Tax Planning in Pakistan

Documents required for filing Income Tax Returns in Pakistan

Today we will look into the detailed information and documentation required for filing Income Tax Returns in Pakistan. If you are ready to file your taxes, this writeup will help you gather essential documents required for your tax filing.

Every taxpayer is now required to submit an Annual Income Tax Return “Digitally”.

The information which is available in this blog is related to the individual class, which includes employees, business individuals, owners of rental income, etc.

 The last date to file income tax return for the tax year 2022 in Pakistan is 30th September 2022. To file your income tax return, the following information (whichever applicable) is required:

  1. Income:
1SalarySalary Certificate
2Business IncomeProfit and Loss account
(in case of AOP, %age of shareholding)
3Rental IncomeRent received and tax deducted on the rent
4Income from other sourcesDetail and evidence
5Capital gain Tax on Securitiesamount of gain and tax deducted on it
6Profit on Bank DepositAmount of profit received and tax deducted on it
  1. Details required for wealth statement:
    All Bank statement(s) for the period from July 01, 2021 to June 30, 2022;
    Details of any asset purchased/sold, investment made during the year;
    Details of any loan borrowed or given.
  1. Tax deduction certificates from mobile phone companies or internet service provider:
    Obtain tax deduction certificate from the cellular company for the sim or internet connection on your name.
  1. Insurance premium paid during the year;
  2. Foreign Remittance received during the year;
  3. Gift received/made during the year;
  4. Purchase and Sale of Shares during July 2021 to Jun 2022, along with Withholding certificate from NCCPL;
  5. Detail of Household expenses as given below:
S. No.ParticularsAmount
3Vehicle Running/Maintenance
9Asset Insurance/Security
14Donation, Zakat, Annuity, Profit on debt, Life
Insurance premium
15Other personal/Household expenses
16Contribution in expenses by family members
  1. Detail of ownership and facilities in use:

a. Vehicles
• Vehicle No.
• Owned/In-use
• CNIC of owner, if not owned by the taxpayer

b. Houses

• Address (House, Street, Mohalla, Sector, etc.)
• City
• Land Area (Marla / SQ Yard)
• Owned/ rented/ other
• CNIC of owner, if not owned by the taxpayer

  1. Detail of tax paid as given below:
    a. On import of goods
    b. On withdrawal from pension fund
    c. From salary u/s 149
    d. On dividend Income
    e. On Government securities
    f. On profit on debt
    • Certificate/Complete IBAN No, etc.
    • Bank name
    • Share%
    h. On payments for goods
    i. On payments for services
    j. On payments for the execution of contracts
    k. On cash withdrawal from bank
    • Certificate/Complete IBAN No. etc.
    • Bank name
    • Branch address
    • Share%

o. On motor vehicle token tax (Other than goods transport vehicles)
• Registration No.
• Owner’s Name
• tax paid

p. With bill for electricity consumption
• Consumer No.
• electricity company
• Nature of Bill i.e., domestic, commercial or industrial
• tax paid

q. With telephone bills, mobile phone, and pre-paid cards
• Telephone Number
• service provider
• tax paid

Please note that all (applicable) information is necessary for the preparation and submission of Income Tax Returns. You are, therefore, requested to arrange the documents/information and you can either submit your case by signing in to online or schedule a meeting with our professional consultants at your earliest in order to timely file the tax returns.

All the factors which we have gone through so far, is not necessary that all these elements are applicable to you but in the other context, it may also be possible that all these factors are applicable to you. There is also a chance that one or more than one factor is applicable to you. The purpose of this information, is to let you know what and which information is needed for filing your tax returns effectively.

All of these mentioned factors, if we arrange and document carefully for filing tax returns, then we can save thousands of rupees. Further, there are many of sources on which we pay taxes but we don’t know about it. So, get your data ready before the deadline for tax filing which is 30th of September.

Tax News and Social Trends

Tax for salaried individuals

The government of Pakistan has finalized tax slabs for salaried individuals for the fiscal year 2022-23 and has set a minimum income tax rate of 2.5% for those earning up to Rs. 100,000 per month and a maximum of 35% for individuals earning a monthly salary over Rs.1 million.

