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Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • The withholding tax on banking and financial institution profits is set at 20% for those on the Active Taxpayers’ List, but jumps to 40% for those off the list. • Buying a high-end 2501cc to 3000cc vehicle leaves Filers with a 9% tax bill, but absolutely punishes Non-Filers with a massive 27% tax rate. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Importing basic goods from Part-I of the Twelfth Schedule costs Active Taxpayers just 1% in tax, while Non-Filers have to pay 2%. • Profits on debt from mutual funds deriving 50% or more income from debt carry a huge 50% tax for Non-Filers, compared to 25% for Filers. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Payments made to non-resident sportspersons incur a 15% tax if they are on the ATL, and a massive 30% if they are non-ATL. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for Filers. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • Purchasing a 1601cc to 1800cc vehicle will cost Non-Filers a 9% tax, which is three times the 3% rate given to Active Filers. • Commercial importers of Part-II goods face a 3.5% withholding tax if they are Filers, but the rate doubles to 7% for Non-Filers. • Winning a prize bond or crossword puzzle means you lose 15% to taxes as an Active Filer, but a massive 30% if you are a Non-Filer. • Commercial importers bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active Filers. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • The withholding tax on banking and financial institution profits is set at 20% for those on the Active Taxpayers’ List, but jumps to 40% for those off the list. • Buying a high-end 2501cc to 3000cc vehicle leaves Filers with a 9% tax bill, but absolutely punishes Non-Filers with a massive 27% tax rate. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Importing basic goods from Part-I of the Twelfth Schedule costs Active Taxpayers just 1% in tax, while Non-Filers have to pay 2%. • Profits on debt from mutual funds deriving 50% or more income from debt carry a huge 50% tax for Non-Filers, compared to 25% for Filers. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Payments made to non-resident sportspersons incur a 15% tax if they are on the ATL, and a massive 30% if they are non-ATL. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for Filers. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • Purchasing a 1601cc to 1800cc vehicle will cost Non-Filers a 9% tax, which is three times the 3% rate given to Active Filers. • Commercial importers of Part-II goods face a 3.5% withholding tax if they are Filers, but the rate doubles to 7% for Non-Filers. • Winning a prize bond or crossword puzzle means you lose 15% to taxes as an Active Filer, but a massive 30% if you are a Non-Filer. • Commercial importers bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active Filers. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. •

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Profits on debt from mutual funds deriving 50% or more income from debt carry a huge 50% tax for Non-Filers, compared to 25% for Filers. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Payments made to non-resident sportspersons incur a 15% tax if they are on the ATL, and a massive 30% if they are non-ATL. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • Commercial importers of Part-II goods face a 3.5% withholding tax if they are Filers, but the rate doubles to 7% for Non-Filers. • Winning a prize bond or crossword puzzle means you lose 15% to taxes as an Active Filer, but a massive 30% if you are a Non-Filer. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Commercial importers bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active Filers. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Importing basic goods from Part-I of the Twelfth Schedule costs Active Taxpayers just 1% in tax, while Non-Filers have to pay 2%. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • The withholding tax on banking and financial institution profits is set at 20% for those on the Active Taxpayers’ List, but jumps to 40% for those off the list. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • Purchasing a 1601cc to 1800cc vehicle will cost Non-Filers a 9% tax, which is three times the 3% rate given to Active Filers. • Buying a high-end 2501cc to 3000cc vehicle leaves Filers with a 9% tax bill, but absolutely punishes Non-Filers with a massive 27% tax rate. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for Filers. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Profits on debt from mutual funds deriving 50% or more income from debt carry a huge 50% tax for Non-Filers, compared to 25% for Filers. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Payments made to non-resident sportspersons incur a 15% tax if they are on the ATL, and a massive 30% if they are non-ATL. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • Commercial importers of Part-II goods face a 3.5% withholding tax if they are Filers, but the rate doubles to 7% for Non-Filers. • Winning a prize bond or crossword puzzle means you lose 15% to taxes as an Active Filer, but a massive 30% if you are a Non-Filer. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Commercial importers bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active Filers. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Importing basic goods from Part-I of the Twelfth Schedule costs Active Taxpayers just 1% in tax, while Non-Filers have to pay 2%. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • The withholding tax on banking and financial institution profits is set at 20% for those on the Active Taxpayers’ List, but jumps to 40% for those off the list. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • Purchasing a 1601cc to 1800cc vehicle will cost Non-Filers a 9% tax, which is three times the 3% rate given to Active Filers. • Buying a high-end 2501cc to 3000cc vehicle leaves Filers with a 9% tax bill, but absolutely punishes Non-Filers with a massive 27% tax rate. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for Filers. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. •

All You Need to Know About Types of Taxes in Pakistan

Syed Babar
May 3, 2023
Tax Savvy

As a Pakistani citizen, understanding and fulfilling your tax obligations is a fundamental aspect of your financial responsibilities. Taxes are the lifeblood of the government, enabling it to fund essential public services that benefit all citizens, including healthcare, education, infrastructure development, and national defense. In Pakistan, the Federal Board of Revenue (FBR) is the central authority responsible for the collection of these taxes. This article aims to provide a comprehensive overview of the tax system in Pakistan, covering the different types of taxes, their rates, and the process of filing and paying them.

