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Making Tax Simple for People

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Making Tax Simple for People

Tax is the country’s essential source of income, it is the first source of income for any country around the globe. Followed by tariffs, remittances, exports, and other miscellaneous sources of income. 

Taxes are imposed upon the public, it is a certain form of financial charges that are collected by both the federal and provincial government. 

Taxes are then utilized in order to govern the government, to spend the taxes’ amount on country welfare, development and public expenditures.

What if I failed to pay the tax?

Failure in order to pay the tax, try to resist, and escape from paying the taxes; it would be punishable by the regulatory tax laws of Pakistan and it is mobilized by the tax regulatory body of Pakistan. In order to maintain the sustainability of collecting the taxes in Pakistan and to sustain the tax culture.  

Following are the few panealities, which I have to face, if I don’t comply with taxes.  

  1. Failure to file the tax returns within the due date: With reference to section 182 of ordinance in the constitution of Pakistan, “if you failed to file the tax return within the due date, then you will be charged a fixed penalty of Rs. 1000 upon filing the tax returns” 
  2. Income concealed or production of fake income particulars: If you concealed the income or put the forged particulars of income source, this is inclusive but not exclusive to the suppression of any income or the amount chargeable to tax. Accordingly section 111 of the ordinance in the constitution of Pakistan, ”you will have to pay a penalty of Rs. 100,000 or an amount equal to the tax which you sought to evade whichever could be even higher”.  

There is a list of code of conducts and penalties, which is listed and illustrated by browsing the link: https://www.fbr.gov.pk/section-182/152727  

Let’s discuss the tax in the Pakistan scenario.

Taxation in Pakistan includes a large variety of taxes. Which are gathered from individuals and business communities in the society. The direct and indirect taxes are the renowned and most familiar ones among the people and the tax varieties. 

We will further discuss tax in detail in this blog. 

Types of Taxes and Why I must know its Importance?

The tax structure in Pakistan and in fact in every country around the globe is surrounded to pay the taxes in the domain of the following given types, respectively, 

  1. Direct Tax. 
  2. Indirect Tax. 

Both the above-mentioned types of tax will be explained into their subcategories.

Direct Tax: 

It is such a type of tax, where the individual and business community is bound to pay tax directly to the government, taxes which are imposed by their respective government on their income earned. Mentioned status holders have to pay their taxes on their own; no other person than them can pay their taxes.  

Indirect Tax: 

It is such a type of tax, where the individual and business community is bound to pay tax indirectly to the government, in the form of selling and purchasing of any good or availing of any service, sales tax, excise duty, and custom duty. Contrasting with direct taxes, indirect taxes can be paid by anyone on the said person’s behalf. 

Classification of Direct Tax: 

In this category we will further explore the field of tax in the domain of direct taxes levied upon the individual class and business community of Pakistan. 

  • If you have an income source, whether from employment, business, or from any other work, you do come under the bracket of taxes set by the government of Pakistan in the tax year 2021.  
  • If your income being a salaried person ranges from Pkr. 600,000 – Pkr. 75,000,000 annually, then you will be taxed by the taxable amount and imposed surplus tax rates if your income exceeds the taxable salary range.   
  • If your income being a business class ranges from Pkr. 400,000 – Pkr. 60,00,000 annually, then your case is the same as a salaried person, but the business class has to pay the different taxable amount and also surtax rate on the amount exceeding the taxable amount range. 
  • The corporate tax is imposed upon the net taxable income earned by the companies. The corporate tax rate for the tax year 2020 was 29%. The tax rate for small scale of companies was 23%, this will be lowered by 1% until the tax year 2023.  
  • There exists actually no surtax for the corporate sector in Pakistan; the FBR tax governing body has set the tax parameters on which corporations have to pay the fixed tax rate on their income earned.

For reference and further information, you can check tax slabs: https://taxsummaries.pwc.com/pakistan/individual/taxes-on-personal-income   

As far as the timeline of corporate tax is concerned, you can check the past years tax rates by clicking on the link: https://tradingeconomics.com/pakistan/corporate-tax-rate  

Classification of Indirect Taxes: 

In this category we will further explore the field of tax in the domain of indirect taxes levied upon the goods, services, excise duty, and custom duty in Pakistan. 

  • It is very important to note that the Indirect taxes are shared between the federal and provincial governments, as per the 18th amendment in the Constitutional Law of Pakistan. The federal government is adhered to imposed tax on goods whereas  provincial governments are entitled to charge tax on services.  
  • The tax collection rights have been shared among them and therefore in this response multiple provincial tax collection bodies were developed to administrate and govern tax activities in their respective provincial territories. 

Here is the list of indirect taxes (sales tax) rates applied in overall Pakistan: 

  1. Federal uniformed (Sales tax) on goods: 17% 
  2. Sindh (sales tax) on services: 13% 
  3. Punjab (Sales tax) on services: 16% 
  4. Balochistan (Sales tax) on services: 15% 
  5. Khyber Pakhtunkhwa (KPK) (Sales tax) on services: 15% 
  6. Islamabad Capital Territory (ICT) (Sales tax) on services: 16%
  • The excise duty is the duty which the manufacturer of any goods or supplier of the services have to bear and the sales tax have to be burdened by the end-consumer. Within the defined territory where the said functions are operating. The excise duty varies from industry to industry, it is not uniformed like sales tax. 
  • The custom duty is the duty which the end-consumers have to pay to the customs department on the imported item which they bought from any country abroad and also the people who are exporting any sort of item to abroad country. The custom duty varies from industry to industry and product’s model to model.   

For reference and further information regarding the indirect tax, click on the given link: https://en.wikipedia.org/wiki/Taxation_in_Pakistan  

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