In the tax year 2021, a total of 1.2 million salaried individuals have filed their income tax returns out of which 333k individuals fall in the income tax slab of Rs. 50,000 per month. Individuals falling under that slab are still exempt.

However, amid all this negative news, there is some positive news for salaried individuals. Tax slabs for salaried individuals have been rationalized with a positive impact for salaried individuals drawing a monthly salary of up to Rs. 250,000. For example, salaried individuals having a monthly salary of Rs. 100,000 will now pay an annual tax of Rs. 15,000 as against the previously applicable tax of Rs. 30,000.

Following are the changes in tax laws recently enacted through the Finance Act 2022 that will impact salaried individuals:

Sr. No.Sr. No. Taxable income Existing Rate of TaxRate of Tax
11 Where taxable income does not exceed Rs. 600,000 0%
2Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,0002.5% of the amount exceeding Rs. 600,000
3Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,400,000Rs. 15,000 + 12.5% of the amount exceeding Rs. 1200,000
4Where taxable income exceeds Rs. 2,400,000 but does not exceed Rs. 3,600,000Rs 165,000 + 20% of the amount exceeding Rs. 2,400,000
5Where taxable income exceeds Rs. 3,600,000 but does not exceed Rs. 6,000,000Rs. 405,000 + 25% of the amount exceeding Rs. 3,600,000
6Where taxable income exceeds Rs. 6,000,000 but does not exceed Rs. 12,000,000Rs. 1,005,000 + 32.5% of the amount exceeding Rs. 6,000,000
7Where taxable income exceeds Rs. 12,000,000Rs. 2,955,000 + 35% of the amount exceeding Rs. 12,000,000

A comparison of tax impact on the salaries under previous and revised tax rates is presented as follows:

Annual Taxable SalaryTax Charge
Previous RevisedTax Impact

Withdrawal of Tax Credits / Deductible Allowances

Following tax credits and allowances previously available to salaried and business individuals have been withdrawn effective tax year 2023:

  • Section 60C: Profit on debt incurred on house financing;
  • Section 62: Investment in new shares of listed companies, mutual funds or life insurance policies, Sukuks, etc.; and
  • Section 62A: Purchase of Health insurance policies.

Following are the details of common tax credits, allowances and advance withholding taxes that are available for adjustment against tax on salary:

Advance Tax

  • Advance Tax on Telephone, Internet, Mobile Bills
  • Advance Tax on International Credit Card Transactions
  • Advance Tax collected on electricity bills exceeding Rs. 25k in case of non-filers
  • Advance tax collected at the time of buying and selling of immovable property.

Advance tax on purchase of vehicle.
Excess advance tax (double tax) paid by non-filers on dividend, interest on savings, prize bonds and winnings etc.

Tax Credits & Allowances

  • Investment in Voluntary Pension Schemes (VPS);
  • Donation/zakat to approved charitable organizations; and
  • Allowance for educational expenses of children if your annual taxable salary is up to Rs. 1.5 million – lower of (a) 5% of tuition fee (b) 25% of taxable income and (c) 60,000 x no. of children.

Although the government has withdrawn the tax credit on investment in IPO investment, mutual funds, and life insurance and tax allowance available on profit on debt for acquisition / construction of house loan with effect from Tax Year 2023, there are still a lot of avenues available for salaried individuals to reduce their tax incidence through various tax credits, allowances and advance taxes collected / paid at source as discussed in foregoing paragraphs.

Tax News and Social Trends

Record tax collection by FBR of Rs. 6.1 trillion

In FY 22 FBR has provisionally collected tax of Rs. 6.1 trillion against the target of Rs. 5.9 trillion. The tax collection was about 29% or Rs. 1.38 trillion higher than the previous year. FBR had missed six monthly target during the past fiscal year but eventually ended up meeting the upward revised annual target for the first time in recent history.

