Navigating taxes can be a daunting task for freelancers in Pakistan. With freelancing becoming a booming sector and a major contributor to Pakistan’s IT export services, understanding tax obligations is more crucial than ever.
Freelancers earn in foreign currencies, bring valuable revenue to the national treasury, and receive Pakistani Rupees in return. However, tax compliance is often misunderstood or overlooked.
This guide simplifies tax planning for freelancers to help them comply with regulations and optimize benefits.
Why Freelancers Must File Taxes?
Filing an income tax return is mandatory if your income meets Pakistan’s taxable threshold. Here’s why it matters:
Legal Compliance: Stay within the law and avoid penalties.
Enhanced Credibility: Registered taxpayers gain a professional edge, appealing to high-profile clients.
Access to Benefits: Unlock government schemes, loans, and reduced withholding tax rates.
Benefits of Being a Tax Filer
Reduced Withholding Tax: Tax filers enjoy lower rates on services.
Government Incentives: Taxpayers gain access to financial support and programs.
Professional Growth: Filing taxes demonstrates responsibility, which enhances your reputation.
Withholding tax – Final (deducted by Bank):
Unregistered with PSEB: 1% of gross export proceeds.
Registered with PSEB:0.25% of gross export proceeds.
Conditions:
Remittances via banking channels with valid PRC.
Annual tax return and withholding statements filed,
Valid Proceeds Realization Certificate (PRC) with applicable export code
Provincial sales tax return filed if applicable.
Tax Rates for Local Income:
If the income of freelancer is derived locally, normal slab-based tax rates apply on business income as follows:
Income Bracket (PKR)
Tax Rate
Up to 600,000
0%
Between 600,001 and 800,000
7.5%
Between 800,001 and 1,200,000
15%
Between 1,200,001 and 2,400,000
20%
Between 2,400,001 and 3,000,000
25%
Between 3,000,001 and 4,000,000
30%
Above Rs. 4,000,000
35%
For those earning in foreign currency, documenting all earnings is vital to qualify for export-related tax benefits.
Tax Deductions Freelancers Can Claim
Freelancers can reduce taxable income by claiming deductions for:
Business Expenses: Rent, utilities, equipment, and software.
Travel: Costs incurred for business purposes.
Healthcare & Insurance: Certain medical expenses are eligible.
Maintaining accurate records ensures maximum savings.
Avoid These Common Tax Mistakes
Misreporting Income: Ensure all earnings are declared.
Missing Deductions: Neglecting to claim eligible expenses increases your tax burden.
Ignoring Deadlines: File before September 30 to avoid penalties.
Concluding Remarks
Tax compliance isn’t just a legal obligation; it’s an opportunity to build credibility and unlock benefits.
By adhering to these guidelines, freelancers can simplify their tax journey and focus on growing their business.
Start today: gather your documents, register on the Befiler web portal or mobile app, and turn tax filing into a seamless process.
The Corporate Transparency Act (CTA) mandates that certain U.S. business entities disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This requirement is fulfilled through the submission of a Beneficial Ownership Information Report (BOIR).
Who Needs to File?
The CTA’s reporting requirements apply to a wide range of entities, including:
Domestic Entities: Corporations, limited liability companies (LLCs), and other similar entities formed under U.S. state or tribal law.
Foreign Entities: Corporations and LLCs formed under foreign laws but registered to do business in the United States.
Certain entities are exempt, such as:
Large Operating Companies: Those with more than 20 full-time employees, over $5 million in gross receipts or sales, and a physical presence in the U.S.
Regulated Entities: Banks, credit unions, insurance companies, and others already subject to extensive federal or state regulatory oversight.
Information To be Filed
Following details are required as part of reporting for each beneficial owner of the business:
Full legal name
Date of birth
Residential address
A unique identifying number from an acceptable identification document (e.g., non-expired U.S. driver’s license, passport)
Deadlines
Companies created or registered before January 1, 2024: The initial deadline for filing was set for January 1, 2025. However, due to certain recent legal developments, the FinCEN has extended this deadline to January 13, 2025.
