Education is considered a fundamental public service in Pakistan, and due to its importance in national development, it enjoys various tax exemptions and incentives. However, not all educational institutions are treated the same under the tax laws of Pakistan. As the sector expands through private schools, colleges, universities, vocational institutes, and EdTech platforms, understanding the tax treatment becomes essential for compliance and sustainability.
This article provides a comprehensive guide to the taxation of education services in Pakistan, covering income tax, sales tax, withholding tax, and the regulatory landscape involving the Federal Board of Revenue (FBR) and Provincial Revenue Authorities.
Legal Framework Governing Taxation
1. Federal Board of Revenue (FBR)
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Governs income tax, sales tax on goods, and withholding taxes
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Regulates the tax status of non-profit educational institutions
2. Provincial Revenue Authorities
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Govern sales tax on services, including education-related services
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Authorities include PRA, SRB, KPRA, and BRA
Classification of Educational Institutions
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Non-Profit Educational Institutions
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Operated by trusts, societies, or Section 42 companies
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Often enjoy tax exemptions
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Must be registered with SECP and approved by FBR under Section 2(36) and Section 100C of the Income Tax Ordinance, 2001
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Private Sector Educational Institutions (For-Profit)
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Operated as companies or sole proprietorships
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Subject to full income tax and sales tax on taxable services
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Vocational and Professional Institutes
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May be treated as educational or training services depending on province
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Taxability varies
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Online and EdTech Platforms
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Subject to both income tax and sales tax on digital services if monetized commercially
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May fall under IT services rather than traditional education
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Income Tax Treatment of Education Services
1. Non-Profit Educational Institutions
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Exempt from income tax if approved under Section 2(36) read with Section 100C
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Must file application to Commissioner Inland Revenue with:
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SECP license (if applicable)
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Audited accounts
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Organizational structure
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Details of donations and utilization of funds
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Exemption is granted for 3 years, subject to renewal
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Filing of annual tax return is mandatory even if exempt
2. For-Profit Institutions
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Taxed as regular businesses under Income Tax Ordinance, 2001
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Rates applicable:
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Companies: 29% corporate tax (Tax Year 2025)
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Individuals or AOPs: Progressive slabs up to 35%
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Minimum tax under Section 113 if low/no profit
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Deductible expenses include:
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Salaries of teachers and staff
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Rent and utility bills
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Learning materials and supplies
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IT and education software costs
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Repairs, depreciation, and marketing
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3. Filing Requirements
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NTN and registration on FBR Iris
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Annual tax return with audited accounts (if required)
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Statement of donations (if a non-profit)
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Quarterly advance tax (for companies or large institutions)
Sales Tax on Education Services
General Rule: Core education services are exempt from provincial sales tax under all provincial laws.
Exempt Services (as per PRA, SRB, KPRA, BRA):
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Primary, secondary, higher secondary education
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Degree programs by colleges and universities
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Tuition and examination services by registered institutions
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Vocational and technical training (in some cases)
Taxable Services (Varies by Province):
| Service Type | Taxable? |
|---|---|
| Short courses not leading to degrees | Yes (in some provinces) |
| Skill development programs (non-accredited) | Yes |
| Coaching centers/test prep academies | Yes |
| Online learning platforms (if commercial) | Yes |
| Education consultancy or student visa services | Yes |
| Hosting events, renting facilities for training | Yes |
| Cafeteria or canteen within educational institution | Taxable (if run separately) |
Sales Tax Rates by Province
| Province | Rate | Legal Basis |
|---|---|---|
| Punjab | 16% | PRA Second Schedule |
| Sindh | 13% | SRB Notification |
| KPK | 15% | KPRA Schedule |
| Balochistan | 15% | BRA Notification |
Sales Tax Compliance
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Institutions providing taxable services must obtain Sales Tax Registration Number (STRN)
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File monthly returns
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Issue sales tax invoices
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Claim input tax adjustment on purchases directly related to taxable services
Hybrid Institutions
Institutions providing both exempt and taxable services must apportion input tax credits accordingly.
Withholding Tax Obligations
As Withholding Agents
Educational institutions are required to deduct and deposit tax on payments such as:
| Payment Type | Section | Rate |
|---|---|---|
| Salaries | 149 | As per tax slab |
| Rent | 155 | 7.5% to 15% |
| Contractor payments | 153(1)(a) | 4.5% to 10% |
| Professional services | 153(1)(b) | 10% |
| Utility bills | 235 | As per usage |
| Commission/agent fees | 233 | 12% |
As Recipients
When receiving large payments from businesses or public institutions (e.g., corporate training), those payers may deduct withholding tax under Section 153.
Tax Treatment of EdTech and Online Learning Platforms
Online platforms offering courses, certifications, and educational content for a fee are taxable if:
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Commercially monetized
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Not registered as non-profit
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Not recognized by education boards or HEC
Such platforms are also subject to:
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Income tax as business income
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Sales tax on services as online education providers
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Withholding tax if payments are received via payment gateways or corporate clients
Non-Profit Institutions and Tax Exemption Conditions
To qualify for exemption, the institution must:
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Be registered as a Section 42 Company, Society, or Trust
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Not distribute profits to members or shareholders
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Use all income exclusively for education purposes
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Maintain transparent books of account
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File tax return annually
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Submit audited financial statements and activity reports
FBR and SECP Registration Requirements
| Requirement | For-Profit | Non-Profit |
|---|---|---|
| FBR NTN & Tax Return | Mandatory | Mandatory |
| Sales Tax Registration | If taxable services | If taxable services |
| SECP Registration | Optional (for sole/AOP) | Mandatory (Section 42) |
| Income Tax Exemption | Not available | Section 100C available |
| Audited Accounts | If turnover > Rs. 100m | Always required |
| Donor/NGO Approval | Not required | Required for foreign grants |
Penalties for Non-Compliance
| Violation | Penalty |
|---|---|
| Non-filing of tax return | Rs. 2,500/month (max Rs. 50,000) |
| Non-payment of sales tax | Default surcharge and Rs. 10,000 to Rs. 100,000 |
| No sales tax registration | Rs. 100,000 or higher |
| Failure to deduct withholding tax | 100% of tax + penalty |
| Misuse of non-profit status | Deregistration + tax on income |
Tax Planning and Compliance Tips
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Register correctly with FBR and relevant provincial authorities
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Keep separate accounts for taxable and exempt services
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Claim all allowable deductions and input tax credits
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File all returns (income, sales, withholding) on time
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Maintain records for 6 years for audit readiness
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For EdTech and online platforms, clearly disclose income streams
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Apply for Section 100C exemption if eligible as a non-profit institution
Conclusion
While education services are largely exempt from sales tax, many allied and commercial services are taxable under federal and provincial tax laws. Institutions must evaluate their structure—for-profit vs non-profit—and comply with relevant income tax, sales tax, and withholding obligations.
Whether operating a school, university, coaching center, or online learning platform, proper tax registration and filing are essential for long-term sustainability and legal compliance.