The key feature behind this significant performance of FBR is an increase in direct taxes which has registered a growth of 32% over the last year and this was in line with the government policies to enforce taxation on income earned and reduce the burden of indirect taxation. Moreover, according to FBR, Rs. 2,278 billion was collected from income tax, Rs. 2,525 billion was collected as sales tax, Rs. 1,000 billion from custom duties and Rs. 322 billion from federal excise duty.

The amount of refunds paid during the fiscal year FY 22 by FBR has also increased to Rs. 335 billion compared to Rs. 251 billion in the last year. Total refund of Rs. 105 billion was paid in the last quarter, which is one-third of the total tax refund of Rs. 335 billion.

Out of a total of Rs. 6.1 trillion tax collection by FBR in FY 22, a total of Rs. 1.74 trillion (approximately 28.4% of the total collection) was collected in the last quarter. FBR collected Rs. 3.1 trillion at import stage on account of withholding taxes, sales tax at import stage and custom duties which collectively makes 51% of the total collection.

The annual tax collection of Rs. 6.1 trillion was mainly backed by taxes on import stages as mentioned above. But anyway it was a great effort from FBR

Tax Planning in Pakistan

Taxing nation’s savings: at what cost?

By Syed Asad Ali Shah

Budget 2022-23 is continuation of series of budgets for last several years that have been increasing tax rates and withdrawing exemptions, mostly raising the tax burden on the existing tax payers. Like all previous budgets, current one also aims to reduce the fiscal deficit that has remained in the range of 7 to 8% of the GDP during last two decades mainly through an attempt to increase revenue. However, in most cases, such approach has not worked in the past, as neither the revenue increased (in real terms) nor the deficit was contained.

One unique aspect of this budget is to do away rebates and allowances to retail investors for their investments in life & health insurance, voluntary pension schemes and mutual funds. Withdrawal of these rebates provided through sections 62 and 63 of the Income Tax Ordinance proposed by Finance Bill that will be voted upon by the National Assembly in next few days, tantamount to effectively taxing formal sectors that promote savings will be hugely counterproductive for the capital market, insurance and mutual fund sectors of the economy.

Chronic problems of Pakistan Economy

The above proposals, will further aggravate our economy’s deep-rooted problems briefly described below. 

  1. Rate of savings in Pakistan has remained very low, below 15% of the GDP, compared to other similar economies like Bangladesh & India, where rates of savings has remained between 28 to 30%. Due to paltry savings rate, the investment rates have also remained below 15%, as any additional investment has to be from borrowings or foreign direct investment, both of which have largely dried up owing to continuing fiscal and current account deficits and low investor confidence.
  1. Currently, Pakistan’s capital market is its lowest level, as the total market cap of all listed companies on PSX have fallen to only Rs. 7.1 trillion or around $ 34.6 billion, which means it is less than 10% of the GDP. At this level, both in absolute terms and as proportion of GDP, it has fallen to the lowest level that I can remember during the last 2 decades history.

Budget Proposals

Currently, under section 62 and 63 of the Income Tax Ordinance, 2001, individuals are entitled to certain tax credits for making investments in mutual funds, life & health insurance, and contributions to approved pension schemes, which results in reduction in their tax liabilities within certain specified threshold.  It is these rebates & tax credits that the Finance Bill, 2022 proposes to remove. Withdrawal of these small incentives / tax rebates to retail investors will not only be counterproductive for these formal sectors -Life & health insurance, voluntary pension schemes, mutual fund industry and capital market as whole- but will also undermine savings & investments levels, which are already the lowest in the world. Moreover, the proposed amendments, together with increase in tax rates for salaried individuals, will cause further increase in the tax liability of the salaried class.

Life insurance and Mutual Funds are instruments through which savings are mobilized from retail investors for investment in productive sectors, especially the capital market. It may be noted that we hardly have less than 300,000 investors in the capital market compared to nearly 50 million in India- just 0.6% of the number of investors in India- which highlights serious gaps in our investment ecosystem.

Considering Pakistan’s paltry rate of savings (one of the lowest in the world) and lowest penetration of life & health insurance – less than 0.6% compared to 3% in India and global average of 3.7%- & market cap of Mutual Fund industry of barely 1.3% compared to 15% in India & over 50% in the world, this is a highly regressive step for the economy as a whole & especially the formal sectors of the economy.

