the tax code due to its intricacy and complexity becomes enormous and manifold. A very little effort has yet been made to simplify the tax code for its easy grasp and smooth application. The prevalent legislation on taxation is so much complex and difficult that even the tax experts take great pains for its due comprehension what to talk about the commoners who happened to come across with the same. A concerted effort with a strong will is abundantly needed to simplify the tax code. For this, we all of us being the stake holders in the existing tax milieu should share our responsibility for evolving and proliferating a shorter, easier and simpler tax code. Writing of texts of law is indeed a difficult task. This is to be conceded that whatever may be the efforts to simplify the statute, its complexity can’t be altogether abated, but serious efforts should be continued to ease down its tone and texture.

(3) Warding off Foreign Dictation

As we’re mostly dependent on foreign loans for the survival of our economy and even for the running of our day to day state business, we’ve to take heavy loans. These donor states and institutions always dole out these loans with a certain package of “prerequisites and conditionalities”. We being the recipient country have to surrender, sorry to say, a limb of our sovereignty and have to make compromises against the interest of our already marginalized population. So much so the donors impose on us greater burdens to be shifted on the already vulnerable taxpayers who have been destined to become at their tether end. This would be an appeal to the people at the helm of affairs to ward off the foreign pressures, to the maximum possible extent, if not altogether, in order to safeguard the paramount interest of the local population.

(4) Mis-declaration of Income

Honest declaration of income is all the more pivotal when we talk about Income Tax liability. I must concede and realize it to the respectable participants that we as a nation have not been loyal enough to expose what we own and what we have. I’m talking about the growing tendency among the taxpayers regarding concealment of their true income and mis-declaration on their part while tendering their “returns”. Mr. Vakeel Ahmad Khan, the Member Direct Taxes, Central Board of Revenue is very right when he says that it is simply not possible for the Government to reduce the tax rates in the current scenario where the declaration of actual income isn’t the norm of the day. Two pronged measures occur to my mind for grappling with the deviant culture of mis-declaration of income, one which I rate very high and above the other is the nurturing of moral obligation among us for being true in our affairs qua the country and of course qua the tax department, the other which I would talk in some detail under a separate head note is the true enforcement of laws to disdain the tax evaders. Our tax culture should be based on trust, fairness and mutual respect.

(5) Broadening the Base of Taxpaying population

Again I would talk about Income Tax and moot the point which you’re very well cognizant of is it that the total number of income taxpayers in our country approximately makes up one million. This figure speaks itself that how there is only a meager segment of population presently in the tax net while there is a more significant strata among population which is beyond and out of the tax net. According to the statistics of CBR, 36% people in the opulent areas do not contribute to the national exchequer. So many tax surveys have been conducted and many amnesty schemes have been introduced to “grab” and “lure” the non taxpaying community but Mr. Chairman, your Honour being the head of the CBR would concur that the required targets have yet to see the light of the day. To remain out of the tax net is the ignominious feature of our tax culture. There may be many causes behind this phenomenon, some might have been noticed and many may not, but this is crying need of the day to address the same to tackle with and arrest the tax evading culture. Improvement in the collection of taxes is so crucial that government can’t and should not wait, nor will half measures do. Widening tax net will allow reduction in tax rates, without reducing revenue.

(6) Rampant Corruption in the Tax Administration

The melody of corruption is a much talked of subject in these days. This isn’t restricted within any circumscribed boundaries or any specific class of people. Since the tax institutions is part of and linked with the other institutions, it isn’t immune from the negative effects permeating in those others. I would not let myself to raise eyebrows against any specific person or any particular segment; however, I would be failing in my duty if I do not concede that many of us have not been able to clean their Augean stables to transform a cleaner and transparent tax culture. Encouragement and flourishment of tax culture can only take place through the removal of gray areas and discretionary powers presently used with impunity by taxation officers. Removal of corruption will ensure wise and prudent expenditure of collected revenue, which will encourage and mobilize new taxpayers who are hesitant to contribute and continue to remain outside the tax net.

(7) Mistrust and Misgivings about use of Tax Money

On the one hand there is very insignificant population which is in the tax net while on the other, there is a feeling of mistrust and obscurity among the taxpaying community against the government as to the fact that the funds generated out of their taxes are not properly used rather they are mishandled and so to say are bungled. In this background, many taxpayers don’t feel the moral obligations to fulfill their part of institutional contract between the state and its citizens as long as the state doesn’t fulfill its part in a proper way. The values of integrity, trust, respect, commitment to service, teamwork, personal responsibility and continuous improvement should be upheld.

