Taxation of Consulting Services in Pakistan

Consulting services have become a rapidly expanding sector in Pakistan, encompassing a wide range of professional fields including management, financial advisory, IT, legal, HR, marketing, and engineering consultancy. As more professionals and firms offer consulting services to corporate clients, startups, public institutions, and international organizations, it is essential to understand the taxation framework governing these services. Consulting service providers are subject to multiple tax laws, including income tax, sales tax on services, and withholding tax, administered by the Federal Board of Revenue (FBR) and respective Provincial Revenue Authorities. This article offers a detailed guide on the taxation of consulting services in Pakistan, covering legal definitions, registration, applicable tax rates, and compliance obligations.

Scope and Definition of Consulting Services
Consulting services refer to professional advice and expertise offered to organizations to improve performance, solve problems, implement systems, or achieve specific goals. Common types include

• Management consultancy

• Financial and tax consultancy

• HR and recruitment advisory

• Marketing and brand strategy

• IT and systems integration consultancy

• Legal and regulatory advisory

• Engineering, construction, and project management consultancy

These services are typically provided by freelancers, consulting firms, or private limited companies, all of which are subject to Pakistan’s tax regime.

Income Tax under the Income Tax Ordinance, 2001
All individuals, associations of persons (AOPs), and companies offering consulting services are liable to pay income tax under the Income Tax Ordinance, 2001.

Taxation of Individual Consultants (Sole Proprietors)
Freelance or individual consultants are taxed as individuals on a progressive slab basis. For tax year 2025, the following illustrative slabs apply

• Up to Rs. 600,000: 0%

• Rs. 600,001 – Rs. 1,200,000: 5%

• Rs. 1,200,001 – Rs. 2,400,000: 10%

• Rs. 2,400,001 – Rs. 4,800,000: 15%

• Rs. 4,800,001 and above: 20% to 35%

They must obtain a National Tax Number (NTN) and file annual income tax returns via FBR’s IRIS portal. Sole proprietors can also claim deductions for eligible business expenses such as internet, travel, office rent, staff salaries, and equipment depreciation.

Taxation of Firms (AOPs)
Partnerships or consulting firms operating as associations of persons (AOPs) file income tax returns collectively, and their profits are distributed to partners according to the profit-sharing ratio. The individual partners then pay income tax based on their respective shares.

Taxation of Companies (Private Limited)
If the consultancy is registered as a private limited company, it is taxed at a corporate income tax rate of 29% as of tax year 2025.

• Taxable income includes fees for services, retainer income, success fees, and commissions.

• Deductions for allowable expenses can be claimed as per Sections 20–21 of the Ordinance.

• The company is also required to file audited financial statements annually.

Minimum Tax under Section 113
Regardless of profit, consulting firms and companies must pay minimum tax under Section 113 of the Ordinance if tax liability is lower than 1.25% of turnover. This ensures that entities reporting low profits still contribute to the national tax base.

Advance Tax under Section 147
Firms and companies are also required to pay quarterly advance tax based on their estimated annual tax liability. Failing to pay or underestimating can result in default surcharge and penalties.

Sales Tax on Consulting Services
Consulting services are taxable under sales tax on services laws enacted by provinces and the federal territory. Every consultant or consulting firm must determine the correct jurisdiction and register accordingly to collect and remit sales tax.

Sindh Revenue Board (SRB)
Under the Sindh Sales Tax on Services Act, 2011, consulting services are taxable at 13%. This applies to

• Consultants operating in Sindh

• Firms providing consultancy to clients in Sindh

SRB requires registration through its online portal, issuance of tax invoices, and monthly filing of returns.

Punjab Revenue Authority (PRA)
PRA taxes consulting services under the Punjab Sales Tax on Services Act, 2012 at 16%. All consultants operating in Punjab or serving Punjab-based clients must

• Register with PRA

• Obtain a Sales Tax Registration Number (STRN)

• File monthly sales tax returns

• Maintain digital and hard-copy records

Khyber Pakhtunkhwa Revenue Authority (KPRA)
Under the Khyber Pakhtunkhwa Finance Act, 2013, KPRA imposes a 15% sales tax on all consultancy services rendered in KP. The registration and return process is fully digital. Consultants working from Peshawar or other KP cities must comply with KPRA rules.

