Types Of Taxes In Pakistan

Types Of Taxes In Pakistan

Are you a taxpayer? Well if you pay taxes and you find it difficult to understand how much you should pay? And How should you contribute to raising revenues for the government? It is advised to develop a fundamental understanding of the processes before registering and filing taxes. This basic information ensures that the task is performed flawlessly in a convenient manner.

The taxation system, (defined by the Income Tax Ordinance 2001 and administrated by FBR), categorizes types of taxes in Pakistan. So before you file your tax, ensure you have plenty of information you need.

Basic Categories Of Taxes In Pakistan

In Pakistan, the taxation system is classified into two basic categories; direct taxes and indirect taxes. This system is very complex. There are more than 70 different types of taxes that are administered by roughly 37 different organizations. The following is a general explanation of how these taxes are administered:

  • Direct Taxes
  • Indirect Taxes

Taxes are classified into direct taxes and Indirect Taxes In Pakistan as;

SrDirect TaxesIndirect Taxes
1Income taxSales tax
2Property taxValue added tax
3Capital gain taxExcise duty
4 Custom duty

Direct Taxes

This tax is imposed directly on the earnings or profits of the payer rather than on the purchase of goods and services. Typically, direct taxes are charged according to the ability-to-pay premise. We can say that redistributing the nation’s wealth inside its borders is the fundamental or primary goal of direct taxation. Unlike indirect taxes, which are passed on to different people or organizations, direct taxes are not. Direct taxes are progressive by nature as they reproduce wealth. These taxes collect 25% of tax revenue. These taxes are paid directly to the governing entity.

These taxes include;

  • Salaries
  • Property Income
  • Income on security
  • Business Income

 

 

Types Of Direct Taxes

To calculate total income and charge taxes, further classification is necessary. Direct taxes are thus classified as;

  1. Income tax
  2. Property tax
  3. Capital Gain Tax

1. Income Tax

Following certain allowances, income tax is levied on all earnings obtained by private individuals. Income tax is a significant source of government revenue in the majority of economies.

It depends on a person’s income. Depending on how much a worker makes, a set proportion of his or her pay is withheld. The government is anxious to include credits and deductions that assist people to reduce their tax obligations, which is a good thing.

 

 

2. Property Tax

Any resident who owns immovable property in Pakistan is subject to presumed income tax. This deemed income will be calculated as 5% of the immovable property’s fair market value and such income is subject to a 20% specified tax rate. It is a tax based on the property’s worth that the owner must pay. To sustain public services property tax is levied on assets.

3. Capital Gain Tax

The profit made from the sale of a non-inventory asset that was acquired for less is subject to capital gains tax. The selling of stocks, bonds, precious metals, and real estate results in the most frequent types of capital gains. Not all nations impose a capital gains tax, and the majority have various rates of taxation for both individuals and businesses. This tax is calculated by finding the difference between the acquisition amount and the selling amount.

Indirect Taxes

This is a sort of tax that is incurred indirectly by the taxpayer. Taxes like these are transferred from one taxpayer to another. It is imposed on products and services, thereby raising the cost of those items. In contrast to direct taxes, indirect taxes are often imposed on all taxpayers equally, regardless of their wealth. Because all taxpayers, rich and poor, must pay the same amount in taxes on goods and services, indirect taxes are viewed as regressive. In Pakistan, indirect taxes make up the majority of government income. Please read the fundamental distinctions between direct taxes and indirect taxes listed below for additional information. These taxes collect 75% of tax revenue.
This tax includes:

  • Sales Tax

Types Of Indirect Taxes

Like direct taxes, indirect taxes are also further classified:

 

 

  1. Sales Tax
  2. Value Added Tax
  3. Excise Duty
  4. Custom duty

1. Sales Tax

A sales tax is one of the most prevalent indirect taxes. Everything is subject to sales taxes, including groceries, fast food, gadgets, and apparel. The city, county, or state where the transaction is made has different sales taxes.

2. Value-Added Tax

When a product moves through numerous manufacturing or production chain stages, this tax is imposed on products. The product should first be provided through a supply chain, then it should get through production, and finally, it should get to stores or markets for sales. Each stage receives a percentage of the tax applied.

3. Excise Duty

Controls over the production and distribution of excisable goods, like alcoholic beverages and illegal substances, are the responsibility of the Excise Wing of the Taxation Department.

