In Pakistan, the income tax rates for individuals are determined based on the amount of income earned and are progressive in nature. The tax year in Pakistan runs from July 1 to June 30.
Pakistan source income is defined in section 101 of the Income Tax Ordinance, 2001, which caters for Incomes under different heads and situations. Some of the common Pakistan source Incomes are as under: –
- Salary received or receivable from any employment exercised in Pakistan wherever paid;
- Salary paid by, or on behalf of, the Federal Government, a Provincial Government, or a local Government in Pakistan, wherever the employment is exercised;
- Dividend paid by Resident Company;
- Profit on debt paid by a Resident Person;
- Property or rental Income from the lease of immovable property in Pakistan;
- Pension or annuity paid or payable by a Resident or permanent establishment of a Non-Resident
In the budget for the year 2023, the government of Pakistan has set the following income tax rates for salaried individuals individuals:
For income up to Rs. 600,000 the tax rate is 0%.
For income between Rs. 600,001 and Rs. 1,200,000 the tax rate is 2.5%.
For income between Rs. Rs. 1,200,000 and Rs. 2,400,000, the tax rate is 12.5%.
For income between Rs. 2,400,000 and Rs. 3,600,000, the tax rate is 20%.
For income between Rs. 3,600,000 and Rs. 6,000,000, the tax rate is 25%.
For income between 6,000,000 and Rs. 12,000,000, the tax rate is 32.5%
For income over Rs. 12,000,000, the tax rate is 35%.
It’s worth noting that there are also several exemptions and deductions available to individuals to reduce their tax liability. These include deductions for investment in provident funds, pension schemes, and charitable donations, among others.
For businesses, the tax rate is 29%. For banking companies the tax rate is of 39%(increased from 35%).
It’s important to note that these rates and exemptions are subject to change and it’s always best to check with the Federal Board of Revenue (FBR) for the latest information.
Overall, the income tax rates in Pakistan are designed to be progressive, with higher earners paying a higher percentage of their income in taxes. However, there are also exemptions and deductions available to help reduce the tax liability for individuals and businesses.