Balochistan Revenue Authority (BRA)
BRA requires consulting service providers based in Balochistan to pay 15% sales tax. Consultants must file monthly returns and keep proper records of services and sales tax paid.

Islamabad Capital Territory – Federal Board of Revenue (FBR)
In Islamabad, sales tax is imposed as Federal Excise Duty (FED) under the Federal Excise Act, 2005. Consulting services are taxed at 16% and are managed through FBR’s IRIS and eFBR systems. Consultants must

• Register for FED

• File monthly returns

• Deposit tax through designated banks

Determining Tax Jurisdiction
The place of provision determines which authority has the right to tax. If a consultant based in Lahore serves a Karachi-based client, SRB may claim jurisdiction based on client location. Proper contract documentation and invoicing are required to justify place of supply and avoid double taxation disputes.

Withholding Tax on Consulting Payments
Consulting fees paid to service providers are subject to withholding tax under Section 153(1)(b) of the Income Tax Ordinance, 2001.

• Clients must deduct 10% tax on professional fees and deposit it to FBR.

• The withheld tax is adjustable for registered consultants.

• Unregistered consultants may face higher withholding rates or disallowance of expense deductions.

Withholding Obligations of Consulting Firms
Consulting firms must also act as withholding agents and deduct tax on

• Salaries under Section 149

• Rent under Section 155

• Contractor or supplier payments under Section 153
  They must deposit the withheld tax within 7 days of deduction and file quarterly withholding statements.

Export of Consulting Services and Tax Exemptions
Consultants offering services to clients outside Pakistan may be eligible for sales tax exemption or zero-rating, depending on the tax authority.

• The services must be delivered to a non-resident and paid in foreign currency via proper banking channels.

• Proof such as SWIFT messages, client contracts, and work deliverables must be maintained.

• FBR and provincial authorities often require registration and filings even for exporters.

Tax Registration Requirements for Consultants
To operate legally and claim input tax adjustments, consultants must

• Obtain an NTN from FBR

• Register for sales tax with the relevant PRA, SRB, KPRA, BRA, or FBR

• Issue proper invoices with their NTN and STRN

• Maintain books of account for income and sales tax

• File monthly sales tax returns and annual income tax returns

Common Allowable Deductions for Consultants

• Salaries of employees

• Rent for office premises

• Utility bills and communication expenses

• Travel and accommodation for client meetings

• Business promotion and digital marketing

• Professional software subscriptions

• Accounting and legal fees
  Consultants must retain invoices and payment proof for all claimed deductions.

Invoicing and Recordkeeping Requirements
Consultants must

• Issue numbered and dated sales tax invoices

• Mention client’s name, tax number, and service description

• Maintain client files, contracts, and tax records for at least 6 years

• Use accounting software for real-time tracking and audit preparedness

Tax Challenges for Consulting Service Providers

• Complex multi-jurisdictional tax compliance when serving clients in different provinces

• Difficulty in claiming zero-rating for exported services

• Client resistance to paying or bearing sales tax

• Lack of awareness about withholding tax obligations

• Risk of not being listed on ATL and facing higher deduction rates

Benefits of Tax Compliance for Consultants

• Listing on the Active Taxpayer List (ATL)

• Eligibility to work with corporate and government clients

• Improved credibility and bankability

• Access to tax credits and input tax adjustments

• Legal protection and professional recognition

Conclusion
Consulting services in Pakistan are subject to a well-defined tax regime that includes income tax, sales tax on services, and withholding tax. Whether you are an individual consultant, a small firm, or a large consulting company, registering with FBR and the relevant provincial authority is critical for maintaining compliance and ensuring business sustainability. As the consulting sector continues to grow and digital services expand, the need for accurate tax compliance becomes even more vital. Consultants who understand and manage their tax obligations properly not only avoid penalties but also gain a competitive edge in the formal economy.