Impact on FBR Revenue

The Government has estimated a tax saving of Rs. 3.9 billion as a result of withdrawal of these tax savings, but ignored the adverse impact of these withdrawals due to reduction in tax liability owing to reduced profitability of insurance companies and mutual funds and consequent reduction in dividend distributions by these entities that are also taxable in the hands of recipients. It may be noted that the insurance companies are taxed at much higher rates and dividends from such companies and mutual funds are also taxed.

At present the retail investor base in mutual funds industry is over Rs. 340 billion in open end schemes and over Rs. 39 billion in pension schemes, and majority of these investments are made by salaried individuals for availing tax benefits. Similarly a huge sum of insurance premium is paid by individuals towards and health and life insurance, which also qualify for tax rebates. Given the high interest rate and growing market base of insurance sector as a result of better financial awareness, these sectors should register a growth of at least 20% if not more, and it will directly impact the profitability and corporate tax to be collected from the companies, if these changes are not made. However, in case the proposed withdrawals are enforced, it will adversely impact the business of these entities eroding their profitability, and consequently their tax liabilities. In fact, there is a risk that even the existing consumers who no longer enjoy the benefit from these tax rebates may withdraw their investments / discontinue their insurance policies. The resulting loss of tax revenue from these corporate sectors will certainly outweigh the tax benefit expected from these tax savings.

Another important aspect that needs consideration is huge amount of investment by insurance companies and mutual funds in the capital market and money market. As per the estimate given by Insurance Association of Pakistan, aggregate investment by insurance sector is Rs. 2 trillion. As substantial portion of this comes from Life & health insurance, it may be assumed that 60% or Rs. 1.2 trillion investment is from Life & health insurance. Similarly, Rs. 200 billion out of total assets of mutual fund industry of around Rs. 1.2 trillion is invested in equity market. A natural consequence of reduced investments from retail investors in insurance and mutual funds will be reduction in their growth or stagnancy of these sectors, which means reduced flow to capital and money markets. As a result, there is serious risk that the capital market, which is already at its lowest level, may further shrink, thereby increasing capital losses and eroding capital gains, which will also negatively impact FBR revenue from tax on capital gains. Considering all of these factors, it is more likely that the impact of these proposals on FBR revenue will be negative, as potential tax revenue from natural increase in companies profits, dividends and capital gains will be more than the increase in tax collection due to withdrawal of tax rebates.

While I am hopeful that aforementioned proposals that do not make any economic sense will be reversed, I am actually amazed that such an anti-savings step, which negates the government policy of promoting formal sectors of the economy, investments and savings was proposed in the budget. 

Tax News and Social Trends

FBR Empowered To Disconnect Utility Connections of Non-Compliant Small Traders

The Senate standing committee on Finance and Revenue approved a fixed tax regime for small traders. Chairman FBR informed the committee that a fixed tax regime has been proposed for the small traders. The tax collection under this fixed tax regime would be done via electricity bills.

The committee was further apprised that small traders will pay a fixed amount of Rs. 3,000, Rs. 5,000 and Rs. 10,000 per month up to an electricity bill of Rs. 30,000, Rs. 50,000 and Rs. 100,000 respectively, and this will be considered as final discharge of their tax liability.

He further added that FBR has a data of 2.3 million commercial electricity connections and it is planning to use this data to collect taxes from small traders. The committee approved the proposal of FBR.

FBR team also informed the Committee that they have proposed to collect Rs. 50,000 per month for some special class traders including precious watches dealers and car dealers via their electricity bill on a monthly basis.

The committee recommended FBR to properly define the person or class of person in case of collecting Rs. 50,000 sales tax on the basis of their monthly electricity bill.

The committee also approved the proposal and empowered FBR to disconnect the electricity and gas connections of tier 1 retailers in case they fail to register for sales tax or even after registration if they fail to integrate with FBRs’ computerized system.