(8) De jure Taxation and De facto Taxation

By de jure taxation I mean the tax system and the tax code as it stands and exists which is likely to be observed and implemented in the community while by the de facto taxation I amplify the tax system and the tax organism as it is practiced and followed. I see a visible gap between these two systems of taxation as one is aspired and the other is in vogue. We should solicit means and should carve out ways to bridge the gap existing between two systems of tax administration and tax code. The sooner this dichotomy is resolved, the better it would be for the introduction of a transparent and true tax culture in our country. The basic principle of taxation, viz equity, certainty, convenience, economy and simplicity had been ignored prior to enacting tax laws.

(9) Restoration of the Self esteem of the Taxpayer

The instances are not infrequent when the taxpayers have been harassed or blackmailed by the personnel of the tax machinery. This leads to the feelings of hatred and avoidance on the part of taxpayers and this attitude has its resultant repercussions on the state interest of maximum revenue generation. According to rough estimates 73% of the tax is collected through the mechanism of withholding tax while 13% is voluntarily paid by the assesses with the returns and 14% of the total tax revenue is collected by the tax machinery working under the aegis of CBR. Mr. Chairman, frankly I’m not after your coveted slot but can we dare ask that if this is only that 14% for which is a much extended tax bureaucracy is engaged and again this is the area where most complaints regarding harassment and abuse of power are emanating . Mr. Chairman, I would very respectfully submit that now the taxpayers have started questioning the raison deter of this very large establishment, when the income tax contribution towards the total revenue from all sources is 16% which is inclusive of income tax deducted at source. Furthermore, about 80% of the total income tax is paid by 1, 000 multinational companies.

(10) Apprehension of Tax Evaders

Although I solicit that taxpayers should have an independent environment where they could act and pay their taxes without any fear or coercion, however, by this I do not mean that the taxpayers should be let escort free not to be answerable to the tax administration. I would add that over the period of time, many deviants and tax defrauders and hobnobbing and colluding with the tax collecting personnel and the “middleman” to completely evade from the tax net or otherwise to pay minimum tax although they should pay higher taxes according to the quantum of their income/assets. The existing cultural realities and social attitudes do warrant for taking a very stringent action against these delinquents and deviants. The machinery of the state should come into play with full force against them for bringing them to book. The CBR should come out to liaise with various departments of the federal and provincial governments, contact private and public institutions, tap banking sources both at home and abroad, and obtain information from newspapers, advertisements, informants and third parties on taxpayer’s incomes, expenditures, bank accounts, properties, assets and investments.

(11) Certainty of Tax Code / Legislation

I’ve no hesitation in saying that this has been the common characteristic of our tax culture that there happen frequent and haphazard changes in the tax code of the country. Mr. Chairman, let me say who’s here who doesn’t understand the vagaries of the phenomenon of SROs. Even the substantive and procedural parts of the tax legislation have continually been in the throes of repealing and amendments. My humble request on this eventful occasion would be to the legislators and the policy makers that please give some semblance of permanence and perpetuity to the tax code. It is quite apparent that income tax law has not been enacted with clear objectives and on long term basis. Moreover, there are abrupt and periodical amendments, which adversely affect the tax collection and business community.

(12) Automation of Tax Machinery

A culture isn’t straight jacket nor is it a water-tight compartment not to allow fresh intakes. Similar is the case of Tax Culture. We should always be open ended to give due room to the fresh ideas and to the modern technology. To be more precise, I’m talking about equipping the tax administration with the latest automation and reaping full benefits of the recent age of Information Technology. I appreciate and understand the constraint of our scarce resources but I would stand for the conviction and you would agree with me that we will have to leave no stone unturned for harnessing the best available modern automation infrastructure to meet the challenges of the day.