4. Custom Duty

When any commodity or service is imported from abroad, the government is subject to a certain form of duty known as customs duty. This is often paid in Pakistan at the time of customs clearance.

Direct Taxes Vs. Indirect Taxes

Direct and indirect taxes vary from eachother to a great extent. Their major differences are as follows:

 

 

SrDirect TaxesIndirect Taxes
1Paid by an individual directly to the governmentCan be transferred to another entity.
2Reduce inflationIncrease inflation
3ProgressiveRegressive
4Collected from assessesCollected from consumer
5Tax can be avoided by hiding incomeCannot be avoided as they cannot be hidden
6Not levied equallyTax Levied equally upon all taxpayers

This article provides basic information about the types of taxes which is very essential to know. We hope it helps you better aware of the taxation system and creates convenience in filing your tax.

There are basically two types of taxes – direct and indirect taxes. The following are the differences between the two:

    • Direct taxes refer to taxes that are filed and paid by an individual directly to the government. Indirect taxes, on the other hand, are taxes that can be transferred to another entity. Therefore, the burden of paying them can be put on another person’s shoulders.
    • Direct taxes can be evaded in the absence of proper collection administration. Indirect taxes cannot be escaped from because these are charged automatically on goods and services.

 

 

  • Direct taxes can help address inflation while indirect taxes can lead to inflation.
  • Direct taxes lessen the savings of earners, but indirect taxes encourage the opposite because they make products and services more expensive and unaffordable.
  • Direct taxes are imposed only on people that belong to various income brackets. Indirect taxes, on the other, can be felt by everyone who buys goods and avails services.

Sales Tax Rates In Pakistan

Sales Tax Rates In Pakistan

Are you often worried about calculating tax rates while purchasing goods or services? Well, this is a significant concern for the majority of consumers in Pakistan. The tax rates are often changing and confusing. Moreover, varying rates throughout the country leave you in great trouble.

We believe in creating ease for you while you go through this frustrating process. If you get into this process often you must know all about Sales tax rates in Pakistan, to avoid inconvenience and being betrayed. No matter which area of the country you belong to, just stay with us till the end, and don’t forget to keep notes of the information you require.

Standard Sales Tax Rate In Pakistan

Sales tax rates vary almost throughout the country. It is no doubt applicable for Gilgil Baltistan, Kashmir, Islamabad, and all four provinces but it varies with minor differences. Although, the standard rate for sales tax in Pakistan is 17%.

Sales Tax Rates __ (Provinces, GB, Kashmir, FATA)

All four provinces, the Islamabad Capital Territory, Gilgit-Baltistan, Azad Jammu, and Kashmir impose a sales tax on services at rates ranging from 13% to 16%.

 

 

SrAreaWHT (withholding tax)GST (goods and services tax)
1Punjab15%19.50%
2Balochistan15%19.50%
3Sindh15%19.50%
4KPK15%19.50%
5FATA1019.50%
6Gilgit-Baltistan0%0%
7AJK15%19.50%

Sales Tax Applies To The Following

Sales tax applies to services, goods, and import goods.

    • Services
    • Goods
      All items are taxable, with the exception of those that fall within the section 13 exemptions listed in the 6th Schedule of the Sales Tax Act of 1990. For the purposes of sales tax, goods encompass all transportable property types except actionable claims, cash, stocks, shares, and securities.
    • Determine values and enter them as;
      B: Covered area of property x Per square foot rent The property tax you need to pay will depend on n the annual rental value. It is will be the total amount the property is estimated to bring. As the rate of tax is different for different provinces, they have issued their valuation table.

 

 

  • Imports
    All items brought into Pakistan are subject to sales tax at the time of import, with the exception of those expressly exempt under section 13 as listed in the Act’s sixth schedule.

Goods Exempted From Sales Tax

The Sixth Schedule of the Sales Tax Act, 1990 lists the items that are eligible for sales tax exemption in accordance with Section 13 of the Sales Tax Act, 1990 . Through various notifications (SROs) released by the government in accordance with section 13, additional exemptions are accessible.

When The Sales Tax Is Due?

  • At the moment of supply, sales tax is required.
  • For services, this is often when the taxable supply is supplied or the payment is completed, whichever occurs first. It usually happens when a payment is made to settle an  invoice for goods.
  • On imports, it is due at the time of customs clearance into Pakistan.