FBR also informed the committee that out of a total of 29,000 jewellers in the country, only 22 are registered and integrated with POS systems. All the jewellers fall in the category of tier-1 traders because of the precious and expensive products they were dealing in, even in small shops, and all would have to come into the sales tax net. It was decided during the meeting to bring all 29,000 jewellers into the compulsory general sales tax compliance through integrated Point of Sales.

Tax News and Social Trends

Federal Budget 2022-23: Snapshot of Income and Sales Tax

The Federal Government presented the proposed budget for the fiscal year 2022-23 in the National Assembly on Friday, June 10, 2022. Federal Minister for Finance and Revenue, Mr. Miftah Ismail presented the budget along with Finance Bill 2022. PML (N) led coalition government has taken some tough structural measures. According to the Minister of Finance and Revenue, the Economic stability of Pakistan is the foremost priority. He also said we need to set a strong foundation of economic development that is based on sustainable growth.

Salient features of the Finance Bill 2022 are as follows:

Income Tax

  • Minimum taxable limit for Salaried Individuals proposed to be increased from Rs. 600,000 to Rs. 1,200,000.  Tax impact on salaried individuals is mostly favorable and only the individuals drawing monthly salary in excess of Rs. 1.5 million (Rs. 18 million p.a.) will be impacted unfavorably.
  • Minimum taxable limit of Business Individuals and AOPs proposed to be increased from Rs. 400,000 to Rs. 600,000. The amendment will increase the tax impact for businesses having annual taxable income in excess of Rs. 1.2 million.
  • Maximum tax on Profit from Behbood Certificates reduced from 10% to 5%.
  • A ‘Final Tax’ of Rs. 3,000 to Rs. 10,000 to be collected from Small Retailers via electricity bills.
  • Resident Person having more than one immovable property worth more than Rs. 25 million to be taxed at 1% of Fair Market Value as Deemed Rental Income.
  • Capital Gain on Immovable Properties to be taxed at 15% for properties disposed of within one year. Rates to be reduced progressively for each year of holding. No capital gain where holding period exceeds 2 – 6 years depending on type of property.
  • Tax rate on Gain on Disposal of Capital Assets to be charged ranging from 2.5% to 15% depending on holding period. No tax applicable after 6 years.
  • Advance Tax on Sale of Property increased from 1% to 2% for filers and 2% to 5% for non-filers.
  • Advance Tax on Purchase of Property for non-filers increased from 2% to 3.5%.
  • Persons including Companies and AOPs earning income of more than Rs. 300 million to be levied an additional 2% Poverty Alleviation Tax.
  • Advance tax to be increased on Motor Vehicle of 1600 cc and above. Rate of additional advance tax on non-filers to be increased from 100% to 200%.
  • Withholding tax on international transactions via Debit / Credit Cards to be levied at 1% for filers and 2% for non-filers.
  • Effective Tax Rate on Banking Companies increased to 45% from 39% (including 4% Super Tax).
  • Scope of definition of Resident enhanced to include those Pakistanis who are not tax resident of any other country.
  • Tax Credits / Allowances on Health Insurance Premium, Investment in shares, mutual funds and Voluntary Pension Funds, and Profit on Debt proposed to be withdrawn.
  • Tax Credit for IT Export Services is proposed to be withdrawn and 0.25% tax to be levied on export proceeds.
  • Companies and AOPs required to file and update particulars of their beneficial owners.

Sales Tax

  • Sales Tax proposed to be Exempted on the following:
  • Imported and local supplies of Solar Panels.
  • Goods excluding electricity and gas supplied to Non-profit and welfare hospitals having 50 beds or more.
  • Agricultural Machinery and Seeds.
  • Further Tax to be charged on persons not appearing in Active Taxpayer List.
  • Mandatory requirement for obtaining CNIC from Buyer is proposed to be withdrawn.
  • Jewelers are now proposed to be included as Tier-1 retailers.
  • Listed companies are now proposed to adjust input tax not more than 90% of the output tax.

For further information regarding the budget 2022-2023, stay tuned with us. If you have any query regarding the budget and/or taxes, then you can feel free to contact us.    