For companies registered between January 1, 2024, and January 1, 2025: Within 90 days of receiving actual or public notice that their creation or registration is effective. The requirement for filing for companies falling under this category is also currently on hold. However, FinCEN has encouraged voluntary submissions.
Companies created or registered on or after January 1, 2025: Within 30 days of receiving actual or public notice that their creation or registration is effective.
Penalties for Non-Compliance
Failure to comply with the CTA’s reporting requirements can result in significant penalties:
Civil Penalties: Up to $500 per day for each day the violation continues.
Criminal Penalties: Willful failure to report, or providing false information, can lead to fines up to $10,000 and imprisonment for up to two years.
Why You Should File Now
Given the current legal uncertainties, it’s understandable to feel hesitant about proceeding with the BOIR filing. However, taking proactive steps can be beneficial:
Avoid Last-Minute Rush: Once the legal ambiguities are resolved, there may be a surge in filings. Completing your report now can save you from potential delays and complications later.
Ensure Compliance: By filing early, you demonstrate your commitment to compliance, reducing the risk of oversight or missed deadlines in the future.
Peace of Mind: Addressing this requirement promptly allows you to focus on other aspects of your business without the looming concern of regulatory obligations.
Next Steps
Stay Informed: Regularly check with your consultant and reputable news sources for updates on the CTA’s status.
Prepare Documentation: Even if you choose to wait for further legal clarity, gather and organize the necessary beneficial ownership information so you’re ready to file when required.
Consult Professionals: Seek advice from legal or compliance experts to ensure you understand the requirements and implications for your specific business situation.
If you have any questions or need assistance with your BOIR filing or compliance under the Corporate Transparency Act, our team is here to help. Reach out to us at info@befiler.com for expert guidance and support tailored to your business needs. Don’t let compliance stress weigh you down—let us simplify the process so you can focus on what matters most: growing your business!
Pakistan’s real estate sector is a larger contributor to the country’s GDP and is also one of the most heavily taxed industries. These taxes are a key source of government revenue collection, and this sector has historically been a prime target for taxation.
In the 2024-2025 budget, the federal government introduced several new property taxes. These taxes are regulated by the Federal Board of Revenue (FBR), and it varies based on an individual’s tax status—whether they are a filer, non-filer, or late-filer.
As the new tax measures take effect, their impact on the real estate market is becoming increasingly evident. Let’s dive into the scope of these new taxes and their implications for Pakistan’s real estate sector.
Understanding Property Taxes in Pakistan
Before diving into the recent changes in property taxes introduced in the 2024-2025 budget, let’s first outline the four main types of property taxes in Pakistan:
Capital Gain Tax (CGT)
Advance Property Tax (Withholding Tax)
Capital Value Tax (CVT)
Federal Excise Duty (FED)
Capital Gain Tax (CGT)
CGT is levied on the profit earned from selling immovable property. The revised rates for CGT effective from July 1, 2024, are:
Filers: 15%
Non-Filers: 15% to 45% (FBR determines the exact amount based on property value).
Key Changes: Previously, CGT depended on the holding period (1-6 years) and property type (plot, building, or flat). Now, the same rate applies, regardless of holding period or property type.
Advance Property Tax (Withholding Tax)
This tax applies to both the seller and buyer during property transactions, payable at registration or allocation.
Key Points:
Applicable on both residential and commercial properties.
Rates vary as per the new FBR guidelines.
Advance Tax on Sale or Transfer of Immovable Property
Value of the Property
Filer
Late Filer
Non-Filer
Up to 50 Million
3%
6%
10%
50 Million – 100 Million
3.5%
7%
Over 100 Million
4%
8%
Advance Tax on the Purchase of Immovable Property
Value of the Property
Filer
Late Filer
Non-Filer
Up to 50 Million
3%
6%
12%
50 Million – 100 Million
3.5%
7%
16%
Over 100 Million
4%
8%
20%
Key Changes:
Policy Revision: Previously, advance tax on property was applicable only up to the possession of the plot. However, in budget 2024-2025, advance tax is now applied from the time of plot booking until balloting or allocation.
Payment Flexibility: Advance income tax on property can now be paid in installments, making it easier for buyers to manage.