(13) Advertising

Advertising is a persuasion technique that can greatly support the articulation and development of tax culture. Tax Administration should have an aggressive communication policy to achieve the voluntary acceptance of taxes. I believe that the campaign for promoting and developing the tax culture through advertising can remove the inhibitions and persuade the citizens to promptly pay their taxes. Careful use of contents and message can obliterate the irritants and can further promote the tax consciousness among masses. It is obligatory to reinforce in the message, the norms, values and strengths that govern the tax system, focusing and centering attention on the concepts of transparency, efficiency, effectiveness, modernization, simplification, honesty, professionalism, ethics and service. I believe that the information campaign may instill in the taxpayers the spirit for paying their taxes voluntarily. The best way to promote tax culture in the people is to convince them that the revenue generated out of their taxes is being used by the Government honestly and for the greater welfare of the society. The mass media can further build a strong public opinion for the denouncement of those who happen to evade taxes. Only thus it will be possible to generate a true interaction between the different social sectors and the tax administration.

The culture can’t be changed only in a year or in a few years-that is what we’ve to do by promoting a new tax culture but of course we should tread on the right path not being disillusioned from achieving the object of a prosperous and bright future. I hope that the theory of tax culture will be able to lower the gap between pure theoretical economic fiction and cultural reality, particularly in the sphere of taxation.

Thursday, August 18, 2011

7 key skills of a project manager

Before discussing what the key skills for a project manager might be we really need to define what we mean by project management. A definition of project management would be the planning, organizing and then management of the resources required to complete a specific task. The essential point here is that the aims and objectives for the accomplishment of the task will be highly focused requiring you to fully understand these seven key skills.

1. Analysis

Using Project management software will help you to be more efficient at your job.

More correctly referred to as impact analysis a key skill required toward the final stages of a project is the ability to analyse the impact of changes brought about by the project. Exactly the same as the well known ‘ripple effect‘ you must never underestimate the knock-on changes and effect that a major project can bring about. Being able to analyse and then manage these is yet another skill you need to master. Changes to the specification of a project after it has begun are all too easily overlooked and you will need to constantly revisit your impact analysis to incorporate them. Amongst other things any change to the specification could affect your previous analysis regarding legal, health, safety, and marketing or personnel issues. However, the ultimate reason for doing the analysis is – how the change will affect the end-date for the project? Project management is a complex task and the bigger the project, the more complex it becomes. You must be able to keep track of progress on the project from all the various sections of it that are on-going. This can be done on paper, but in all reality you need to learn and understand how to make the most out of one of the many pieces of project management software that are available. Using an IT based project management system will also help you to adjust timelines and priorities as the project develops.

2. Communication

Effective project planning underpins all project management.

If you can’t communicate, I’m sorry but you’ll never become an effective and successful project management. Any manager, but especially the project manager, has to understand that although you’re charged with ensuring the successful completion of a project – you’ll be dealing with a multiplicity of people and companies that you have to bring together in order to achieve the projects aims and objectives. If you don’t communicate effectively, either in speech, writing or presentations you won’t provide the information that your workers need to fulfill their jobs; be that in sharing knowledge, discussing ideas, providing solutions or making an executive decision.

3. Budgeting

Even if you have a team of accountants looking after the day-to-day running of the projects finances, understanding how to use a budget yourself is another essential project management skill to posses. The three key stages to a budget are preparing it, writing it and monitoring it. whilst your finance department may well be ostensibly charged with doing these things for you – as project manager you have the ultimate responsibility for the budget and need to be able to understand what you are being told about the budget. Unless your own background is in accounting you will feel obliged to accept what you’re told, if you don’t take the time to learn some basic budgeting skills. You will need these as at time you will need to know how to rationally and logically challenge budget over-runs that you become aware of as well as be able to sensibly monitor the budget as the project progresses.

4. Teamwork

Effective teamwork - will help you to manage your project most effectively.

The essence of any good project manager is to be a good team leader and, if necessary, be a good team player. Whilst decisions will remain your responsibility, that’s not to say that you shouldn’t encourage input from others or be prepared to work with them to help them achieve their goals too. Furthermore, by building a culture of teamwork into all aspects of the project, you will engender high self-esteem within all of the workers, meaning that they feel personally involved in ensuring the success of the project.

5. Intelligence

This doesn’t mean to say that you have to have a string of letters after your name as intelligence isn’t something you can learn. However, intelligence is something you can improve on and develop, so the more you study the chances are the more you’ll increase your intelligence. In the context of project management intelligence can be considered to be your ability to have a clear vision of all aspects of the project whilst at any one time being able to keenly focus onto a specific aspect of it. Put another way, just having the big picture will not help when you have a decision to make on a specific matter. You won’t always have the time to spend hours researching and re-reading material in order to make the decision at the time it is needed.

