The Government of Pakistan collects tax through the Federal Board of Revenue (FBR) and these taxes are used to fund government operations, services and infrastructure. There are different types of tax payers who are charged differently based on different variables, types of tax payers are explained below:-
- Individual Taxpayers: An individual taxpayer is a person who is taxed on their income earned from employment, business, capital gains, and other sources. Examples include salaried employees, self-employed individuals, and professionals.
- Association of Persons (AOPs): An Association of Persons (AOP) is a group of individuals who join together to carry out a common business or trade. The tax on the income of an AOP is paid by the members collectively. Examples include partnerships, joint ventures, and joint stock companies.
- Companies: A company is a legal entity that is taxed as a separate entity from its owners. Examples include limited liability companies, private limited companies, and public limited companies.
- Partnership Firms: A partnership firm is a business in which two or more individuals own and operate the business together. The profits and losses are shared among the partners. Examples include general partnerships, limited partnerships, and limited liability partnerships.
- Non-Resident Taxpayers: Non-resident taxpayers are individuals or companies that do not reside in Pakistan but have taxable income within the country. Examples include foreign companies with branches in Pakistan, foreign nationals working in Pakistan, and individuals who receive rent from properties located in Pakistan.
- Trusts: A trust is a legal arrangement in which an individual or organization holds assets for the benefit of another person or entity. Trusts are taxed on their income. Examples include charitable trusts, private trusts, and religious trusts.
- Clubs, Societies, and Other Similar Organizations: Clubs, societies, and other similar organizations are taxed on their income from membership fees, activities, and other sources. Examples include sports clubs, social clubs, and cultural organizations.
Being an active taxpayer(ATL) has multiple benefits from the government of Pakistan, such as:-
- Lower rates of tax deduction at source by banks on both profits and cash withdrawals
- Reduction on withholding tax (tax already deducted from your income and gains) when registering and transferring motor vehicles
- Lower rate of tax on buying and selling of property
- Lower withholding tax rate on capital gains on sale of securities
- Charges for tax on dividend will be lower
- Lower rate of withholding tax on prize bond winnings
- Allows you to claim back overpaid tax that has been withheld