In Pakistan, tax is a compulsory financial charge or levy imposed by the government on individuals, businesses, and other entities to fund public services, infrastructure, defense, and other state functions. Taxes are governed primarily under the Income Tax Ordinance, 2001, Sales Tax Act, 1990, and Federal Excise Act, 2005, among others.
There are two main types of taxes in Pakistan: Direct Taxes and Indirect Taxes.
Types of Taxes in Pakistan
1. Direct Taxes
Direct taxes are levied directly on individuals and organizations based on income or wealth. The major types include:
• Income Tax – charged on income earned by individuals, companies, and AOPs.
• Capital Gains Tax (CGT) – applicable on the sale of securities, property, or other capital assets.
• Withholding Tax – deducted at source on payments like salaries, contracts, rent, dividends, etc.
2. Indirect Taxes
Indirect taxes are collected through the sale of goods and services and passed on to the government by intermediaries (e.g., sellers or service providers). These include:
• Sales Tax – generally 18%, levied on the sale and import of goods and services.
• Federal Excise Duty (FED) – imposed on specific goods (e.g., tobacco, beverages) and services.
• Customs Duty – charged on imported goods at various rates.
Who Collects Taxes in Pakistan
Tax collection is managed by the Federal Board of Revenue (FBR) at the federal level. Additionally, each province has its own revenue authority:
• Punjab Revenue Authority (PRA)
• Sindh Revenue Board (SRB)
• Khyber Pakhtunkhwa Revenue Authority (KPRA)
• Balochistan Revenue Authority (BRA)
Importance of Paying Taxes
Paying taxes is a civic duty and essential for national development. It enables the government to:
• Build infrastructure (roads, schools, hospitals)
• Fund defense and law enforcement
• Support education, health, and welfare programs
• Maintain economic stability
Common Taxpayer Categories in Pakistan
• Salaried Individuals
• Business Individuals
• Companies (Private/Public Ltd.)
• AOPs (Associations of Persons)
• Non-Resident Pakistanis (on certain incomes)
Filing and Compliance
Individuals and businesses must file annual Income Tax Returns and Wealth Statements (where applicable) through the FBR’s IRIS Portal. Failure to do so can result in fines, penalties, and loss of filer status.
Filer vs. Non-Filer:
Filer status gives taxpayers benefits like lower withholding tax rates, eligibility for government tenders, and other financial advantages.
Conclusion
Taxation in Pakistan is structured to ensure equitable distribution of wealth and to generate revenue for national development. By becoming a tax filer and staying compliant, individuals and businesses contribute to the country’s progress while enjoying legal and financial benefits.
