Pakistan is home to a growing number of expatriates who come to the country for work, business, or to retire. If you’re one of them, it’s important to understand how taxation works in Pakistan. In this guide, we’ll provide you with a comprehensive overview of taxation for expatriates in Pakistan, including the types of taxes, tax residency, and tax obligations.
Types of Taxes in Pakistan
Pakistan has a number of taxes, including income tax, sales tax, customs duty, and excise duty. However, the main taxes that expatriates need to be aware of are income tax and sales tax.
If you are an expatriate living and working in Pakistan, you are liable to pay income tax on your income earned in Pakistan. The income tax rates for expatriates are the same as for Pakistani citizens, and they are based on income brackets. The income tax rates for the tax year 2022 are as follows:
- Where taxable income does not exceed Rs.600,000/-0%
- Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 800,000-5% of the amount exceeding Rs. 600,000
- Where taxable income exceeds Rs. 800,000 but does not exceed Rs.1,200,000 -Rs. 10,000 + 12.5% of the amount exceeding Rs.800,000
- Where taxable income exceeds Rs.1,200,000 but does not exceed Rs.2,400,000-Rs.60,000 + 17.5% of the amount exceeding Rs.1,200,000
- Where taxable income exceeds Rs.2,400,000 but does not exceed Rs. 3,000,000 – Rs. 270,000 + 22.5% of the amount exceeding Rs.2,400,000
- Where taxable income exceeds Rs.3,000,000 but does not exceed Rs.4,000,000 – Rs.405,000 + 27.5% of the amount exceeding Rs.3,000,000
- Where taxable income exceeds Rs.4,000,000 but does not exceed Rs. 6,000,000 – Rs. 680,000 + 32.5% of the amount exceeding Rs.4,000,000
- Where taxable income exceeds Rs.6,000,000 – Rs. 1,330,000 + 35% of the amount exceeding Rs.6,000,000
Sales tax is a tax on the supply of goods and services in Pakistan. The standard sales tax rate in Pakistan is 17%, but certain items are taxed at a lower rate or are exempt from sales tax.
As an expatriate, you may be considered a tax resident in Pakistan if you meet one of the following criteria:
- You have been present in Pakistan for more than 183 days in a tax year
If you are a tax resident in Pakistan, you are liable to pay tax on your worldwide income, which includes income earned outside Pakistan.
As an expatriate in Pakistan, you are required to file an income tax return if your income exceeds PKR 400,000. You are also required to obtain a National Tax Number (NTN) and register for sales tax if you are engaged in a business or profession that is subject to sales tax.
If you are an expatriate employee in Pakistan, your employer is required to deduct income tax from your salary and deposit it with the Federal Board of Revenue (FBR) on your behalf. Your employer is also required to issue a tax deduction certificate (commonly known as a Form 16) to you at the end of the tax year, which you can use to claim any tax refunds.
Expatriates in Pakistan need to be aware of their tax obligations and take necessary steps to comply with local tax laws. By understanding the tax laws and regulations, expatriates can minimize their tax liabilities and avoid penalties. Seeking the help of a tax professional can also be beneficial in navigating the complexities of Pakistan’s tax system. Overall, it is important for expatriates to stay up-to-date with changes in tax laws and regulations and to maintain accurate records to ensure compliance.