Income-Based Calculation: Your annual income may also influence the amount of advance tax you are required to pay.
Capital Value Tax (CVT)
CVT is charged on the transfer of immovable properties (land, houses, buildings) and is usually borne by the buyer.
Rate for 2024-2025: 2% of the property value (fixed under the Federal Act 2006).
Federal Excise Duty (FED)
FED is levied during the booking, allotment, or transfer of property.
Commercial Property: 5%
Residential Property: 5% (applies only to the first owner at the time of booking).
Impact of 2024-2025 Property Taxes
The new tax policies have significant implications for Pakistan’s real estate sector:
Reduced Demand: Increased withholding taxes discourage transactions, particularly from non-filers.
Decline in Property Prices: Sellers avoid buying at higher prices to offset the tax burden, leading to a downward trend in the market.
Shift in Buyer Behavior: Buyers prefer dealing with filers to minimize tax liabilities, impacting market activity.
Conclusion
The recent property taxes have sparked widespread debate over their impact on Pakistan’s real estate sector.
Despite these challenges, the real estate market remains crucial for revenue generation.
Compliance with tax laws is essential, ensuring sustainable growth for the sector in the long run.
The Sindh Finance Bill 2024, passed by the Provincial Assembly of Sindh on June 28, 2024, has been enacted as the Sindh Finance Act 2024.
This blog post summarizes the key amendments introduced by the Act, effective from July 1, 2024.
Our comments are based on our interpretation of the new legislation.
Standard Tax Rate Increase:
The standard Sindh Sales Tax (SST) rate has been increased from 13% to 15% to harmonize with other provincial laws. This step, while increasing the cost of doing business, aims to eliminate tax arbitrage caused by differing rates among provinces, which previously led to the flight of business and tax revenue from one jurisdiction to another.
Newly Introduced Taxable Services:
Farmhouses
Hospitals & Clinics
Education Services (excluding those provided to children with special needs and adult literacy programs)
Medical Practitioners & Consultants
Pet Care Services
Intra-city Transportation of Goods
Changes in SST Rates, Conditional Exemptions, and Reduced Rates
Description
Conditional Exemptions / Applicable Rates
Eligibility to Reduce Rate or Exemption
Restaurant services
8%
In case payment against made through debit cards, credit cards, mobile wallets or QR scanning (without input tax adjustment)
15%
If the service provider opts for input tax adjustments, subject to filing an option and getting SRB approval
Medical practitioners & Consultants
Exempt
Where the provision of services involves gross amount of fees/charges/consultation not exceeding to Rs. 3000/- per patient
3%
Chargeable to SST if exceeds the above limit (without input tax adjustment)
Educational Services
Exempt
Where fee / charges limit to Rs. 500,000/- to each student per annum
3%
Chargeable to SST if exceeds the above limit (without input tax adjustment)
Hospitals and Clinics
Exempt
Services in respect of provision of room / bed to indoor patients and day care patients where per day charges does not exceed Rs.25,000/-
3%
Chargeable to SST if the amount exceeds the above limit in relation to service of room / bed to indoor patients and day care patients. (without input tax adjustment)
Reimbursable Expenses
Expenses of reimbursable nature like salaries and allowances, will now be included in the value of taxable service. This change may prompt taxpayers to knock the doors of superior courts, as previous judgments on the essence of services have favored taxpayers.
Economic Activity
The scope of economic activity has been enhanced to include the indirect relationship between an employee and an employer. Consequently, employers will now be responsible for charging SST if an employee is deputed or outsourced for a client’s work.
Record Keeping The record-keeping timeframe has been reduced from 10 years to 6 years from the end of the respective financial year for tax periods starting July 1, 2025. This change aims to ease the burden on taxpayers registered with multiple tax authorities by providing a uniform timeframe.
Furnishing of Records
SRB can now ask for the records related to services provided by persons registered with other provincial tax authorities as well. Previously, taxpayers could resist providing such records due to blanket exclusions upheld by Appellate Forums
Assessment Orders
Assessment Orders under Sections 23(2) and 47(1) will now be passed within 5 years for tax periods after June 2025. This change aligns the assessment phase across different jurisdictions, removing previous hurdles in variation of time limit faced by taxpayers.