6. Calmness
It is almost inevitable that at times your job will be stressful, if not highly stressful. Being able to work calmly under such conditions is an absolute pre-requisite for a successful project manager. A key point to reducing your stress levels is your ability to move on from a setback. If something goes wrong or not according to plan, don’t waste time worrying about who’s fault it might have been or get involved in a cycle of what could have been different, that can come later in your project evaluation. Instead, move swiftly on to solving the problem or rectifying the situation.

7. Time

The Project Management Life Cycle.

Quite simply – are you a good time manager? Understanding the life-cycle for project management will help you to understand how to apply the key skill of time management to it. Your time management and you ability to organize yourself and others are vitally important. Time management is much more than simply allocating portions of time to certain jobs. You need to analyze exactly what it is you’re spending your time on and how important are those tasks and portions of time to the successful completion of the project. For example, you could easily spend up to an hour a day just reading emails. This is a task you can delegate to your PA, get them to be the person that sorts the important from the not so important, telling you what needs dealing with immediate and what can be left until later. That hour you’ve saved – you can use inspecting a part of the project checking on progress or quality etc. You should apply this time management philosophy to most things you do; do I need to attend that meeting or can I delegate someone else? Remember, you are the project manager, you are primarily there to do the strategic planning, overall monitoring and be creative and innovative in solving problems – not micro-manage everything

Thursday, August 4, 2011


For Other Professional Qualifications
All candidates seeking exemptions are required to apply on the prescribed Exemption form alongwith the fee and supporting documents / certificates as mentioned on the form to the Directorate of Examinations before the prescribed date of submission of Examination forms.
No exemptions shall be given from any ICAP examination or paper(s) thereof to any individual, Professional Accountancy Institution or body or University unless such request:

Is received from the Certificate awarding body;
The said body is making the request on a reciprocal basis; and
The request is subjected to a detailed evaluation procedure to be laid down by ICAP and made transparent.
As per conditions mentioned in Para above, the under mentioned specific exemptions as approved by the Council of ICAP are presently available:

The examination and the training prescribed by the following Chartered Accountancy Institutes will be treated as equivalent to the examinations and training prescribed under the Chartered Accountants Bye-Laws 1983 for the purpose of membership of ICAP:
The Institute of Chartered Accountants in England & Wales (ICAEW);
The Institute of Chartered Accountants in Ireland (ICAI);
The Institute of Chartered Accountants in Scotland (ICAS);
The Institute of Chartered Accountants in Australia (ICAA);
The Canadian Institute of Chartered Accountants (CICA).
Provided that if such members desire to start practice as Chartered Accountants, they will have to pass the papers of “Advanced Taxation” and “Corporate Laws” of the Final Examinations.
Provided also that such members desire to start practice as Chartered Accountant or Management Consultant, he shall do so if his training comprises of atleast two years training with training organization in practice or has undergone further training with training organization in practice so as to complete the aggregate training of two years with training organizations in practice.

Under the Council’s Directive 1.14 dated December 31, 2010 the candidates who have successfully completed all examinations of specified accountancy bodies will be eligible for exemption as follows:

i. Association of Chartered Certified Accountants (ACCA)

ICAP Modules
Papers Exempted
Additional Condition

Pre-Entry Proficiency Test

Functional English

Quantitative Methods

Introduction to Financial Accounting

Financial Accounting

Exemption will be granted to only those candidates who have passed F6 Taxation (Pakistan variant)

Cost Accounting

Exemption will be granted to only those candidates who have passed F8 Audit and Assurance; and P7 Advanced Audit and Assurance

II. Chartered Institute of Management Accountants (CIMA)

ICAP Module
Papers Exempted

Pre-Entry Proficiency Test

Functional English

Quantitative Methods

Introduction to Economics & Finance

Introduction to Financial Accounting

Financial Accounting

Cost Accounting

III.Institute of Cost and Management Accountants of Pakistan (ICMAP)

ICAP Module
Papers Exempted

Pre-Entry Proficiency Test

Functional English

Quantitative Methods

Introduction to Economics & Finance

Introduction to Financial Accounting

Mercantile Law

Financial Accounting


Business Communication & Behavioural Studies

Company Law

Cost Accounting

Information Technology

IV.American Institute of Certified Public Accountants (AICPA)

Candidates who have successfully completed all examinations of American Institute of Certified Public Accountants (AICPA) will be dealt with on case to case basis. Such candidates are advised to complete the prescribed exemption form and submit it alongwith copies of certificates, copies of syllabus certified by AICPA for evaluation.

