The minimum tax is a form of direct tax levied on taxpayers, regardless of whether they earn a profit or incur a loss. In Pakistan, the minimum tax is governed by the Income Tax Ordinance, 2001. This guide will provide a comprehensive overview of minimum tax in Pakistan, including definitions, rates, and examples.
What is Minimum Tax?
The minimum tax is a flat rate tax imposed on individuals or companies who are subject to income tax in Pakistan. This tax is levied irrespective of whether the taxpayer makes a profit or a loss in the tax year.
Who is Subject to Minimum Tax?
In Pakistan, the following individuals and entities are subject to minimum tax:
Companies registered under the Companies Act, 2017.
Association of Persons (AOPs).
Taxpayers who have an annual turnover exceeding PKR 10 million.
Minimum Tax Rates
The minimum tax rates are different for each category of taxpayer. The following table shows the minimum tax rates applicable in Pakistan:
Category of Taxpayer Minimum Tax Rate
Turnover > PKR 10m 0.5%
How is Minimum Tax Calculated?
The minimum tax is calculated on the basis of turnover or gross receipts. The turnover is the total amount of revenue generated from the sale of goods or services during the tax year.
For companies and AOPs, the minimum tax is calculated as 1.5% of turnover. For non-profit organizations, the minimum tax is calculated as 1% of turnover. For taxpayers whose turnover exceeds PKR 10 million, the minimum tax is calculated as 0.5% of turnover.
Suppose a company has a turnover of PKR 20 million for the tax year. The minimum tax payable by the company will be calculated as follows:
Minimum Tax = Turnover * Minimum Tax Rate
= PKR 20,000,000 * 1.5%
= PKR 300,000
Therefore, the company will have to pay a minimum tax of PKR 300,000 for the tax year.
Exceptions to Minimum Tax
There are certain exceptions to minimum tax in Pakistan. The following taxpayers are not required to pay minimum tax:
Companies that are newly incorporated and have not started their business activities.
AOPs that are newly formed and have not commenced their business activities.
Taxpayers who are subject to tax under the Final Tax Regime.
Taxpayers who are exempt from tax under any provision of the Income Tax Ordinance, 2001.
In conclusion, the minimum tax is a form of direct tax levied on taxpayers in Pakistan. The minimum tax rates are different for each category of taxpayer, and the tax is calculated on the basis of turnover or gross receipts. There are certain exceptions to minimum tax, such as newly formed companies and AOPs that have not commenced business activities, taxpayers subject to the Final Tax Regime, and those exempt from tax under the Income Tax Ordinance, 2001. It is important for taxpayers to understand the minimum tax requirements and comply with the tax laws to avoid penalties and legal action.