The taxation structure of Pakistan includes taxes on income and profits, consumption, capital gains, and wealth in addition to levies, surcharges, and customs and excise duties. The Constitution of Pakistan provides division between federal and provincial level taxes. Broadly the taxes are categorized as ‘direct’ or ‘indirect’ taxes. Direct taxes are largely under the ambit of Federal Government.
|FEDERAL TAXES||PROVINCIAL TAXES|
|Income tax||General Sales Tax (GST) on services|
|General Sales tax (GST)||Stamp Duty|
|Custom Duties||Motor vehicle Tax|
|Excise Duties||Urban Immovable Property Tax|
Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes. A broad description regarding the nature of administration of these taxes is explained below:
Direct taxes primarily comprise income tax, along with supplementary role of wealth tax. For the purpose of the charge of tax and the computation of total income, all income is classified under the following heads:
Standard Rate The standard rate of sales tax is 16 percent. However, this may vary (up, down or zero) in specified cases. Certain goods are exempt from sales tax.
Sales Tax is levied at various stages of economic activity on:
Tax rate is 35 percent. The exception to this is small companies, which are taxed at 25 percent.
A company is considered to be resident in Pakistan if it is incorporated, formed by or under any law in force in Pakistan.
Companies incorporated under foreign law are considered to be Pakistan resident if control and management of the affairs of the company is situated wholly in Pakistan at any time during the year. Resident companies are taxed on their worldwide income. Non-resident companies are taxed only on their Pakistan source income.
Assessment system – Self assessment. However, an assessment under self assessment scheme may be subject to tax audit and amendment.
Filing due date
Dividends paid to non-residents are subject to withholding tax of10 percent. For dividends declared/distributed by a purchaser of a power project privatized by WAPDA (Water and Power Development Authority) or a company setup for power generation, the withholding tax rate on dividends is 7.5 percent.
Royalties and fees for technical service paid to non-residents are subject to withholding tax of 15 percent.
Interest payments to non-residents (that have no permanent establishment in Pakistan) are subject to withholding tax of 10 percent.
Other payments to non-residents, for which a withholding tax rate is not specified in the Income Tax Ordinance, 2001 (the Ordinance), is subject to withholding tax of 20 percent. The withholding tax rates may be reduced under the terms of applicable tax treaties.
Dividends distributed by a resident company are taxable at the rate of 10 percent. Dividends paid by a non-resident company are taxable at the corporate tax rate of 35 percent in the hands of resident company.
Capital gains tax applies in Pakistan. However, the tax treatment of the capital gain depends on a range of factors including the industry and the holding period.
For companies which are in the banking industry in Pakistan, a gain on the sale of shares of listed companies (disposed of after one year or more from acquisition), shall be taxed at 10 percent. All other capital gains for companies in the banking industry shall be taxed at 35 percent.
Capital gain tax rates on securities vary according to the status of the taxpayer deriving such gain, as outlined below.
|Tax Year||Insurance Companies||Others|
|Held <6 months||Held 6-12 months||Held <6 months||Held 6-12 months|
Where the security is held for more than twelve months, the capital gains tax rate is 0 percent.
Capital gains on capital assets other than securities shall be taxable at 35 percent, unless the capital asset has been held for more than twelve months, in which case 75 percent of the gain will be taxable.
A person resident in Pakistan is entitled to a relief in tax on any income earned abroad, if such income has already been subjected to tax outside Pakistan. Proportionate relief is allowed on such income at an average rate of tax in Pakistan or abroad, whichever is lower.
The Government of Pakistan has so far signed agreements to avoid double taxation with 39 countries including almost all the developed countries of the world. These agreements lay down the ceilings on tax rates applicable to different types of income arising in Pakistan. They also lay down some basic principles of taxation which cannot be modified unilaterally. The list of countries with which Pakistan has concluded tax treaties is given below:
Personal tax rates differ between salaried taxpayers and non-salaried taxpayers. The top tax rate for salaried taxpayers is 20 percent and applies to income in excess of PKR 2,500,000.
For non-salaried taxpayers, the top tax rate is 25 percent and applies to income in excess of PKR 2,500,000.
The following are payable by employers
Goods imported into Pakistan are liable to customs duties at the prescribed rates. However, zero-rating and concessionary rates of customs duty are generally applicable for industrial raw materials, semi-finished goods and capital goods, particularly if these are not being manufactured in Pakistan, machinery for power projects, oil and gas projects etc.
The rate structure of customs duty is determined by a large number of socio-economic factors. However, the general scheme envisages higher rates on luxury items as well as on less essential goods. The import tariff has been given an industrial bias by keeping the duties on industrial plants and machinery and raw material lower than those on consumer goods.
Federal excise duty (FED) is levied on specific goods imported or manufactured. Specified services provided and rendered in Pakistan, at prescribed rates. Generally, FED is charged on the value or retail price basis. Zero percent FED rate is applicable for exported goods or specified goods. Items typically subject to FED include (amongst others); edible oils, aerated waters and concentrates, tobacco and cigarettes, cement, lubricants and fuel oils and transportation vehicles.
Stamp duty is imposed on instruments and documents (and for matters connected and incidental thereto). Stamp duty is a provincial levy which is payable on every instrument executed, drawn or presented in Pakistan, every document presented or filed in the various courts, check or promissory note negotiated in Pakistan (but drawn outside of Pakistan) and every instrument executed outside Pakistan and received in Pakistan that relates to any property situated in Pakistan.