V. Pakistan Institute of Public Finance Accountants (PIPFA)

Candidates who have successfully completed all examinations of Pakistan Institute of Public Finance Accountants (PIPFA) under the Private Sector Scheme and Syllabi will be exempted from the under mentioned entrance test and examinations of ICAP:

Pre-Entry Proficiency Test (PPT);
Foundation Examinations: All papers of Module A & B

Those candidates who hold graduation degree in addition to the above qualifications may join training at training organizations upon obtaining exemptions from above mentioned paper(s). Such candidates will undergo a continuous training period of 3 years in training organizations. However, if they are unable to pass their Module E and F examinations in first attempt, their training period shall be extended to 3.5 years. Such candidates will attempt their examinations after completing the prescribed eligibility period for trainee students.

Those candidates who do not hold a graduation degree will have to pass the remaining subjects of Foundation & Intermediate Examinations (Module A to D) for being eligible to register as a trainee student

Tuesday, August 2, 2011

Methods of Costing By-Products: PART 4

The accepted methods for costing by-products fall into two categories:

Category 1:
A joint production cost is not allocated to the by product. Any revenue resulting from sales of the by product is credited either to income or to cost of the main product. In some cases, costs subsequent to split-off point may be offset against the by-product revenue. For inventory costing, any independent value may be assigned to the by product. The methods most commonly used in industry are:

Method 1: Recognition of Gross Revenue
Method 2: Recognition of Net Revenue
Method 3: Replacement cost method

Category 2:

Some portion of the joint production cost is allocated to the by product. Inventory costs are based on this allocated cost plus any subsequent processing cost. In this category, the following method is used:

Method 4: Market value method or reversal cost method

Recognition of Gross Revenue Method--By Products Costing:

This method is typical non-cost procedure in which the final inventory cost of the main product is overstated to the extent that some of the cost belongs to the by product.

However this shortcoming is somewhat removed in procedure 4 (by product revenue deducted from the production cost), although a sales value rather than a cost is deducted from the production cost of the main product.

By-Product Revenue as Other Income
By-Product Revenue as Additional Sales Revenue
By Product Revenue as a Deduction from the Cost of Goods Sold
By Product Revenue deducted from Production Cost
1.By-Product Revenue as Other Income:
To explain this procedure the following example is presented:

Sales (Main Product, 10,000 units @ $2) $20,000
Cost of goods sold:
Beginning inventory (1,000 units @ $1.5) $1,500
Total production cost (11,000 units @ $1.5) $16,500
Cost of goods avail able for sale $18,000
Ending inventory (2,000 units @ $1.5) $3,000
Gross profit 5,000
Marketing and administrative expenses $2,000
Operating income $3,000
Other income: Revenue from sale of by-product $1,500
Income before income tax $4,500

2. By-Product Revenue as Additional Sales Revenue:
In this case, the income statement above would show the $1,500 revenue from sales of the by product as an addition to sales of the main product. As a result, total sales revenue would be $21,500, and gross profit and operating income would increase accordingly. All other figures would remain the same.

3. By Product Revenue as a Deduction from the Cost of Goods Sold:
In this case, $1,500 revenue from the by product would be deducted from the $15,000 cost of goods sold figure, thereby reducing the cost and increasing the gross profit and operating income. The income before income tax remains at $4,500.

4. By Product Revenue deducted from Production Cost:
In this case, the $1,500 revenue from by-product sales is deducted from the $16,500 total production cost, giving a new production cost of $15,000. This revised cost results in a new average unit cost of $1.3625 for the main product. The final inventory will consequently be $2,725 instead of $3,000. The income statement would appear as follows:

Sales (Main Product, 10,000 units @ $2) $20,000

Cost of goods sold:
Beginning inventory (1,000 units @ $1.35) $1,350
Total production cost (11,000 units @ $1.5) $16,500
Revenue from sale of by product $1,500
Net production cost $15,000
Cost of goods available for sale 12000units @1.3625 average cost
Ending inventory (2,000 units @ $1.3625) $2,725
Gross profit $6,375
Marketing and administrative expenses $2,000
Operating income $4,375

The preceding method required no complicated journal entries. The revenue received from by product sales is debited to cash or accounts receivable. In the first three cases, income from sales of by product is credited; in the fourth case, the production cost of the main product is credited.


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