Pakistan Law Site

The Income Tax/Sales Tax in Pakistan in 2022

Sales Tax and Income Tax are the Two main Types of Taxes in Pakistan

Sales Tax and Income Tax

There are several ways in which the government of Pakistan will collect taxes from the people. Pakistan has two main types of taxes: income tax and sales tax. Providing better facilities to the people has led the government to collect these taxes from them. Different ways will be used by the Pakistani Government to collect income tax and sales tax from its citizens. Pakistan has two main types of taxes: income tax and sales tax. In order to provide better services to the people, the government has decided to collect these taxes.

income-tax

In Pakistan, what is the income tax & sales tax?

Pakistan has four different income tax rates:

In percent: 0, 10%, 20%, and 30%.

Those earning up to Rs. 400,000 per annum are in the first two brackets, those earning between Rs. 400,001 and Rs. 800,000 are in the third bracket, and those earning more than Rs. 800,000 are in the fourth bracket.

Capital gains are also taxed at 15%.

In Pakistan, sales tax is imposed at a rate of 17% on all goods and services, except those specifically exempt. Agricultural products, medicines, and educational services are exempt.

 

Types of Income Taxes and Sales Taxes in Pakistan in 2022

What are the different types of income tax and sales tax?

Pakistan has two types of income tax: direct and indirect. Individuals and corporations are subject to direct taxes, while goods and services are subject to indirect taxes.

Individuals and businesses are subject to income tax, which is imposed on their earnings. It is progressive, meaning the more you earn, the higher your tax rate. Pakistan’s corporate income tax rate is 30%.

 

Another type of direct tax is capital gains tax, which is levied on profits from the sale of assets such as shares or properties. Tax rates on capital gains vary depending on the asset and how long it was held, but they can be as high as 20%.

 

The cost of indirect taxes is generally much lower than that of direct taxes, and they are often included in the price of goods and services. Pakistan imposes a 16% sales tax on the sale of goods and services, making it the most common indirect tax. Indirect taxes also include customs duties, excise duties, and stamp duties.

Exemptions and Deductions for Income Tax/Sales Tax?

How are income and sales taxes deducted and exempted?

Taxes on income and sales are levied on taxable income. To reduce the overall tax liability, certain exemptions and deductions can be taken advantage of.

Exemption from Income Tax:

Income tax exemptions apply to certain types of income. A government security interest, agriculture income, disability pension, etc., fall into this category. Similarly, expenses such as medical insurance premiums and charitable donations can also be deducted.

Exemption from Sales Tax:

There are some items that are exempt from sales tax, such as food grains, and medicines. Additionally, exports are exempt from sales tax.

Here’s how to file your Income Tax / Sales Tax Return

Filing your income tax/sales tax return in Pakistan has never been easier. Several online resources are available to assist you with this process, and the government has made it easier to file your tax return electronically.

The following tips will help you file your Pakistani income tax/sales tax return:

  1. Collect all of the necessary documentation. You will need your W-2 form from your employer, as well as any other documents that the Pakistani government may require.
  2. Create an account on the Federal Board of Revenue’s website. Using this method, you will be able to file your return electronically.
  3. If you need help filling out your tax return accurately, use the online resources available to you. Taxpayers can use a number of online tools to help them with this process.
  4. You can submit your return electronically. By using the website of the Federal Board of Revenue, you can electronically submit your return.
  5. If you owe taxes, you must pay them. You can pay your taxes online or through other methods offered by the government if you owe them.

What is the Deadline for Filing Income Tax/Sales Tax Returns?

The deadline for filing Income Tax and Sales Tax Returns in Pakistan is the 30th of September 2022. If you file an extension, you can file your tax return until the 31st of December.

What Is Income Tax?

Income tax in Pakistan is a tax levied on individuals or entities (corporations or other legal entities) based on their income or profits (taxable income). Profits for the year make up the corporate income tax base. In the case of individual taxpayers, taxable income is determined by subtracting allowable deductions from gross income.

