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Tax Structure in Pakistan

Tax structure of Pakistan TAX: To tax (from the Latin taxo; “I estimate”) is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Some commentators have argued that “a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be”. A income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities).

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When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale.

Most sales taxes are collected from the buyer by the seller, who remits the tax to a government agency. Sales taxes are commonly charged on sales of goods, but many sales taxes are also charged on sales of services. Ideally, a sales tax would have a high compliance rate, be difficult to avoid, and be simple to calculate and collect Income tax Pakistan:Law concerning taxation of income in Pakistan is stated in the Income Tax Ordinance, 2001 (the Ordinance) and the rules framed there under viz. Income Tax Rules, 2002 (the Rules).

The Ordinance is a Central statute and is, therefore, applicable to the whole of Pakistan . Under section 4 of the Ordinance, income tax is imposed for each tax year at specified rates on every person who has taxable income for the year Tax Year in Pakistan:Tax year is a period of twelve months ending on 30th June and shall be denoted by the calendar year in which the said date falls. Taxable Income in Pakistan:It is the total income of a person for a tax year reduced by the total of any deductible allowances, under the Ordinance, for the year.

A person is entitled to a deductible allowance for the amount of any Zakat paid by the person in a tax year under the Zakat & Ushr Ordinance, 1980. Total Income:it is the sum of a person’s income under each of the heads of income for the year. Heads of Income in Pakistan:Under the Ordinance income is classified into the following five heads: Salary, Income from property, Income from business, Capital gains and Income from other sources.

The income of a person under a head of income shall be the total of the amount derived by the person in a tax year that are chargeable to tax under the head as reduced by the total deductions allowed under the ordinance to the person under that head. CORPORATE TAX RATES:Pakistan corporate tax rate is 35% of net taxable income of a company. For nonresidents, a 15% rate is levied on the gross amount of royalties or technical service fees, and 30% for other payments under the presumptive tax regime. Residence – An entity is resident if it is registered under the law of Pakistan or its management and control is situated wholly in Pakistan.

Basis – Resident entities are taxed on worldwide business income; nonresidents pay tax only on Pakistan-source income. Taxation of dividends:A resident entity pays tax at a rate of 10% on dividend income regardless of whether the dividends are Pakistan or foreign source. A nonresident pays tax at a rate of 10% on Pakistan source dividends. PAKISTAN SALES TAX:The standard rate of Sales Tax in Pakistan is 16%. Taxable transactions Sales Tax is levied on the supply of goods and services, and the import of goods.

Sales Tax Registration:is mandatory for manufacturers if turnover exceeds PKR 5 million; for retailers, if the value of supplies exceeds PKR 5 million; and for importers and other persons if required by another federal or provincial law Filing and sales tax payment:Sales Tax returns and payments must be made on a monthly basis. RGST:The RGST is actually plain old Value Added Tax (VAT) with a new name. Since the VAT has already had its fill of bad publicity, the government decided it would be a smart move to rename and repackage the new taxation system.

The RGST is a taxation system that operates by an addition of 15 per cent tax on each and every value addition on taxable products Who is involved? The key players behind the proposed RGST are the International Monetary Fund (IMF), the World Bank, United States Mission to the European Union  (USEU) and other assorted donors who are tired of paying their taxpayers money to cover up for the leaks in our taxation system. But this is not to say that we do not need reforms in our taxation system. The International Monetary Organizations might be the catalysts towards the reforms just now, but in all reality, tax reforms have been long overdue.