Navigating Tax Laws in Pakistan

Navigating tax laws in Pakistan can be a complex yet crucial aspect of running a successful business or managing personal finances. With multiple tax types, evolving regulations, and various authorities involved, staying compliant and minimizing your tax burden requires a solid understanding of the Income Tax Ordinance, 2001, Sales Tax Act, 1990, and other applicable laws.

This comprehensive 2025 guide provides entrepreneurs, salaried individuals, exporters, service providers, and corporate entities with a clear roadmap to understanding, complying with, and optimizing tax obligations in Pakistan.


1. Overview of the Tax System in Pakistan

Pakistan’s tax system consists of:

Tax Type Administered By
Income Tax Federal Board of Revenue (FBR)
Sales Tax FBR (on goods), Provinces (on services)
Withholding Tax FBR
Capital Gains Tax FBR
Customs Duty Pakistan Customs
Property and Local Taxes Provincial and local bodies

The system is administered primarily through the FBR, supported by provincial revenue authorities like:

  • PRA (Punjab Revenue Authority)

  • SRB (Sindh Revenue Board)

  • KPRA (Khyber Pakhtunkhwa Revenue Authority)

  • BRA (Balochistan Revenue Authority)


2. Key Tax Laws and Regulations

Law/Regulation Governs
Income Tax Ordinance, 2001 Income tax for individuals and entities
Sales Tax Act, 1990 Sales tax on goods
Provincial Sales Tax Acts Sales tax on services
Federal Excise Act, 2005 Excise duties on selected goods/services
Customs Act, 1969 Import/export regulations
Finance Act (Annual) Yearly updates to tax rates and rules

3. Income Tax in Pakistan

A. Who Must File?

  • Salaried individuals (income > Rs. 600,000)

  • Business owners

  • Companies (private/public/SMC)

  • AOPs (Associations of Persons)

  • Freelancers and consultants

  • Landlords with taxable rental income

  • Exporters and importers

B. Income Heads

Under Section 11 of the Ordinance, taxable income is divided into:

  1. Salary

  2. Business/Profession

  3. Property

  4. Capital Gains

  5. Other Sources (dividends, bank interest, royalty)


4. Income Tax Slabs for Individuals (2024–25)

Annual Taxable Income (PKR) Tax Rate
Up to 600,000 0%
600,001 – 1,200,000 2.5% of excess over 600,000
1,200,001 – 2,400,000 Rs. 15,000 + 12.5% over 1.2M
2,400,001 – 3,600,000 Rs. 165,000 + 20% over 2.4M
3,600,001 – 6,000,000 Rs. 405,000 + 25% over 3.6M
Above 6,000,000 Rs. 1,005,000 + 35% over 6M

5. Taxation of Companies and AOPs

Entity Type Applicable Tax Rate (2025)
Companies 29% corporate income tax
AOPs/Partnerships Flat 29%
Minimum Tax 1.25% of turnover (if no profit)
Super Tax (if applicable) Based on income thresholds

6. Withholding Tax Regime in Pakistan

Pakistan operates a withholding tax regime, where taxes are collected at source.

Common WHT Scenarios:

Nature of Payment Section Rate (ATL) Rate (Non-ATL)
Salary 149 As per slab N/A
Contractor Payment 153(1)(a) 4% 6%
Service Provider 153(1)(b) 8% 12%
Rent (property) 155 10% 15%
Imports 148 2%-6% Higher for non-ATL
Bank transactions (non-filers) 236P 0.6% Applicable to non-ATL

Strategy: Always ensure your name is on the Active Taxpayers List (ATL) to avoid higher rates.


