Pakistani Business Taxes and Compliance

Depending on the nature of the transaction, several taxes may apply to business transactions. Income taxes, whether personal or corporate, sales taxes on goods, and customs duties all fall under the purview of the federal government. The Federal Board of Revenue (FBR) is the federal government's tax collection agency. Provinces, on the other hand, collect sales tax on services. The revenue collection agencies for sales tax on services are as follows:

  • Revenue Authority of Punjab
  • Sindh Revenue Authority
  • Baloch Revenue Authority
  • Revenue Authority of KPK

The FBR collects sales tax on services in the Islamabad capital territory.

The main taxes that businesses must pay are income tax and sales tax. Pakistan's income tax is governed by the Income Tax Ordinance, 2001. The Sales Tax Act of 1990, on the other hand, governs sales tax on goods. Sales tax on services is governed by provincial tax laws.

In Pakistan, the fiscal year begins on July 1st and ends on June 30th. Any year other than this one is regarded as a special tax year. This requires prior approval from FBR.

  • Income Tax in Pakistan for Businesses
  • Entrepreneur or sole proprietorship
Tax Registration

The majority of businesses operate under the umbrella of a sole proprietor. It is a sole proprietorship owned and managed by a single person. This simply means that all profits earned by the business, as well as all business debts, losses, and liabilities, belong to that individual.

In Pakistan, sole proprietorship is considered a pass-through business for tax purposes. This means that the owner will share in the company's profits and losses. In Pakistan, the income tax slabs for sole proprietors are as follows:

S.No Taxable Income Tax Rate

1 Where taxable income is less than Rs. 600,000 0%

2 Where taxable income is greater than Rs. 600,000 but less than Rs. 800,000

5% of any amount in excess of Rs. 600,000

3 Where taxable income exceeds Rs. 800,000 but does not exceed Rs. 1,200,000, Rs. 10,000 plus 12.5% of the amount in excess of Rs. 800,000.

4 Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,400,000, the amount exceeding Rs. 1,200,000 is Rs.60,000 plus 17.5% of the amount exceeding Rs. 1,200,000.

5 Where taxable income exceeds Rs. 2,400,000 but does not exceed Rs. 3,000,000, the amount exceeding Rs. 2,400,000 is Rs. 270,000 plus 22.5% of the amount exceeding Rs. 2,400,000.

6 Where taxable income exceeds Rs. 3,000,000 but does not exceed Rs. 4,000,000, the amount exceeding Rs. 3,000,000 is Rs. 405,000 plus 27.5% of the amount exceeding Rs. 3,000,000.

7 Where taxable income exceeds Rs. 4,000,000 but does not exceed Rs. 6,000,000, the amount exceeding Rs. 4,000,000 is Rs. 680,000 plus 32.5% of the amount exceeding Rs. 4,000,000.

8 Where taxable income exceeds Rs. 6,000,000, the amount exceeding Rs. 6,000,000 is Rs. 1,330,000 + 35% of the amount exceeding Rs. 6,000,000.

For tax purposes, an Association of Persons (AOP) / Partnership Partnership is also considered a pass-through entity. In other words, the partnership itself is not taxed, but each partner is responsible for reporting the business's profits and losses on their individual tax returns.

The income tax rates for partnership firms are the same as stated above.

Pakistani corporate taxes

A resident company in Pakistan is taxed on its worldwide income. Non-resident companies, on the other hand, are taxed on their Pakistani source of income. The following are the corporate tax rates for tax years 2022, 2023, and beyond:

1:Company Type Tax Rate% 2022-2023-2024 & Up

35 39 39 Bank

2:Other than a bank, a public company

29 29 29

3:Any other business

29 29 29

4:Small business

21 20 20

In Pakistan, businesses must pay a sales tax.

The General Sales Tax (GST) is a primary indirect tax in Pakistan, and it is levied on taxable goods under the Sales Tax Act of 1990. GST is a type of Value Added Tax (VAT) that taxes a value-added component at each stage of a business transaction. In Pakistan, there is also a sales tax on services. However, it is charged and collected by provincial governments in various provinces in accordance with their respective provincial legislation.

Unless specifically exempted or subject to a reduced rate, sales tax is normally levied at 17% on the value of goods.

All four provinces, Islamabad Capital Territory, Gilgit-Baltistan, Azad Jammu and Kashmir, levy a sales tax on services at rates ranging from 13% to 16%. Certain services have been prescribed with reduced rates. In general, input tax adjustment is not permitted in the case of a reduced rate.

Frequency Date

1 Individuals, sole proprietors, and AOPs must file an income tax return.

Annual September 30th

2 Completing Income Tax Withholding Statements

Approximately every three months, on the 20th day of the month following the end of each quarter.

3 Annual withholding tax statements must be filed (In case of salaries only)

Annual July 31st

4 Annual withholding tax statements must be filed (In case of other than salaries )

Annual July 30th

5 Submission of monthly sales tax returns in accordance with federal and provincial sales tax laws

Monthly 15th of the following month

6 Annual Sales Tax Return Filling (For Companies Only) - FBR

Annually, on September 30th of the following fiscal year

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