What are Taxes?

At its core, a tax is a mandatory financial contribution levied by the government on individuals and businesses. These collected funds are crucial for financing the various public services that contribute to the overall well-being and development of the nation. Without taxes, the government would be unable to provide the necessary resources for a functioning and prosperous society.

Types of Taxes in Pakistan

Pakistan has a diverse tax system comprising several types of levies, each targeting different aspects of economic activity. Here’s a breakdown of the main categories:

Income Tax: This is perhaps the most well-known tax, levied on the income earned by individuals, corporations, and businesses during a financial year (July 1st to June 30th). The rates for individuals are progressive, meaning higher income earners contribute a larger percentage of their income in taxes. For corporations and businesses, the tax rate is typically a fixed percentage of their net profits.
Sales Tax: This tax is imposed on the sale of goods and services consumed within Pakistan. The standard sales tax rate is 18%, but different rates apply to specific items. For instance, locally produced goods may have a lower rate (e.g., 5%), certain services might be taxed at 10%, while luxury items could face a higher rate (e.g., 20%).
Federal Excise Duty (FED): FED is levied on specific goods and services produced and consumed domestically. This includes items like tobacco products, cement, sugar, beverages, and petroleum products. The applicable FED rates vary depending on the product.
Customs Duty: This tax is imposed on goods imported into Pakistan and is collected by the FBR at the time of import. The rates for customs duty vary depending on the nature of the imported goods and are determined by the government’s trade policies.
Property Tax: This tax is levied on the value of immovable property such as land and buildings. It is typically collected by local government authorities, and the rates can vary based on the property’s value and location.
Capital Gains Tax: This tax is imposed on the profit earned from the sale of certain assets, including immovable property, shares, and securities. The tax rates can differ based on the type of asset and the duration for which it was held.
Withholding Tax: This is a tax deducted at the source of income when certain payments are made by individuals and businesses. Examples include deductions from salaries, dividends, and interest income. The rates for withholding tax vary depending on the nature of the payment and the recipient’s status.

How to File Taxes in Pakistan

The FBR has made significant strides in digitizing the tax filing process, making it more convenient for citizens. You can file your taxes either online through the FBR’s online portal or by submitting a paper tax return.

To file taxes online, individuals and businesses need to first register for a National Tax Number (NTN) and obtain a Taxpayer’s Identification Number (TIN). The usual deadline for filing income tax returns in Pakistan is September 30th each year. It’s crucial to stay informed about any potential extensions or changes to this deadline announced by the FBR.

Step-by-Step Guide to Paying Taxes in Pakistan

Paying taxes online through the FBR website is a straightforward process:

Login to the FBR Website: Visit the FBR’s online portal IRIS 2.0.
Select the Relevant Tax Year: Once logged in, choose the specific tax year for which you are making the payment.
Select the Nature of Payment: Indicate the type of tax you are paying, such as property tax, advance tax, or withholding tax. For sales tax payments, you will typically select the “ADC” (Alternate Delivery Channels) mode of payment in the next step.
Select the Mode of Payment: Choose your preferred payment method. Options may include cash, cheque, or online payment through various Alternate Delivery Channels (ADCs) offered by banks.
Enter Your Particulars: Provide the necessary details, including your email address and mobile phone number.
Confirmation: Review the payment details you have entered for accuracy. Once confirmed, the system will generate a Computerized Payment Receipt (CPR).
CPR as Proof of Payment: The generated CPR serves as official proof that your tax payment has been successfully deposited. This information is also accessible in your iris portal account for future reference.

Tax Incentives for Foreign Investors

Pakistan offers various tax incentives for foreign investors to promote investment in the country. These incentives include:

Tax Holidays: Foreign investors are eligible for a tax holiday of up to 10 years on the profits earned from new industrial undertakings established in certain designated areas.
Reduced Tax Rates: Foreign investors who invest in certain sectors, such as power generation and information technology, are eligible for reduced tax rates.
Tax Exemptions: Foreign investors who invest in certain sectors, such as agriculture and education, are eligible for tax exemptions.

Conclusion

Understanding the intricacies of the tax system in Pakistan is not just a legal obligation but also a civic duty. By familiarizing yourself with the different types of taxes, their applicable rates, and the procedures for filing and payment, you can ensure compliance with the law and contribute to the nation’s progress. The FBR’s efforts to modernize the tax system, particularly through its online portal, have made the process more accessible than ever before. Remember to stay updated on any changes in tax laws and deadlines to fulfill your responsibilities as a responsible Pakistani citizen.