Pakistan's Tax Affairs

FBR to Incentivize IT industry

Chairman Federal Board of Revenue (FBR) Mr. Asim Riaz on Wednesday talked about giving some hope to the IT industry in the coming budget which is scheduled to be announced on Friday, June 10, 2022.  

While speaking at the signing ceremony of One Window Portal System by Special Technology Zone Authority (STZA), he said, “FBR is the top-tier revenue collection body of the Federal Government. Along with that, it has a strategic role in providing a sound business environment.” 

He further added that the STZA portal will engage local and international investors, and it would be integrated on a real-time basis with FBR and Customs Systems.  

Chairman FBR said the FBR was in line to facilitate all the necessary support required by STZA in this context. A functional working group has also been established, and a coalition with PRAL and PSW is currently underway.    

The purpose of STZA establishment was to operate as an autonomous body, but under the domain of cabinet body division. Its measures are to provide legislative and institutional support for Pakistan’s IT sector development.     

In order to set up technology zones, the STZA reserves an innovative and futuristic mandate including the IT sector across the country.  

This one-window portal consists of a digital system to facilitate STZA-bound licensed companies in the special technology zones. This opportunity will provide benefits to companies to get onboard digitally and integrate with different government and regulatory bodies.   

It is notable that the authority will play its pivotal role in promoting transparency, improving the ease of doing business, and will facilitate Foreign Direct Investment (FDI) in the country.     This one-stop portal is an important component of STZA’s overall long-term vision to develop a science and technology-based ecosystem through the development of specialized tech zones to boost technological development in the country. 

Pakistan's Tax Affairs

Proposed Elimination of Minimum Tax Regime for Listed Companies

The Pakistan Stock Exchange (PSX) in its proposal to the FBR for the budget (2022-2023) stated that the Minimum tax regime should be eliminated for listed companies such companies are strongly compliant with specific documentation requirements of various statutes. In other countries, the minimum tax is only levied in cases where high-income taxpayers don’t pay any tax due to different tax exemptions available. 

According to PSX, the rationale behind this proposal is that application of the minimum tax on listed companies has resulted in discouraging the documentation of the economy. Listed companies have already significant documentation and regulatory requirements and they need to engage external auditors to audit their business affairs. The strict regulation already keeps them compliant with filing the income tax, and sales tax returns, paying quarterly advance taxes and fulfilling various other requirements which align their books of accounts with the statutory requirements and provide a comfort zone to the regulatory authorities and stakeholders over the reported numbers.

The imposition of minimum tax has a declining effect on the earnings of the listed companies despite lifting current and carry-forward losses.

 In a nutshell, an appropriate and relevant amendment is needed to be made to the Income Tax Ordinance 2001.

Tax Planning in Pakistan Uncategorized

Say No To Extra Taxes

People in Pakistan pay taxes but the majority of them don’t know anything about it. They worry about being taxed differently but they don’t know about the different taxation metrics. Majority of the salaried individuals in Pakistan are unaware of how easily they can save taxes by getting adjustments from their employers and reduce their salary taxes. All employees are entitled to tax adjustments from their employers under the law.

Employers usually deduct income tax from your salary at source and submit it to FBR on your behalf but do not make any tax adjustment of the tax withheld under other heads by various agencies such as banks, telecom companies, educational institutions, airlines, electricity distribution companies, motor vehicle registration authorities, and many others.

It’s a golden opportunity for you as an employee of getting tax adjustments by submitting the relevant tax deduction document as a piece of evidence to your employer and reducing your tax by that amount. But remember to avail these adjustments you need to contact your employer before June so that these adjustments can be done in June payroll before year-end.
Tax deductions made by different agencies under Income Tax Ordinance, 2001 are;

Purchase and transfer of Immovable Property u/s 236K of Income Tax Ordinance, 2001;
When you are purchasing an immovable property, an advance tax is collected at the time of payment. In the case of filer, it is 1% of the property value and in case of non-filer the rate is doubled i.e. 2%. This is an advance tax and is adjustable against your tax liability.

