Direct & In-direct Taxes in Pakistan

Tax Laws In Pakistan

The tax system in Pakistan is governed by the Federal Board of Revenue (FBR), which is responsible for administering and collecting taxes at the federal level. The tax system in Pakistan is based on the principles of equity, efficiency, and simplicity.

Here are the key elements of the tax system in Pakistan:

•  Income Tax:

The income tax is levied on individuals, associations of persons, and companies based on their income. The income is divided into different slabs or tax brackets, and tax rates vary accordingly. The rates are progressive, meaning that higher income earners are subject to higher tax rates.

• Sales Tax:

Sales tax, also known as the Goods and Services Tax (GST), is imposed on the supply of goods and services. There are different rates of sales tax applicable to different categories of goods and services, ranging from 0% to 18%. Certain goods and services may be exempt from sales tax.

• Federal Excise Duty (FED):

The Federal Excise Duty is levied on the production or import of certain goods and services, such as cigarettes, beverages, automobiles, and telecommunication services. The duty rates vary depending on the nature of the product or service.

• Customs Duty:

Customs duty is imposed on the import of goods into Pakistan. The rates of customs duty vary depending on the type of goods being imported. There may also be additional taxes and levies, such as regulatory duties and countervailing duties, applied to specific imports.

• Withholding Taxes:

Withholding taxes are deducted at the source of income, such as salaries, dividends, interest, and royalties. The rates of withholding taxes vary depending on the nature of the income.

It’s important to note that tax laws and rates are subject to change, and it’s advisable to consult with a tax professional or refer to the latest information from the Federal Board of Revenue (FBR) for the most up-to-date details on the tax system in Pakistan.

Federal Board of Revenue, is a department of the Ministry of Finance in Pakistan. Income Tax Ordinance, 2001 governs the income tax & Sales Tax Act, 1990 regulate sales tax on goods Pakistan. 

Tax year in Pakistan

The Normal Tax Year in Pakistan is from 1 July to 30 June. Any income year ending other than on 30 June is considered a Special Tax Year and needs permission from the Federal Board of Revenue beforehand.

The due date for filing an income tax return for the Normal Tax Year is 31 of December. If your tax year ends between 1 July and 31 December, the due date for filing a tax return for the preceding tax year is 30 September.

Corporate Income Tax Rates

Pakistan imposes three different rates of Corporate Income Tax, depending on the size and type of the company.

Corporate Income Tax (CIT) rates in Pakistan

Type of company			CIT in 2023*
Banking company			39%
Public and private company			29%
Small company			20%

What is a Small Company in Pakistan?

Since 1 July 2005, an entity needs to meet the following requirements to classify as a small company:

• paid-up capital and undistributed reserves don’t exceed PKR 25 million (~$US200,000)
• has less than 250 employees
• is not formed by splitting up or reconstructing of a company already in existence
• annual turnover below PKR 250 million (~$US 2 million)

How to report taxes in Pakistan?

You need to report your taxes in Pakistan through Tax Returns. Sales taxes and withholding taxes must be reported on a monthly basis. Income tax is reported annually.  

Tax reporting can be time-consuming especially in emerging markets like Pakistan. However, to keep your record straight, it is highly recommended to ensure your tax planning and outsource expertise from tax consultants.

Tax treaties

Pakistan has executed tax treaties with more than 66 countries.The list of these countries is given below:

Sr.No	Title	Sr.No	Title
1	Austria	34	Mauritius
2	Azerbaijan	35	Morocco
3	Bahrain	36	Nepal
4	Bangladesh	37	Netherlands.
5	Belgium	38	Nigeria
6	Belarus	39	Norway.
7	Bosnia and Herzegovina	40	Oman.
8	Brunei Darussalam	41	Philippines
9	Bulgaria	42	Poland
10	Canada	43	Portugal
11	China	44	Qatar.
12	Czech Republic	45	Romania.
13	Denmark	46	Saudi Arabia
14	Egypt	47	Serbia
15	Finland	48	Singapore.
16	France.	49	South Africa.
17	Germany	50	Spain
18	Hong Kong	51	Sri Lanka
19	Hungary	52	Sweden.
20	Indonesia	53	Switzerland
21	Iran	54	Syria
22	Ireland	55	Tajikistan
23	Italy	56	Thailand.
24	Japan	57	Tunisia
25	Jordan	58	Turkey
26	Kazakhstan	59	Turkmenistan
27	Korea	60	Ukraine
28	Kuwait	61	United Arab Emirates
29	Kyrgyz Republic	62	United Kingdom.
30	Libya	63	United States of America
31	Lebanon.	64	Uzbekistan
32	Malaysia.	65	Vietnam
33	Malta	66	Yemen

These conventions aim to eliminate double taxation of income or gains arising in one territory and paid to residents of another territory. The provisions of the tax treaties take precedence over the tax laws applicable in Pakistan with respect to taxation of Pakistan-source income of a non-resident person (subject to certain restrictions now introduced in law). Most of the treaties are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.