All individuals in Pakistan are required to file an Annual Tax Return of their financial activities and situation by the end of September every year, if they meet certain conditions including criteria of income and assets. All non-resident Pakistanis are also required to file the Return, if they meet certain conditions.
And why should people file a Return? There are three good reasons:
- Filers are saved from FBR penalties
- Filers are saved from 100% extra withholding tax rates across numerous categories
- It’s an act of good citizenship!
The basic criteria for the requirement of filing of Income Tax Return for individuals are any one of the following:
- Has obtained National Tax Number
- Having a minimum taxable salary of PKR 600,000 per annum
- In case of non-salaried person, having a minimum taxable income of PKR 400,000, from business or other heads of income
- Having any real estate property exceeding specified area, located in specified locations, registered in their name
- Having a motor vehicle (1000 CC or more) registered in their name
In Pakistan, income is taxed based on its source or type. The income can be taxed under the following regimes:
- Final Tax Regime (FTR). Some income categories are classified as FTR and there are fixed rates for income tax within each category. Any tax on such income is considered final and such income is not added to the income pool for the other regimes. Examples of FTR categories are dividends, income on saving schemes to name a few.
- Minimum Tax Regime (MTR). In this regime a minimum tax is charged if the tax liability under NTR is lesser of tax deducted at source.
- Normal Tax Regime (NTR). Under this regime, tax is payable on net income basis i.e. (Income less deductible expenses). Tax rate is applied based on the slabs of income (listed below).
- Separate Block of Income. Certain types of incomes are subject to specified tax rates and are kept separate from incomes under other regimes.
- Exempt Income. Certain types of incomes are exempt from income tax according to the law.
If a person’s salary income is 75% or more of the total NTR income, then the salary tax slabs are applicable otherwise the business tax slabs are applicable.
Salary Tax Slabs:
|
Annual Salary Income between |
Fixed Amount |
Percentage on Amount Above |
|
PKR 0 and 600,000 |
Zero |
Zero |
|
PKR 600,000 and 1,200,000 |
Zero |
5.00% above PKR 600,000 |
|
PKR 1,200,000 and 1,800,000 |
PKR 30,000 |
10.00% above PKR 1,200,000 |
|
PKR 1,800,000 and 2,500,000 |
PKR 90,000 |
15.00% above PKR 1,800,000 |
|
PKR 2,500,000 and 3,500,000 |
PKR 195,000 |
17.50% above PKR 2,500,000 |
|
PKR 3,500,000 and 5,000,000 |
PKR 370,000 |
20.00% above PKR 3,500,000 |
|
PKR 5,000,000 and 8,000,000 |
PKR 670,000 |
22.50% above PKR 5,000,000 |
|
PKR 8,000,000 and 12,000,000 |
PKR 1,345,000 |
25.00% above PKR 8,000,000 |
|
PKR 12,000,000 and 30,000,000 |
PKR 2,345,000 |
27.50% above PKR 12,000,000 |
|
PKR 30,000,000 and 50,000,000 |
PKR 7,295,000 |
30.00% above PKR 30,000,000 |
|
PKR 50,000,000 and 75,000,000 |
PKR 13,295,000 |
32.50% above PKR 50,000,000 |
|
Above PKR 75,000,000 |
PKR 21,420,000 |
35.00% above PKR 75,000,000 |
Business Tax Slabs:
|
Annual Salary Income between |
Fixed Amount |
Percentage on Amount Above |
|
PKR 0 and 400,000 |
Zero |
Zero |
|
PKR 400,000 and 600,000 |
Zero |
5.00% above PKR 400,000 |
|
PKR 600,000 and 1,200,000 |
PKR 10,000 |
10.00% above PKR 600,000 |
|
PKR 1,200,000 and 2,400,000 |
PKR 70,000 |
15.00% above PKR 1,200,000 |
|
PKR 2,400,000 and 3,000,000 |
PKR 250,000 |
20.00% above PKR 2,400,000 |
|
PKR 3,000,000 and 4,000,000 |
PKR 370,000 |
25.00% above PKR 3,000,000 |
|
PKR 4,000,000 and 6,000,000 |
PKR 620,000 |
30.00% above PKR 4,000,000 |
|
Above PKR 6,000,000 |
PKR 1,220,000 |
35.00% above PKR 6,000,000 |
Every individual is also entitled to certain tax credits and deductible allowances i.e. an allowance that is deductible from total income before computing tax liability, both of which effectively reduce the tax liability; however, they are only applicable on the NTR income categories.
For example: Subject to fulfillment of certain criteria and conditions, a person can get tax credits in the following situations:
- Foreign tax credit
- Tax credit on charitable donations.
- Tax credit for investment in shares and insurance.
- Tax credit for investment in health insurance.
- Tax credit for contribution to an approved pension fund.
- Tax credit for employment generation by manufacturers.
- Tax credit for point of sale machine
- Tax credit for investment
- Tax credit for enlistment
- Tax credit for certain business activities
- Tax credit for specified industrial undertakings
Apart from tax credits, a person can claim following deductible allowances, subject to fulfilling certain criteria and conditions:
- Zakat (deducted by authorized institution)
- Workers’ Welfare Fund
- Workers’ Participation Fund
- Deductible allowance for profit on debt
- Deductible allowance for education expenses
After the end of the tax year, the tax liability is calculated based on all types of income, reduced by deductible allowances and tax credits applied. All withholdings and advance tax paid during the year are deducted from the tax liability and any amount left over is payable. If the amount is negative then a refund is due from the Government.
Digital Tax Services has created a user friendly and simple online portal for filing of tax returns available at https://app.apna-tax.com. It accurately calculates the amount payable or the refund due, and then all the information is sent to the FBR system for filing of the return.
Thanks to Faraz Qahir our COO, who has helped me in finalizing this post.
The above article is for general advice and guidance and should not be considered as legal advice. Please contact us at This email address is being protected from spambots. You need JavaScript enabled to view it. for advice.
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