Several taxes may apply to business transactions, depending on the nature of the transaction. As per law, taxes on income, whether personal or corporate, sales tax on goods, and customs duties fall under the federal government’s domain. The Federal Board of Revenue (FBR) is the tax collection body of the federal government. Whereas the provinces collect sales tax on services. The revenue collection bodies for sales tax on services are:
- Punjab Revenue Authority
- Sindh Revenue Board
- Balochistan Revenue Authority
- KPK Revenue Authority.
Sales tax on services in the Islamabad capital territory is collected by the FBR.
The main charges businesses are subject to are income tax and sales tax. The Income Tax Ordinance, 2001 governs the income tax in Pakistan. Whereas, Sales Tax Act, 1990 regulates sales tax on goods. Provincial tax laws govern sales tax on services.
The tax year in Pakistan starts from July 1st and ends at June 30th. Any year other than this is considered as special tax year. Which needs prior approval from FBR.
Income tax for Business in Pakistan
Sole Proprietor or Business Individual
Sole Proprietorship is the most common type of business. It is an unincorporated business owned and managed by one individual. This simply means that all profits earned by the business and all business debts, losses and liabilities incurred by the business belongs to that individual.
In Pakistan, for taxation purposes sole proprietorship is considered as pass-through business. Which means business profit and losses will pass through to the owner. Income tax slabs for sole proprietor in Pakistan are as follows;
| S.No | Taxable Income | Rate of Tax |
| 1 | Where taxable income does not exceed Rs. 600,000 | 0% |
| 2 | Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 800,000 | 5% of the amount exceeding Rs. 600,000 |
| 3 | Where taxable income exceeds Rs. 800,000 but does not exceed Rs. 1,200,000 | Rs. 10,000 + 12.5% of the amount exceeding Rs. 800,000 |
| 4 | Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,400,000 | Rs.60,000 + 17.5% of the amount exceeding Rs. 1,200,000 |
| 5 | Where taxable income exceeds Rs. 2,400,000 but does not exceed Rs. 3,000,000 | Rs. 270,000 + 22.5% of the amount exceeding Rs. 2,400,000 |
| 6 | Where taxable income exceeds Rs. 3,000,000 but does not exceed Rs. 4,000,000 | Rs. 405,000 + 27.5% of the amount exceeding Rs. 3,000,000 |
| 7 | Where taxable income exceeds Rs. 4,000,000 but does not exceed Rs. 6,000,000 | Rs. 680,000 + 32.5% of the amount exceeding Rs. 4,000,000 |
| 8 | Where taxable income exceeds Rs. 6,000,000 | Rs. 1,330,000 + 35% the amount exceeding Rs. 6,000,000 |
Association of Persons (AOP) / Partnership
Partnership is also considered a pass-through entity for tax purposes. In other words, the partnership itself is not taxed, but each partner is responsible for reporting their own profits and losses from the business on their individual tax returns.
Income tax slabs for partnership firm are same as above.
Corporate taxes in Pakistan
In Pakistan, resident company is taxed on its worldwide income. Whereas, Non-resident companies are taxed on their Pakistani Source of Income. Corporate tax rates for the tax year 2022, 2023 and onwards are as follows;
| Company Type | Tax Rate % | ||
| 2022 | 2023 | 2024 & onwards | |
| Banking company | 35 | 39 | 39 |
| Public company other than a banking company | 29 | 29 | 29 |
| Any other company | 29 | 29 | 29 |
| Small company | 21 | 20 | 20 |
Sales Tax for business in Pakistan
In Pakistan, the General Sales Tax (GST) is considered a principal indirect tax and is charged on taxable goods under the Sales Tax Act 1990. GST is a Value Added Tax (VAT) in which a value-added component is taxed at each stage of a business transaction. Sales tax on services is also levied in Pakistan. However, it is charged and collected by the provincial governments in different provinces under their respective provincial legislations.
Sales is ordinarily levied at 17% on the value of goods, unless specifically exempt or subject to sales tax at a reduced rate.
Sales tax on services is levied by all four provinces, Islamabad Capital Territory, Gilgit-Baltistan, Azad Jammu, and Kashmir at rates ranging from 13% to 16%. Reduced rates have been prescribed for certain specific services. Input tax adjustment is generally not allowed in case of a reduced rate.
Tax Compliance Chart
| S.No | Description | Frequency | Date |
| 1 | Filing of Income tax return for individuals, sole proprietor / AOP | Annual | 30th September |
| 2 | Filing of Income tax withholding Statements | Quarterly | 20th of the month after the end of each quarter |
| 3 | Filing of Annual withholding tax Statements (In case of salaries only) | Annual | 31st July |
| 4 | Filing of Annual withholding tax Statements (In case of other than salaries ) | Annual | 30th July |
| 5 | Filing of Monthly Sales Tax Returns under the Federal and Provincial Sales Tax Laws | Monthly | 15th of the next month |
| 6 | Filling of Annual Sales Tax Return (for Companies only) – FBR | Annual | 30th September of the following financial year |