There is a provincial tax levied on the value of property, with the rates varying between provinces.
There is no inheritance or gift tax in Pakistan.
Capital value tax (CVT) is charged on the purchase of Modaraba certificates or registered instruments of redeemable capital including shares. CVT is a tax on the capital value of specified assets and is payable on the acquisition of an asset by every individual, association of persons, firm or company. The rate of CVT is 0.02 percent of the purchase value of the Modaraba certificates and instrument of redeemable capital.
CVT is also imposed on the real estate sector at various rates depending on the nature and location of the property.
Professional tax is a provincial levy on trade, professions.
The minimum wage rate for unskilled workers is
Minimum wages for semi-skilled and skilled workers are determined by the Minimum Wage Boards constituted under the Minimum Wages Ordinance, 1961.
Minimum Wage is the wage level (set by Government, either after consultation with the social partners i.e. worker organizations and employer associations or unilaterally) below which it is illegal for the employer to pay his/her employees.
Minimum Wage in Pakistan is set by the following two acts:
The Government of Pakistan had promulgated the Employees’ Old-age Pensions Ordinance in 1972. However, this was never implemented. Later on, in 1976, this was substituted with an act of parliament, called Employees’ Old-Age Benefits Act, 1976. This social insurance system was started to achieve the objective of article 38 (c) of the Constitution, which is as under:
This Act is applicable to the private sector only while Government has created special systems for public-sector employees (where Civil Pension Rules are applicable); members of the armed forces; police officers; and employees of statutory bodies, local authorities, and railways. Other than these, Government is also managing other social assistance programs for the welfare of destitute and needy citizens. Under the Zakat and Ushr Ordinance, 1980, benefits are provided to the poor Muslim citizens of Pakistan while under the Pakistan Baitul Mal Act, 1992 and Benazir Income Support Program Ordinance, 2010 (program was started in 2008); assistance is being provided to all the citizens of Pakistan irrespective of their religion.
Employees’ Old-Age Benefits Act is applicable on all firms (industrial or commercial, including banks) where 5 or more workers, whether contractual or regular, are employed or were employed during past 12 months. The business with less than five employees can get their employees registered with EOBI on voluntary basis.
As for the benefits, it provides following four types of benefits to insured persons or their survivors.
Employees’ Old-Age Benefits Institution (EOBI) manages implementation and enforcement of this act. EOBI is a semi-autonomous institution working under auspices of Ministry of Labor and Manpower. A tripartite corporate Board of Trustees manages working of EOBI where, along with the Government officials, labour and employer representatives are also present.
Chapter V of the Act talks about these benefits and requires the payment of monthly old age pension to an employee if;
He is 60 years of age (in case of woman, 55 years of age; age limit is also 55 years for male miners engaged in mining for at least 10 years of employment)
Contributions in respect of him/her were paid for at least 15 years
In accordance with Chapter III of the Act, an employer is required to submit his and employee’s contribution to a bank designated by EOBI before 15th of every month. An employer has to pay contribution equal to 5% of the minimum wage while an employee has to pay that contribution at the rate of 1% of minimum wage.
Keeping in view minimum wage of PKR 12,000 in Federal Areas, Punjab & KPK
So, in total, they have to submit PKR 720 for every insured employee, no matter what is his income level. Other than employer and employees, federal government may also make contribution to make up any deficiencies.
If foreign companies require renting land / office / factory or waring house they had to acquire permission from Board of investment Pakistan. BOI grants permissions for the following:
The service charges for availing the services provided by different service providers for electricity, water, telephone, internet and other things depends on the types of services being used. Many of the companies offer various business or corporate packages for the use of these services. The rates are usually charged depending upon the type of service that is being used by the business or corporation.
The petroleum products prices are revised on every month by the Government (Ministry of Finance) and petroleum prices are suggested by the OGRA (Oil & Regularity Authority of Pakistan) on every end of the month to decide new petroleum products prices for the next month and on wards.
Petroleum Prices Archive
|Date||HOBC||Premium||HS Diesel||LS Diesel||Kerosene|
|Dec 01, 2014||Rs.106.27/Ltr||Rs.84.53/Ltr||Rs.94.09/Ltr||Rs.77.98/Ltr||Rs.83.18/Ltr|
|Nov 01, 2014||Rs.116.45/Ltr||Rs.94.19/Ltr||Rs.101.21/Ltr||Rs.83.42/Ltr||Rs.87.52/Ltr|
|Oct 01, 2014||Rs.131.13/Ltr||Rs.103.62/Ltr||Rs.107.39/Ltr||Rs.91.46/Ltr||Rs.95.6/Ltr|
|Sep 01, 2014||Rs.129.64/Ltr||Rs.106.56/Ltr||Rs.108.34/Ltr||Rs.92.08/Ltr||Rs.97.05/Ltr|
|May 01, 2014||Rs.131.26/Ltr||Rs.107.97/Ltr||Rs.109.34/Ltr||Rs.94.13/Ltr||Rs.98.07/Ltr|
|Apr 01, 2014||Rs.136.57/Ltr||Rs.108.31/Ltr||Rs.113.85/Ltr||Rs.95.06/Ltr||Rs.101.15/Ltr|
|Mar 01, 2014||Rs.137.73/Ltr||Rs.110.03/Ltr||Rs.116.75/Ltr||Rs.101.24/Ltr||Rs.108/Ltr|