Purchase of International and Domestic Air Ticket u/s 236L and 236B of Income Tax Ordinance, 2001;
When you purchase an international or domestic air ticket, airlines are directed by FBR to collect tax which is adjustable against your tax liability. Rate of tax collection is 5% in case of domestic ticket and Rs. 12,000 and 16,000 in case of international travelling for economy and business class respectively.

Educational Institution Fee u/s 236I of Income Tax Ordinance, 2001;
Educational institutions are directed by FBR to collect tax on the fee paid to them by the students. This tax is paid by the parents of the students, or Guardians and is adjustable against their income tax liability. Such tax is only applicable when fee is exceeding Rs. 200,000 per annum and parent / guardian is a non-filer.

Advance Tax on General and Life Insurance Premium u/s 236U of Income tax Ordinance, 2001;
As per FBR directions, insurance companies are directed to collect advance tax on General and Life insurance premium from a person who is non-filer. This is also adjustable against your income tax liability.
Electricity Bill of Domestic User u/s 235 of Income tax Ordinance, 2001;
Domestic electricity consumers whose monthly bill is Rs. 25,000 and above are required to pay advance tax at a rate of 7.5% which is collected on a monthly basis and can be adjusted against tax liability.

Mobile, Telephone, and Internet bills u/s 236(1)(a) to (e) of Income Tax Ordinance, 2001;
Currently, Advance tax is collected at a rate of 15% from all telecom and internet users by telecom companies and Internet service providers. This advance tax is adjustable against income tax liability.

Motor Vehicle Registration Fee u/s 231B(1) of Income Tax Ordinance, 2001;
Advance tax is charged at the time of Motor Vehicle Registration or transfer of vehicle or sale of the vehicle and is adjustable against income tax liability.

Salaried individuals should contact their employers immediately before processing of payroll for June 2022 so that tax adjustment is made by the employers in a timely manner.

Pakistan's Tax Affairs

FBR’s tax laws for SMEs are counter-productive

According to the recent article by Business Recorder published on May 18, 2022, Small-medium enterprises and self-employed individuals seem disappointed by the taxation policies of FBR. In the case of salaried individuals, annual taxable income of Rs. 75M and above are taxed at 35%. However, the SMEs and self-employed individuals are taxed at 35% over and above Rs. 6M of their annual taxable income.

The self-employed individuals include professionals like doctors, dentists, lawyers, engineers, accountants, beauticians, fashion designers, tailors, etc. They operate their private ventures as clinics, beauty salons, boutiques, shops, or businesses on sole-proprietorship or partnership.

The provincial governments have also imposed a sales tax rate of 13%-16% on the revenue generated from services. While the federal government has imposed a minimum fixed withholding tax rate of 7% on the revenue generated from these services.

These taxes are imposed upon revenue, and not the income generated from that revenue. The vendors have to pay taxes from their collections before accumulating the amount and managing other finances from that amount.

With that many taxation measures weighing upon the service providers, they have to bear the loss even if they don’t make any income for the year while paying the respective 13% GST and 7% Withholding Tax (WHT) from their savings.

Looking at the burden faced by the SMEs, the FBR has reduced the WHT to 3% from 7% on many services along with the continuation of 13%-16% sales tax. But it is still insufficient as it is getting continuously hard for the professionals to operate the services business profitably.

There is a huge disparity between the taxability of the salaried class and small-medium enterprises. The salaried class is taxed above the annual income of Rs. 600,000 whereas the self-employed class is taxed above an annual income of Rs. 400,000. The self-employed class pays 30% tax on income above 4-6Mn, a further 35% on income above that, and the salaried class pays 20% tax on income above 3.5-5Mn. 

If we add other tax metrics like 13-16% GST then the total tax proportions would be around 50%-70%, and they are barely left with minimum disposable income that would result in making a loss instead of striking a profit. Befiler provides tax consulting and advisory services. The services include NTN, STRN, GST, PST, Company registration, tax returns filing, withholding statement filing, US company formation, and much more. If you are looking for any consultancy and advisory services regarding taxation and compliance then we are just  one step away