In This World nothing can be said to be certain Except DEATH and TAXES

Benjamin Franklin

Pakistan has one of the most Complex system of taxes in the World. However at the same time it has one of the lowest compliance rates as well. Currently the number of taxpayer in the country having a population of around 200m is only around One million.

At the broader level there are two types of tax systems prevailing within the Country:

• Direct Taxes
• Indirect Taxes

Direct Taxes

A tax, such as income tax, which is levied on the income or profits of the person who pays it, rather than on goods or services, besides it is directly paid to the government and not to someone else.

Types of Direct Taxes

Income tax

Income Tax is payable by every individual, association of persons, firm and company on the Income / Profits and Gains accumulated over the year.

Capital Value Tax

Capital Value Tax is payable by every individual, association of persons, firm and company, not born on the National Tax Register. Currently CVT is payable with different rates on immovable commercial and non commercial property, residential flats, and purchase of shares of stock exchange.

Workers Welfare Tax

It is charged at 2% on the manufacturers having income of Rs 100,000 and above. Employees Old Age Benefit Scheme is financed through this fund.

Worker Profit Participation Fund

This tax is paid by the industrial undertaking having more than 10 workers at 5% of their profits for distribution amongst workers. Any leftover amount after distribution amongst the workers is deposited with the government to become part of the WWF.

Indirect Taxes

A tax, such as Sales Tax / VAT levied on goods and services rather than on income or profits.

Types of Indirect Taxes

Sales Tax

Sales tax is liable on sales of all goods and services produced in the country excluding those goods exempted in the Sales Tax Act, 1990. The standard rate of Sales Tax in Pakistan is currently 17% with certain goods being taxed at a higher rate and some at a reduced rate.

Federal Excise Duty

Federal Excise Duties are levied on domestic production, imports and services rendered in the country. The major excisable commodities include cigarettes, cement, beverages, natural gas and POL products, whereas excisable services are; Air Travel, Insurance, Non-Fund Services provided by banking or non-bank financial companies and Franchise services. The old Central Excises Act, 1944 was replaced by The Federal Excise Act, 2005, with effect from 1st July, 2005. As part of budgetary measures for the year 2007-08.

Custom Duty

Customs duties are levied through Customs Act, 1969 on goods imported into Pakistan. The collection of custom duties is important as it also contributes in the base calculation of other taxes like sales tax on imports and withholding tax.

Provincial Taxes

• Sales Tax on Services
• Property Tax
• Excise Duties
• Stamp Duties
• Motor Vehicle Taxes