TAX LAWS OF

PAKISTAN
What is Law?

 Law is a system of rules and principles that

governs the behavior of individuals and
institutions in society. It is created and enforced
by governments or other institutions to regulate
actions and ensure order, justice, and fairness.
Laws can dictate what people are allowed to do,
what they are prohibited from doing, and the
rights and responsibilities they have in various
aspects of life, such as business, property, crime,
family, contracts, and more.
What is Tax?

Tax is a mandatory financial charge imposed by

a government on individuals, businesses, or
other entities to fund public services and
government expenditures. Taxes can be levied
on various activities, goods, income, property,
and transactions. They are a primary source of
revenue for governments and are used to pay
for things like infrastructure, education,
healthcare, defense, and other public services.
What is Taxation Law

Tax law is the area of law that governs the legal

rules and regulations related to taxes. It includes the
principles, policies, and laws that oversee the
taxation process, such as how taxes are collected,
how they are calculated, who is responsible for
paying them, and the consequences for not
complying with tax obligations. Tax law ensures that
individuals, businesses, and other entities comply
with the tax obligations imposed by the government.
Pakistan Taxation Laws
 Pakistan's tax law is governed primarily by
several key pieces of legislation, covering direct
and indirect taxes. Here's an overview of the main
areas of tax law in Pakistan:
 1. Income tax law
 2. Sales tax law
 3. Federal Excise Duty (FED)
 4. Custom Duty
 5. Provincial Taxes
 6.Other Taxes
INCOME TAX LAWS
 The Income Tax Ordinance, 2001 is the primary
legislation governing income taxes in Pakistan. It regulates
the taxation of individuals, businesses, and other entities,
and includes provisions on:
 Taxable income: Salaries, business income, capital gains,
dividends, and property income are subject to tax.
 Tax rates: Progressive tax rates apply to individuals
based on income brackets, while companies have a flat
rate (usually 20% and 29% for corporations).
 Withholding tax: Many payments, such as salaries,
dividends, and payments to contractors, are subject to
withholding tax.
 Tax deductions and exemptions: Various deductions
and exemptions are available for charitable donations,
education expenses, and investments in government
schemes.
 Filing requirements: Both individuals, AoP and
companies are required to file annual tax returns.
SALE TAX LAWS
 The Sales Tax Act, 1990 governs the taxation of
the supply of goods and services in Pakistan. Key
elements include:
 Standard rate: The general sales tax (GST) rate
is 18% for most goods and services.
 Filing and compliance: Businesses must
register for sales tax and file monthly returns,
submitting tax on sales made.
 Input tax credit: Businesses can claim input tax
credits for sales tax paid on their purchases,
reducing their overall tax liability.
Federal Excise Duty (FED)
Under the Federal Excise Act, 2005, excise duty
is levied on the production and sale of certain goods
(e.g., tobacco products, alcoholic beverages,
petroleum) and services. Rates vary depending on
the product or service.
Customs Duty
The Customs Act, 1969 regulates the imposition
of customs duties on the import and export of goods.
Duties are calculated based on the classification of
goods and their declared value. There are also
exemptions and reliefs available under certain
circumstances, such as free trade agreements.
Provincial Taxes
Each province in Pakistan has its own set of tax
laws and regulations for certain areas, such as:
Sales tax on services: Punjab, Sindh, KPK, and
Baluchistan each have their own tax on services
laws, such as the KPRA, PRA, SRB AND BRA.
OTHER NOTABLE TAXES
 Capital Value Tax (CVT): Imposed on
transactions involving immovable property.
 Professional Tax: A minor tax imposed by
provincial governments on professionals and
businesses.
 Advance Tax: Certain transactions (like vehicle
registration, electricity bills, etc.) attract an
advance tax, which is adjustable against the
income tax liability.
 Property tax: Levied on property owners by
provincial governments, with rates varying by
province.
TAX ADMINISTRAION
 Tax administration in Pakistan is primarily overseen
by the Federal Board of Revenue (FBR), which is
responsible for the collection of federal taxes. The
FBR administers both direct and indirect taxes in
the country, ensuring that the government's tax
laws are implemented and enforced.
 The FBR is Pakistan's premier tax authority, working
under the Ministry of Finance. It administers the
taxation laws for federal taxes such as income tax,
sales tax, federal excise duty, and customs duties.
 FBR is responsible for the assessment and
collection of federal taxes.
 Monitoring tax compliance.
 Auditing and investigating tax-related issues.
 Combatting tax evasion and fraud.
Types of Taxes in
Pakistan:
There are two major types of taxation in
Pakistan
1. Direct Taxes:
 Income Tax: Levied on individuals, companies,
and other entities based on their earnings. The
income tax regime is progressive, with different
rates for different income brackets.
 Corporate Tax: A tax on company profits. The
rates differ depending on the type of company
(public, private, small businesses, etc.).
 Withholding Tax: A mechanism to collect taxes
at the source, applied on various transactions like
salaries, dividends, imports, and payments to
contractors.
2. Indirect Taxes:
Sales Tax: A value-added tax applied on the sale of
goods and services. In Pakistan, the standard rate is
18%.
Federal Excise Duty (FED): Levied on certain
goods and services like tobacco, fuel, and luxury
products.
Customs Duties: Taxes imposed on the import and
export of goods, which are regulated by Pakistan's
Customs Act.
Tax Reforms and
Digitization:
 The FBR has implemented various reforms to
improve tax administration, such as:
 E-filing and Online Portals: Taxpayers can file
returns, pay taxes, and manage their tax profiles
through online systems like the IRIS portal.
 Automation and Digitization: These initiatives
aim to make tax collection more efficient and
transparent.
 Broadening the Tax Base: Efforts to increase the
number of taxpayers, especially through initiatives
targeting non-filers and under-reported income.
 Taxpayer Facilitation Centers: Set up across the
country to help individuals and businesses with tax
matters.
Challenges in Tax &
Recent Initiative:
 Tax Evasion: A major issue in Pakistan, where a
large informal economy results in a low tax-to-GDP
ratio.
 Narrow Tax Base: Only a small percentage of the
population pays income tax, and many sectors
remain untaxed or under-taxed.
 Corruption: Corruption within tax authorities and
inefficiencies in tax collection contribute to lower
revenue.
 Litigation: Tax disputes often result in lengthy
litigation processes, which can delay revenue
collection.
 Point of Sale (POS) Integration: The POS is the
recent initiative. It is a system that integrates
retailers’ POS systems with the FBR to ensure proper
reporting of sales and taxes.