If a person fails to pay the tax by the deadline, claims a tax credit or refund that is not due to them, or mistakenly applies the zero percent rate to supplies he has to pay 1.5% of the due tax.

 

 

The percentage of additional tax, however, shall be two percent each month in cases of tax fraud.

Invoice Permitted For Retail Sales ___ Sales Tax Compliance

 Invoices should include

  1. Name of supplier
  2. Address of supplier
  3. Name of customer
  4. Address of customer
  5. Supply date
  6. Description (goods/services)
  7.  Invoice number
  8. Sales tax rate
  9. The amount charged
  10. Gress amount
  11. Currency translated to PKR

Current Sale Rates Of Supplies

The other current rates are:

SrSuppliesCurrent Rates
1Goods17%
2Services16%, 15%, 13%
3Local imports produce for export10%, 8%, 5%, 3%
4Other specific supplies18.5% – 25.5%
1Office Stationery0%

 

 

We hope this short article helps you with your concerns regarding sales taxes. Before you go for any further purchases make sure you have all the information required.

Capital Gain Tax On Property In Pakistan |Implementation & Calculations

Capital Gain Tax On Property In Pakistan |Implementation & Calculations

Paying tax has now become more complex than before. The reason behind it is that there are different taxes and we are often not well aware about tax types, calculations and implementations. If you are a citizen of Pakistan and you own or intend to own a property, you must know about Capital gain tax on property in Pakistan . There is more risk of being betrayed if you dont know about tax calculation particularly. So, read the article carefully and get yourself aware about updated information to void inconmvenience while filing tax.

 

What Is Capital Gain Tax?

Profits from the sale or exchange of capital assets are known as capital gains. A capital asset, with few limitations, is often any property you own, like; Investment property or Property held for personal use.

The vendor is responsible for paying this tax. The profit, which is taxed when the seller gains money off of the sale of real estate, gives the term its name. The Finance Act of 2017 states that CGT is only assessed when a property is sold within three years of the original purchase. The tax rate varies depending on when the property is sold: 10% in the first year, 7.5% in the second year, and 5% in the third year. Based on the valuation table provided by FBR, these gains are to be determined in accordance with fair market value. The seller will not be responsible for paying CGT on any property kept for more than three years.

 

 

Distinctions Of Capital Gain Tax

There are few things one must understand about capital gain tax :

  • The seller is the only party subject to capital gains tax. The buyer does not pay capital gains tax.
  • It is to be deposited at the time of your annual tax returns.
  • This is only payable on the profits you made; it is not payable on the full amount of the good you sold. The difference between your purchase price and sale price is subject to capital gains tax when selling real estate.

How To Calculate Capital Gain Tax?

Capital gain tax is calculated with the help of three different methods. You can use any of the methods to calculate tax.

 

 

Method 1: Using actual values
Method 2: Using old DC rates and new FBR value
Method 3: Using new FBR value

  • Using New FBR Value

    When buying and selling real estate, you must declare the actual price and deposit the capital gains tax due based on the profits you actually realised.

  • Using Old DC Rates And New FBR Value

    Dc rate at the time of purchase – FBR value at the time of sale = Total Profit (5% CGT on profit )

  • Using New FBR Value

    FBR Value at the time of purchase – FBR value at the time of sale = Total Profit (CGT = 10%,7.5%,5% respectively for 1st , 2nd and 3rd year on profit )

    However, if you sell it another financial year and the FBR value has changed than you will pay CGT as follows.

    FBR Value at the time of purchase – FBR value at the time of sale = Total Profit (CGT = 10%,7.5%,5% respectively for 1st , 2nd and 3rd year on profit )

 

 

Properties Exempted From Property Gain Tax

  • Any immovable property that is allotted to
    1. a shaheed or dependents of a shaheed belonging to Pakistan Armed Forces
    2. a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government
    3. a war wounded person while in service of Pakistan armed forces or Federal or provincial government;
    4. an ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;
  • One fixed asset that belongs to the resident.

 

 

  • Self-owned business space from which individuals listed on the active taxpayers’ registry at any moment during the year conduct their company.
  • Farmhouse (defined in a certain way) and property annexed thereto are not included in self-owned agricultural land where agriculture activity is performed by a person.
  • Any real estate that is mobile and from which income is already subject to income tax.
  • Immovable property that is owned by a local or provincial government.

This is all about Capital gain tax on property. If you re going to file your tax make sure you know everything about it and you have the idea about calculation of tax as well.