What are Professional Services?
Professional services are services provided by a person who is a professional in a particular field, and these services require specialized knowledge, expertise, and skills. The following are examples of professional services:
Legal services provided by lawyers, advocates, and solicitors
Medical services provided by doctors, nurses, and paramedical staff
Engineering services provided by engineers and technicians
Architectural services provided by architects and draftsmen
Accountancy services provided by accountants and auditors
Information technology services provided by software engineers and programmers
Taxation of Professional Services in Pakistan
In Pakistan, income earned from professional services is subject to taxation under the Income Tax Ordinance, 2001. The tax is levied on the gross amount of income received by the taxpayer during the tax year. The rate of tax depends on the status of the recipient, as well as the nature and source of the income.
Tax on Professional Services for Resident Individuals
Resident individuals in Pakistan are subject to tax on professional services income earned from both domestic and foreign sources. The tax rate for resident individuals is progressive and ranges from 5% to 30%, depending on the amount of income earned during the tax year. The following table shows the tax rates applicable to professional services income earned by resident individuals:
Income Earned (PKR)Â Â Â Â Â Tax Rate
Up to 400,000Â Â 5%
400,001 to 800,000Â Â Â Â Â Â Â 10%
800,001 to 1,200,000Â Â Â Â 15%
1,200,001 to 2,400,000 20%
2,400,001 to 4,800,000 25%
Above 4,800,000Â Â Â Â Â Â Â Â Â Â Â Â 30%
Tax on Professional Services for Non-Resident Individuals
Non-resident individuals in Pakistan are subject to tax on professional services income earned from Pakistan sources only. The tax rate for non-resident individuals is a flat rate of 20% on the gross amount of income received during the tax year.
Tax on Professional Services for Resident and Non-Resident Companies
Resident and non-resident companies in Pakistan are subject to tax on professional services income earned from Pakistan sources only. The tax rate for companies is a flat rate of 15% on the gross amount of income received during the tax year.
Example:
Suppose a resident individual in Pakistan earns PKR 1,000,000 from professional services provided domestically during the tax year. The tax payable by the individual will be calculated as follows:
Tax Payable = Income Earned * Applicable Tax Rate
= PKR 1,000,000 * 15%
= PKR 150,000
Therefore, the resident individual will have to pay a tax of PKR 150,000 on the professional services income earned during the tax year.
Conclusion
In conclusion, income earned from professional services is subject to taxation in Pakistan under the Income Tax Ordinance, 2001. The tax rates for resident and non-resident individuals depend on the amount and source of income earned, while companies are subject to a flat rate of 15% on Pakistan source income. It is important for taxpayers to understand their tax obligations
