Tax laws Pakistan
Pakistan's taxation system is structured to generate revenue for the government through various direct and indirect taxes. The primary tax laws governing the system include the Income Tax Ordinance of 2001, which replaced the previous Income Tax Act of 1922 and the Income Tax Ordinance of 1979.
1. Income Tax:
Individuals: Pakistan employs a progressive tax rate system for individuals, with rates increasing with higher income levels. The tax rates and slabs are subject to annual revisions through the Finance Act. For the fiscal year 2024-2025, the tax rates range from 5% for annual income above PKR 600,000 to 45% for income exceeding PKR 5.6 million. Individuals earning below PKR 600,000 are generally exempt from income tax.
Companies: The corporate tax rate is set at 29% for companies with an annual turnover exceeding PKR 250 million. Small companies, defined as those with an annual turnover of PKR 250 million or less, are taxed at a reduced rate of 20%.
2. Sales Tax:
- General Sales Tax (GST): Pakistan imposes a federal sales tax at a standard rate of 17% on goods and services. However, certain items may be subject to reduced rates or exemptions.
3. Withholding Taxes:
Withholding taxes are applicable on various payments, including salaries, dividends, interest, and contracts. The rates vary depending on the nature of the payment and the status of the taxpayer. For instance, a 15% withholding tax is applicable on dividends paid to non-resident shareholders.
4. Provincial Taxes:
In addition to federal taxes, provincial governments levy taxes such as:
Property Tax: Charged on the ownership of immovable property, with rates varying by province.
Agricultural Income Tax: Levied on income derived from agricultural activities, primarily in provinces with significant agricultural output.
Recent Reforms and Developments:
To meet the fiscal requirements of international financial institutions like the International Monetary Fund (IMF), Pakistan has introduced several tax reforms:
New Taxes on the Retail Sector: In mid-2024, the government imposed new taxes on the retail sector to broaden the tax base and increase revenue. These measures faced resistance, including threats of strikes, but were deemed essential for securing IMF assistance.
Efforts to Combat Tax Evasion: The government has initiated reforms to address tax evasion and increase tax compliance. These measures include stricter enforcement, improved monitoring, and incentives for taxpayers to become part of the formal tax system.
International Assistance and Economic Partnerships:
Pakistan has secured financial assistance from international bodies to stabilize its economy and implement structural reforms:
IMF Loan: In 2024, Pakistan obtained a $7 billion loan from the IMF, contingent upon implementing specific tax reforms and fiscal measures to enhance revenue generation and economic stability.
World Bank Financing: The World Bank approved a $20 billion lending package over a decade to support Pakistan's development projects, including those aimed at improving tax collection and public financial management.
Challenges and Outlook:
Despite these efforts, challenges such as a large informal economy, tax evasion, and political resistance to reforms persist. The government's ability to implement and sustain tax reforms will be crucial for achieving fiscal stability and meeting international commitments.
Note: Tax laws and rates are subject to change. For the most current information, it is advisable to consult the Federal Board of Revenue (FBR) or a professional tax advisor.
RELATED Blog
0 comments