7. Sales Tax on Goods and Services

A. Goods (FBR)

  • Standard rate: 18%

  • Applies to manufacturers, importers, wholesalers, and retailers (Tier-1)

  • Monthly return required by the 18th of each month

  • Sales Tax Registration Number (STRN) is mandatory

B. Services (Provincial)

Province Authority Standard Rate Filing Deadline
Punjab PRA 16% 15th of each month
Sindh SRB 13%-16% 18th of each month
Khyber Pakhtunkhwa KPRA 15% 15th of each month
Balochistan BRA 15% 15th of each month

8. Capital Gains Tax (CGT)

On Property:

Holding Period CGT Rate (2025)
Up to 1 year 15%
1–2 years 10%
2–3 years 5%
After 3 years 0%

On Securities:

  • Varies between 0% to 15% based on holding period and instrument type

  • Tax is often withheld by brokers at source


9. Filing Obligations and Due Dates

Return Type Due Date
Individual Tax Return September 30
Corporate Tax Return December 31 (for companies with year ending June)
Sales Tax Return 18th of each month
WHT Statement (monthly) 15th of each month
WHT Statement (annual) September 30
SECP Annual Return (Form A) 30 days after AGM

10. Tax Credits and Deductions

Section Credit Type Limitations
61 Donations to approved charities Up to 30% of taxable income
62 Investment in listed shares 15% of income or Rs. 5 million
63 Contributions to pension funds (VPS) Up to 20% of taxable income
65B New plant/machinery investment 10% tax credit
65D/E New business/expansion investment Up to 100% tax credit (5 years)

11. Key Tax Forms and Documents

Form Purpose
IRIS Return (Income) Annual income tax return via FBR portal
Form STR-1 Sales Tax registration form
Form A/B/C/29 SECP corporate compliance
WHT Statement Reporting tax deducted at source
Form 45 UBO (Ultimate Beneficial Owner) filing
Wealth Statement Required for individuals earning > Rs. 1M

12. Role of Technology in Tax Compliance

Tool Purpose
IRIS Portal Income tax filing and WHT management
eFBR POS System Real-time invoicing for retailers
Sales Tax Portals PRA/SRB/KPRA/BRA monthly return submission
SECP eServices Corporate filings and annual returns
Accounting Software QuickBooks, Xero, Zoho for report generation

13. Penalties for Non-Compliance

Offense Penalty
Late income tax filing Minimum Rs. 10,000 or 0.1% of turnover
Not appearing on ATL Higher WHT, loss of refunds
Incorrect sales tax returns Fines + default surcharge
Failure to deduct WHT Disallowance of expense + penalty
Non-filing of SECP forms Rs. 500–1,000 per day

14. Tax Planning Tips for Individuals and Businesses

✅ Use all allowable deductions and credits
File returns on time to remain on ATL
✅ Maintain proper records and bank trail
✅ Keep up with Finance Act changes every July
✅ Consult a professional tax advisor for strategy
✅ Use digital tools to automate compliance


15. Frequently Asked Questions (FAQs)

Q1: Do I need to file a return if I already paid tax via salary?
Yes. Filing is mandatory if your income exceeds Rs. 600,000—even if tax was withheld.

Q2: What is the ATL?
The Active Taxpayer List is FBR’s list of compliant taxpayers who enjoy lower WHT rates and other benefits.

Q3: Can I file taxes myself on IRIS?
Yes, but it’s advisable to consult a tax consultant for accuracy, especially if you have multiple income sources.

Q4: What happens if I miss a return deadline?
You face penalties, and your ATL status is suspended, leading to higher WHT.

Q5: Are freelancers and YouTubers taxable in Pakistan?
Yes. Their income falls under business or other sources and must be declared.


16. How Sterling.pk Helps You Stay Tax Compliant

At Sterling.pk, we provide:

✅ Income and sales tax registration (NTN, STRN)
✅ Monthly return filing (IRIS, PRA, SRB)
✅ Withholding tax reconciliation and compliance
✅ Bookkeeping and documentation support
✅ Tax audit preparation and representation
✅ Business-specific tax planning strategies
✅ SECP filing and corporate governance advisory

We simplify compliance so you can focus on growing your business.


Conclusion

Pakistan’s tax landscape is dynamic and multifaceted, but with the right knowledge and expert support, individuals and businesses can navigate tax laws effectively, stay compliant, and reduce their tax burden legally.

Whether you’re filing your first return, registering a new business, or restructuring for tax efficiency, Sterling.pk is your trusted partner for comprehensive, compliant, and customized tax solutions.

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