The Income Tax Ordinance, 2001 (ITO) is the primary legislation governing income tax in Pakistan. It was enacted by the Parliament of Pakistan on 17th June, 2001 and came into force on 1st July, 2001. The ITO has been amended several times since its enactment, most recently in 2022.
What is the Income Tax Ordinance?
The Income Tax Ordinance is a comprehensive piece of legislation that sets out the rules and regulations for the assessment, collection, and administration of income tax in Pakistan. The ITO applies to all persons who are resident in Pakistan or who derive income from Pakistan.
What are the main features of the Income Tax Ordinance?
The main features of the Income Tax Ordinance include:
- A progressive tax rate structure with a maximum rate of 30%
- A wide range of exemptions and deductions
- A self-assessment system with taxpayers filing their own tax returns
- A system of penalties and interest charges for non-compliance
Who is liable to pay income tax in Pakistan?
All persons who are resident in Pakistan or who derive income from Pakistan are liable to pay income tax. A person is resident in Pakistan if they have their domicile in Pakistan or if they are present in Pakistan for a period of 183 days or more in a tax year.
What is the tax year in Pakistan?
The tax year in Pakistan is the financial year from 1st July to 30th June.
What are the different types of income that are taxable in Pakistan?
The following types of income are taxable in Pakistan:
- Salaries and wages
- Business income
- Capital gains
- Rental income
- Interest income
- Dividend income
- Pensions
- Other types of income
What are the different rates of income tax in Pakistan?
The rates of income tax in Pakistan are progressive, with a maximum rate of 30%. The following table shows the rates of income tax for the tax year 2022-23:
| * Income Bracket | Tax Rate |
|---|
- Up to Rs. 0.6 million | 0%
- Rs. 0.6 million to Rs. 1.2 million | 5%
- Rs. 1.2 million to Rs. 2.5 million | 10%
- Rs. 2.5 million to Rs. 5 million | 15%
- Rs. 5 million and above | 30%
There are a number of penalties that can be imposed for non-compliance with the ITO. Some of the most common penalties include:
- Late filing penalties
- Penalties for underpayment of tax
- Penalties for false or misleading information
The Income Tax Ordinance is a complex law, but it is important for individuals and businesses to understand their obligations under the law. By understanding the ITO, you can avoid penalties and ensure that you are paying the correct amount of income tax.
