The accountancy profession plays a crucial role in Pakistan’s economic framework, supporting businesses, regulators, and government bodies with services such as auditing, tax consultancy, bookkeeping, financial advisory, and compliance reporting. As this sector grows in scope and complexity, so do its tax obligations. Accountancy service providers, whether operating as individual practitioners, partnership firms, or private companies, are subject to multiple layers of taxation involving income tax, sales tax on services, and withholding taxes. This article provides an in-depth explanation of the taxation of accountancy services in Pakistan, covering the applicable laws, tax authorities, registration processes, compliance requirements, and regional variations.
Definition and Scope of Accountancy Services
Accountancy services include all professional services provided by accountants, chartered accountants, cost and management accountants, and registered accountancy firms. These services typically include
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Financial reporting and preparation of accounts
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Audit and assurance services
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Tax planning and filing
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Internal controls and risk management
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Bookkeeping and payroll processing
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Corporate advisory and restructuring
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Compliance with SECP and FBR regulations
Accountants and accountancy firms are regulated by professional bodies like the Institute of Chartered Accountants of Pakistan (ICAP) and the Institute of Cost and Management Accountants of Pakistan (ICMAP). However, from a taxation perspective, they are governed by federal and provincial tax laws.
Income Tax under the Income Tax Ordinance, 2001
Accountants and accountancy firms are liable to pay income tax on their professional income under the Income Tax Ordinance, 2001. The taxation treatment varies based on the structure of the service provider.
Taxation of Individual Practitioners
Accountants operating as sole proprietors are taxed as individuals based on progressive income tax slabs. As of tax year 2025, the following slab rates apply (illustrative):
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Income up to Rs. 600,000: 0%
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Rs. 600,001 to Rs. 1,200,000: 5%
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Rs. 1,200,001 to Rs. 2,400,000: 10%
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Rs. 2,400,001 to Rs. 4,800,000: 15%
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Rs. 4,800,001 and above: 20% to 35%
They must obtain an NTN (National Tax Number) and file annual tax returns through the FBR IRIS portal.
Taxation of Partnership Firms
Accountancy firms structured as partnerships are taxed under Sections 92–94 of the Ordinance.
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The firm’s income is computed and then allocated among partners according to their profit-sharing ratio.
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Each partner includes their share of profit in their individual tax return.
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The firm itself may be subject to minimum tax under Section 113 if it reports losses or low profits.
Taxation of Incorporated Accountancy Firms
If the firm is incorporated as a private limited company, it is taxed at the corporate rate of 29% as of 2025.
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It must file corporate income tax returns along with audited financial statements.
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Tax on dividends or salaries paid to directors must be withheld and deposited accordingly.
Advance Tax under Section 147
Firms and individuals with taxable income must pay advance tax quarterly based on estimated income. This prevents underreporting and ensures timely government revenue. Failure to pay can attract penalties and default surcharge.
Minimum Tax under Section 113
Where a firm or company reports a loss or low taxable income, it must pay minimum tax equal to 1.25% of turnover, unless exempted or operating in specific sectors.
Allowable Business Expenses
The following expenses are deductible when computing taxable income:
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Salaries and staff benefits
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Rent and utilities
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Office supplies and depreciation
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Software subscriptions and licenses
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Travel and professional development
Proper documentation and verifiable records are required to support deductions, especially during audits.
Sales Tax on Accountancy Services
Accountancy services are considered taxable services under provincial sales tax laws. As such, accountants and firms must register with the respective provincial revenue authorities and charge sales tax on invoices issued to clients.
Sales Tax in Punjab – PRA
Under the Punjab Sales Tax on Services Act, 2012, accountancy and auditing services are subject to 16% sales tax.
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Accountants must register with the Punjab Revenue Authority (PRA).
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File monthly sales tax returns even if there is no taxable activity.
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Issue proper tax invoices with their Sales Tax Registration Number (STRN).
Sales Tax in Sindh – SRB
The Sindh Revenue Board (SRB) levies 13% sales tax on accountancy services under the Sindh Sales Tax on Services Act, 2011.
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Firms based in Karachi or other Sindh districts must register with SRB.
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Monthly return filing is mandatory.
