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Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • 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. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • 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. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • 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. • 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. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • 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 bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active 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%. • 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. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for 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. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • 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. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • 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. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • 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. • 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. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • 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 bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active 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%. • 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. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for 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. •

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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. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • 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. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • 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. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% 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%. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • 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 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. • 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. • 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. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • 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. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • 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. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% 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. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • 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. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • 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. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% 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%. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • 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 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. • 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. • 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. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • 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. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • 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. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. •

IT and IT-Enabled Services in Pakistan

IT and IT-enabled services in Pakistan are subject to sales tax, income tax, and withholding tax. Learn definitions, rates, exemptions, and compliance rules.

Quratul Ain
November 19, 2023
Tax Savvy

In Pakistan, IT services and IT-enabled services are subject to specific tax regulations under both federal and territorial laws. These include sales tax, income tax, withholding tax, and compliance requirements depending on the nature of the service and jurisdiction.

This article breaks down the definitions, applicable tax rates, exemptions, and regulatory aspects governing IT and IT-enabled services in Pakistan.

Definitions of IT and IT-Enabled Services

The Income Tax Ordinance, 2001, and the Islamabad Capital Territory (Tax on Services) Ordinance, 2001, define these categories as follows:

IT Services include software development, software maintenance, system integration, web design, web development, web hosting, and network design.
IT-Enabled Services cover inbound and outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, human resource (HR) outsourcing, telemedicine centres, data entry operations, and cloud computing.

Sales Tax on IT and IT-Enabled Services (Islamabad Capital Territory)

Under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001:

General Rate: IT services and IT-enabled services are subject to 15% sales tax.
Software/System Development Consultants: Charged at a 5% rate, with the condition that no input tax credit or refund is available.
Export of Services: Exports are taxed at a 0% rate.
Exemptions: Regulatory and licensing services provided by statutory organizations are not subject to this tax.

For collection and compliance, the Sales Tax Act, 1990 and Sales Tax Rules, 2006 apply, including registration, filing returns, and payment procedures.

Income Tax on Digital Transactions in E-Commerce

The Income Tax Ordinance, 2001 imposes specific taxes on digital transactions involving e-commerce platforms:

Tax applies to any person receiving payment for the supply of digitally ordered goods or services delivered within Pakistan via online platforms or marketplaces.
Tax Rates (Division IVA, Part I, First Schedule):
- 1% of gross amount if payment is made through digital means/banking channels via a payment intermediary.
- 2% of gross amount if payment is made through Cash on Delivery (COD) via courier service.
Exemptions: Export proceeds already taxed under Sections 154 and 154A.
Collection Responsibility: Payment intermediaries (banks, financial institutions, or payment gateways) are liable to deduct and deposit tax.
For cottage industries and retailers (non–Tier I), tax withheld by intermediaries/couriers at 2% of supply value is treated as final tax liability.

Withholding Tax on IT and IT-Enabled Services

As per the Income Tax Ordinance, 2001:

Applicable Rate: 4% of gross amount for software development, IT services, and IT-enabled services.
Reduced Rates:
- The Commissioner may allow up to 80% reduction where tax is not minimum tax.
- For public limited companies, exemption from deduction may be granted upon application.

Regulatory and Procedural Requirements

To ensure compliance, businesses in the IT sector must also follow specific regulatory obligations:

Business Integration: IT service providers must integrate with FBR’s computerized system for real-time reporting.
Taxpayer Registration: All taxpayers, including e-commerce vendors using online marketplaces or courier services, must register with FBR. Platforms cannot host unregistered vendors.
Electronic Filing: Returns, certificates, and acknowledgments are managed digitally, using FBR-approved digital signatures and computerized payment receipts.
Information Exchange: The Federal Government may enter bilateral or multilateral agreements for tax-related information exchange with provinces or foreign states.
Country-by-Country Reporting (CbCR): Multinational enterprise (MNE) groups must comply with documentation and electronic data transmission rules for tax transparency.

Conclusion

The taxation of IT and IT-enabled services in Pakistan is comprehensive, covering sales tax, income tax, withholding tax, and compliance obligations. While the government provides reduced rates and export exemptions to encourage IT exports, businesses must ensure timely registration, correct tax deductions, and integration with FBR’s systems.

By staying compliant, IT companies can not only avoid penalties but also benefit from tax incentives designed to support Pakistan’s growing digital economy.

Quratul Ain

Content Writer at TaxationPk, responsible for creating engaging and informative content on taxation in Pakistan. Dedicated to making complex tax matters accessible through well-researched and compelling articles.

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