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Tax for salaried individuals

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Tax for salaried individuals

The government of Pakistan has finalized tax slabs for salaried individuals for the fiscal year 2022-23 and has set a minimum income tax rate of 2.5% for those earning up to Rs. 100,000 per month and a maximum of 35% for individuals earning a monthly salary over Rs.1 million.

In the tax year 2021, a total of 1.2 million salaried individuals have filed their income tax returns out of which 333k individuals fall in the income tax slab of Rs. 50,000 per month. Individuals falling under that slab are still exempt.

However, amid all this negative news, there is some positive news for salaried individuals. Tax slabs for salaried individuals have been rationalized with a positive impact for salaried individuals drawing a monthly salary of up to Rs. 250,000. For example, salaried individuals having a monthly salary of Rs. 100,000 will now pay an annual tax of Rs. 15,000 as against the previously applicable tax of Rs. 30,000.

Following are the changes in tax laws recently enacted through the Finance Act 2022 that will impact salaried individuals:

Sr. No.Sr. No. Taxable income Existing Rate of TaxRate of Tax
11 Where taxable income does not exceed Rs. 600,000 0%
2Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,0002.5% of the amount exceeding Rs. 600,000
3Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,400,000Rs. 15,000 + 12.5% of the amount exceeding Rs. 1200,000
4Where taxable income exceeds Rs. 2,400,000 but does not exceed Rs. 3,600,000Rs 165,000 + 20% of the amount exceeding Rs. 2,400,000
5Where taxable income exceeds Rs. 3,600,000 but does not exceed Rs. 6,000,000Rs. 405,000 + 25% of the amount exceeding Rs. 3,600,000
6Where taxable income exceeds Rs. 6,000,000 but does not exceed Rs. 12,000,000Rs. 1,005,000 + 32.5% of the amount exceeding Rs. 6,000,000
7Where taxable income exceeds Rs. 12,000,000Rs. 2,955,000 + 35% of the amount exceeding Rs. 12,000,000

A comparison of tax impact on the salaries under previous and revised tax rates is presented as follows:

Annual Taxable SalaryTax Charge
Previous RevisedTax Impact

Withdrawal of Tax Credits / Deductible Allowances

Following tax credits and allowances previously available to salaried and business individuals have been withdrawn effective tax year 2023:

  • Section 60C: Profit on debt incurred on house financing;
  • Section 62: Investment in new shares of listed companies, mutual funds or life insurance policies, Sukuks, etc.; and
  • Section 62A: Purchase of Health insurance policies.

Following are the details of common tax credits, allowances and advance withholding taxes that are available for adjustment against tax on salary:

Advance Tax

  • Advance Tax on Telephone, Internet, Mobile Bills
  • Advance Tax on International Credit Card Transactions
  • Advance Tax collected on electricity bills exceeding Rs. 25k in case of non-filers
  • Advance tax collected at the time of buying and selling of immovable property.

Advance tax on purchase of vehicle.
Excess advance tax (double tax) paid by non-filers on dividend, interest on savings, prize bonds and winnings etc.

Tax Credits & Allowances

  • Investment in Voluntary Pension Schemes (VPS);
  • Donation/zakat to approved charitable organizations; and
  • Allowance for educational expenses of children if your annual taxable salary is up to Rs. 1.5 million – lower of (a) 5% of tuition fee (b) 25% of taxable income and (c) 60,000 x no. of children.

Although the government has withdrawn the tax credit on investment in IPO investment, mutual funds, and life insurance and tax allowance available on profit on debt for acquisition / construction of house loan with effect from Tax Year 2023, there are still a lot of avenues available for salaried individuals to reduce their tax incidence through various tax credits, allowances and advance taxes collected / paid at source as discussed in foregoing paragraphs.

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