Taxation of Transport Services in Pakistan

Transport services form the backbone of Pakistan’s economic activity—moving people, goods, and raw materials across cities and provinces. Whether it’s freight logistics, intercity buses, ride-hailing apps, or commercial trucking, transport operators must navigate a complex web of tax regulations that involve both federal and provincial tax authorities. The nature of transport services—often mobile and cross-jurisdictional—creates unique compliance challenges. This article provides a complete guide to the taxation of transport services in Pakistan, covering income tax, sales tax on services, withholding tax, tax exemptions, and compliance requirements.

1. Definition of Transport Services in Pakistan

Transport services in Pakistan include:

• Goods transport (freight and logistics)

• Passenger transport (intercity, urban buses, coasters, vans)

• Ride-hailing platforms (e.g., Careem, InDrive)

• Courier and delivery services

• Trucking and commercial fleets

• Transport via rail, air, or sea (where applicable under private contracts)

These services may be operated by individuals, companies, or transport unions, and are subject to different tax rules based on their scope and revenue model.

2. Regulatory Authorities Involved

Taxation and compliance for transport businesses involve:

• Federal Board of Revenue (FBR) – for income tax and withholding

• Provincial Revenue Authorities – for sales tax on services

  • Punjab Revenue Authority (PRA)

  • Sindh Revenue Board (SRB)

  • Khyber Pakhtunkhwa Revenue Authority (KPRA)

  • Balochistan Revenue Authority (BRA)

• Pakistan Railways, NHA, Excise & Taxation Departments – for licensing and vehicle taxes

3. Income Tax on Transport Services

a. Applicable Income Tax Provisions

Transport service providers are subject to income tax under the Income Tax Ordinance, 2001. The applicable rate depends on the business structure:

• Sole Proprietor/Individual – Progressive rates (0%–35%)

• Association of Persons (AOPs) – Progressive slab rates

• Private Limited Companies – Flat corporate tax rate of 29%

• Small Companies (as per Section 2(59A)) – 20% corporate rate

b. Presumptive Tax Regime for Goods Transport

Goods transport operators (e.g., trucks, trailers) fall under a special presumptive tax regime as per Section 234 of the Income Tax Ordinance.

Section 234: Motor Vehicle Tax

• Tax is collected at the time of vehicle registration, fitness renewal, or token tax payment

• Based on the laden weight or seating capacity

This is a final tax for individuals and AOPs engaged in goods transport.

c. Normal Tax Regime for Companies

Private Limited Companies engaged in freight or passenger transport do not fall under presumptive tax. They are required to:

• Maintain proper books of account

• File annual income tax returns

• Pay corporate tax on net profit

• Deduct and file withholding taxes

4. Sales Tax on Transport Services

Sales tax on services is a provincial subject under the Constitution of Pakistan (post-18th Amendment). However, exemptions and reduced rates apply to transport services.

a. Passenger Transport

• Intercity and intracity passenger transport services are generally exempt from sales tax across all provinces.

• Bus terminals and transport fleets offering fixed-route transport are not required to charge or file sales tax.

b. Goods Transport

• Freight services involving the transport of goods (trucking/logistics) are exempt in most provinces if the service is not bundled with warehousing or logistics consultancy.

c. Ride-Hailing and App-Based Services

Provincial authorities have started applying reduced-rate sales tax on ride-hailing platforms.

Platforms like Careem, Uber, and InDrive are registered sales tax agents, responsible for collecting and depositing tax on behalf of drivers.

5. Withholding Tax Obligations

Transport companies and logistics operators often hire subcontractors or lease vehicles, which may trigger withholding tax.

a. Section 153(1)(b) – Payments to transporters and service providers may attract withholding tax of 2%–3% if the payer is:

• A company

• An AOP

• A government or public-sector entity

b. Section 149 – Withholding on employee salaries applies normally
c. Section 155 – Withholding on rent (for terminals, garages)

6. Tax Filing Requirements for Transport Businesses

a. Income Tax Return Filing

All registered transport businesses must:

• File annual income tax returns via FBR’s IRIS Portal

• Attach financial statements if a company or large AOP

• Submit wealth statement (individuals)

b. Withholding Tax Statements (Section 165)

Monthly or quarterly statements must be filed for:

• Salaries

• Subcontractor payments

• Fuel and maintenance vendor services (if applicable)

c. Sales Tax Returns

If applicable, sales tax returns must be filed monthly through:

• PRA for Punjab-based services

• SRB, KPRA, or BRA for others

Even if the transport service is exempt, NIL returns may be required by registered businesses.

7. Registration Requirements

a. FBR Registration

• NTN (National Tax Number) is mandatory

• Income tax filing is compulsory even if business is under final tax regime (Section 234)

b. Sales Tax Registration

Required only if the transport service:

• Is taxable under provincial law (e.g., aggregator service)

• Provides combined logistics services (including warehousing)

c. SECP Incorporation (Optional)

Many large logistics and ride-hailing firms operate as Private Limited Companies, offering:

• Limited liability

• Brand credibility

• Easier financing and fleet leasing options

8. Tax Exemptions and Special Provisions

9. Taxation of Vehicle Owners vs. Aggregators

In many cases, individual vehicle owners (e.g., truck or bus owners) operate through aggregators (companies managing fleets or platforms).

Tax implications differ:

• Vehicle Owner (Individual): Pays fixed motor vehicle tax (Section 234) – final tax

• Aggregator/Company: Pays income tax on profits, deducts WHT, files sales tax (if applicable)

This structure is common in ride-hailing and logistics platforms.

10. Fuel Adjustments and Input Tax Credit

Transport companies cannot claim input tax on:

• Fuel

• Motor vehicles

• Non-taxable services

Only registered taxable services may claim input adjustment for sales tax purposes.

11. Tax Challenges in the Transport Sector

• Unregistered operators dominate the market

• Cash transactions lead to poor traceability

• Fragmented ownership makes record-keeping difficult

• Ride-hailing regulations are still evolving

• Multiple provincial jurisdictions create compliance burdens

12. Audit and Documentation

Registered companies must maintain:

• Vehicle registration and token tax receipts

• Fuel and maintenance invoices

• Freight contracts and delivery notes

• Employee and subcontractor payment records

• Route permits and licenses

FBR or PRA may audit for non-filing, incorrect tax deduction, or under-reported income.

13. Penalties for Non-Compliance

14. Role of Sterling.pk in Transport Tax Compliance

At Sterling.pk, we help transport service providers navigate complex tax regulations through:

• NTN and sales tax registration

• Proper classification under presumptive or normal tax regimes

• Monthly tax filing and withholding support

• Structuring of aggregator and fleet management businesses

• Audit preparation and compliance consulting

We ensure you focus on growing your operations while we manage your compliance and tax risk.

Conclusion

Taxation of transport services in Pakistan involves both federal income tax and provincial sales tax laws. While many services are exempt or fall under presumptive tax regimes, businesses still have to register, file returns, and maintain documentation. With new models like ride-hailing and integrated logistics gaining traction, the transport sector must be more tax-aware than ever.

At Sterling.pk, our transport tax experts help you stay compliant, reduce your tax liability, and structure your business for sustainable growth across Pakistan’s regulatory landscape.