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Digital invoicing is encouraged to reduce errors and improve compliance.
Sales Tax in Khyber Pakhtunkhwa – KPRA
Under the Khyber Pakhtunkhwa Finance Act, 2013, accountancy services are taxed at 15%.
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Registration with KP Revenue Authority (KPRA) is required.
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Monthly filing of sales tax returns is mandatory.
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Firms may be audited periodically for compliance.
Sales Tax in Balochistan – BRA
Accountants based in Balochistan must register with the Balochistan Revenue Authority (BRA) and charge 15% sales tax on services.
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Returns are filed monthly.
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BRA may issue notices for discrepancies or non-filing.
Islamabad Capital Territory – FBR
In the Islamabad Capital Territory (ICT), services are taxed under the Federal Excise Act, 2005, and administered by the Federal Board of Revenue (FBR) at a rate of 16%.
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Registration is done through the FBR portal.
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Monthly filing of federal excise returns is required.
Determining Tax Jurisdiction
Jurisdiction for sales tax purposes is determined based on the location of service delivery or the client’s address.
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If an accountant based in Lahore provides services to a Karachi-based client, SRB may claim jurisdiction.
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Service providers must carefully track client locations and structure invoicing accordingly to avoid dual taxation issues.
Withholding Tax on Accountancy Fees
Professional fees paid to accountants are subject to withholding tax under Section 153(1)(b) of the Income Tax Ordinance, 2001.
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Corporate clients must deduct 10% withholding tax and deposit it with FBR.
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The tax withheld is adjustable against the accountant’s annual liability.
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Proper documentation including withholding certificates must be maintained.
Withholding Obligations of Firms
Accountancy firms also act as withholding agents when making payments such as:
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Salaries (Section 149)
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Rent (Section 155)
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Contractor payments (Section 153)
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Profit on debt (Section 151)
Failure to comply leads to disallowance of expenses and imposition of penalties by FBR.
Taxation of Exported Accountancy Services
When accountancy services are provided to foreign clients, they may qualify as export of services, which can be zero-rated or exempt from sales tax, depending on the jurisdiction.
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Proof of foreign remittance through banking channels is required.
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Contracts, service delivery documents, and invoices must clearly indicate the non-resident client.
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Taxpayers must consult PRA, SRB, or other relevant authorities for documentation requirements to claim exemptions.
Tax Registration and Compliance Requirements
To remain compliant, accountancy service providers must:
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Obtain NTN and STRN
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File monthly sales tax returns and annual income tax returns
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Pay advance tax and minimum tax as applicable
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Maintain invoice books, client ledgers, and tax payment records
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Issue proper tax invoices with applicable sales tax and withholding details
Record-Keeping Obligations
All registered professionals must maintain:
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Sales and purchase ledgers
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Bank statements
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Expense vouchers
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Tax challans and return copies
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Audit working papers and client contracts
These records must be preserved for six years under the Income Tax Ordinance and sales tax laws.
Audit and Enforcement by Tax Authorities
FBR and provincial tax authorities have the power to:
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Conduct desk and field audits
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Issue show-cause notices
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Impose penalties and default surcharge for non-compliance
Timely filing and accurate recordkeeping can help reduce audit risk and penalties.
Common Challenges in Taxation of Accountancy Services
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Jurisdictional overlap between provinces and federal territory
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Client reluctance to bear sales tax on professional invoices
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Dual registration obligations in case of national client base
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Delays in refunds or sales tax adjustments
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Frequent law changes and budgetary amendments
Professional accountants must stay informed, train staff, and possibly engage tax consultants to ensure ongoing compliance.
Conclusion
The taxation of accountancy services in Pakistan is multifaceted, involving both income tax and sales tax regimes across multiple jurisdictions. Whether operating as a sole practitioner or a registered firm, accountants must comply with registration requirements, invoice properly, file timely returns, and fulfill withholding tax obligations. With growing digitization, increased audit frequency, and inter-agency coordination, tax compliance has become essential for sustaining credibility and business continuity in the accountancy sector. By understanding the applicable tax laws and implementing robust systems, accounting professionals can fulfill their legal obligations while focusing on delivering quality services to clients.