Corporate entities are taxed at 35 percent, while individuals are taxed at 0-30 percent. Taxes on income are due annually in Pakistan. According to Pakistani tax law, the tax year runs from 1 July to 30 June.

In Pakistan, both federal and provincial income taxes are imposed. It is up to the provinces to set their own rates, but they must not exceed 10 percent of taxable income.

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What is the Sales Tax?

  1. In Pakistan, sales taxes are imposed on goods and services. Tax rates vary from province to province, but are typically around 17 percent. Taxes are collected by the seller and remitted to the government.


    In addition to funding public services such as education and infrastructure, sales tax is an important source of revenue for the government.


    Income Tax Versus Sales Tax: what’s the difference?

    In Pakistan, there are two types of taxes: income tax and sales tax. Sales tax is a tax on goods and services sold, while income tax is a tax on income.

    An individual’s or business’s income tax is generally calculated as a percentage of their taxable income. The taxpayer’s income bracket determines tax rates. In contrast, sales taxes are usually imposed as a percentage of the product price.

    The Federal Board of Revenue (FBR) imposes income and sales taxes at the national level in Pakistan. Taxes imposed by provincial governments are generally lower in magnitude than those imposed by the federal government.


    Who pays income taxes in Pakistan?

    The income tax in Pakistan is paid by individuals, partnerships, corporations, trusts, and partnerships. Tax rates vary depending on the entity type and the amount of income earned.

Individuals:

Individuals are taxed at a progressive rate, which means their tax rate rises as their income increases. Individual tax rates for the 2018-2019 tax year are as follows:

A 0% tax rate on income up to PKR 400,000

Income between PKR 400,001 and 800,000 is taxed at 5%

There is a 10% tax on income between PKR 800,001 and 1,200,000

PKR 1,200,001 to 2,500,000: 15%

A 20% tax is applied to income above PKR 2,500,000

Partnerships:

Partnerships are taxed at a flat rate of 30%.

Companies:

Companies pay a flat tax rate of 35%.

In Pakistan, trusts are not subject to income tax.

Corporations: Taxes on corporations are 38%

In Pakistan, who is responsible for paying sales taxes?

In Pakistan, taxes are imposed on goods and services sold within the country. There are some exemptions from the Sales Tax, which is imposed at a standard rate of 17%. In most cases, the provincial governments collect and remit the tax to the federal government.

The sales tax does not apply to exports and certain imported items are also exempt. Sales tax is, however, applied to most goods and services sold in Pakistan. Public services and infrastructure development in Pakistan are funded through Sales Tax revenue.

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In Pakistan, what are the Benefits of Paying Income Taxes and Sales Taxes?

Taxes are essential because they ensure that everyone contributes to the country’s success. We all rely on government services and infrastructure to survive.

Sales taxes are consumption taxes imposed on the sale of goods and services. Sales tax is primarily used to generate revenue for the government. Sales tax is charged on most goods and services in Pakistan at 17%.

The income tax is a tax levied on taxable income earned by individuals or businesses. Pakistani income taxes are imposed at various rates depending on a taxpayer’s income level.

In Pakistan, paying taxes has many benefits. By doing so, we can fund vital public services such as healthcare, education, and infrastructure development. A government’s tax revenue is also used to provide aid during natural disasters and other emergencies. Our taxes can make Pakistan a better place for everyone if we all pay them

Do Taxes on Income and Sales in Pakistan have any Drawbacks?

Paying taxes in Pakistan can have a few drawbacks. The Pakistani tax system is generally considered to be quite complex and challenging to understand. Taxpayers can end up overpaying or underpaying their taxes, which can result in financial penalties.

Further complicating things for taxpayers are the last-minute changes the Pakistani government makes to the tax code. In Pakistan, tax fraud is relatively common, and if taxpayers do not ensure that their taxes are paid on time, they may be unwittingly complicit.