Automatic Stay SRB now allows an automatic stay for taxpayers by depositing only 10% of the tax due, replacing the existing 25%, in cases where an appeal is pending before the Commissioner Appeals SRB. This aligns SRB’s provisions with Punjab and Federal tax laws.
Changes in the Definition of Services
Business Support Services: Broadened the scope to include the term ……‘marketing’.
• Car or Automobile Dealer: Now includes ‘other motor vehicles’.
• Cosmetic and Plastic Surgery: Clarified to include ‘procedures’.
• Hotel: Scope expanded to include ‘huts’, ‘resorts’, ‘lodges’, and ‘facilities’, and ……also includes ‘events’.
• Programme: Now includes any program transmission through internet, radio, ……television, cinema, or theatre.
• Renting of Immovable Property: Excludes land or premises used for outdoor ……games and sports.
• Rent-a-car and Automobile Rental Service: Scope expanded by deleting the ……word ‘passenger’.
• Sports and Games Center: Now includes ‘indoor’ and ‘outdoor’ sports centers.
• Surveyor: Scope enhanced to include specialized surveys for mineral ……exploration.
The Sindh Finance Act 2024-2025 introduces substantial changes aimed at enhancing the efficiency and uniformity of tax regulations in the province.
Staying informed about these amendments is crucial for compliance and strategic financial planning.
For any questions or queries, please consult with Befiler’s tax professionals to navigate these changes effectively.
As Pakistan enters the fiscal year 2024-2025, understanding the updated tax regulations is crucial for individuals and businesses alike.
In our country, there is a substantial difference between being a filer and a non-filer when it comes to tax obligations and benefits.
The Tax Card for 2024-2025 outlines significant amendments that taxpayers need to be aware of to comply with the new regulations and optimize their tax liabilities.
SALARIED INDIVIDUAL – SECTION 149
Where salary income exceeds 75% of the total taxable income (under normal tax regime)
S.No
Taxable Income
Rate of Tax
1
Where taxable income does not exceed Rs. 600,000
–
2
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000
5% of the amount exceeding Rs. 600,000
3
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,200,000
Rs. 30,000 + 15% of the amount exceeding Rs. 1,200,000
4
Where taxable income exceeds Rs. 2,200,000 but does not exceed Rs. 3,200,000
Rs. 180,000 + 25% of the amount exceeding Rs.2,200,000
5
Where taxable income exceeds Rs. 3,200,000 but does not exceed Rs. 4,100,000
Rs. 430,000 + 30% of the amount exceeding Rs. 3,200,000
6
Where taxable income exceeds Rs. 4,100,000
Rs. 700,000 + 35% of the amount exceeding Rs. 4,100,000
NON-SALARIED INDIVIDUAL & ASSOCIATION OF PERSONS
S.No
Taxable Income
Rate of Tax
1
Where taxable income does not exceed Rs. 600,000
–
2
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000
15% of the amount exceeding Rs. 600,000
3
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,600,000
Rs. 90,000 + 20% of the amount exceeding Rs. 1,200,000
4
Where taxable income exceeds Rs. 1,600,000 but does not exceed Rs. 3,200,000
Rs. 170,000 + 30% of the amount exceeding Rs. 1,600,000
5
Where taxable income exceeds Rs. 3,200,000 but does not exceed Rs. 5,600,000
Rs. 650,000 + 40% of the amount exceeding Rs. 3,200,000
6
Where taxable income exceeds Rs. 5,600,000
Rs. 1,610,000 + 45% of the amount exceeding Rs. 5,600,000
In case of AOP being a professional firm whose profession is regulated by law, the maximum tax payable will be 40% of their income.
Individuals and AOPs having taxable income (under normal tax regime only) above Rs. 10 million, will be liable to pay additional tax at 10% of their tax liability from the taxable income under normal tax regime.
In the case of a salaried individual, the employer will be liable to withhold the said additional tax.
DIVIDEND – SECTION 150
Description
Filer Rate
Non-Filer Rate
Independent Power Purchasers (IPPs)
7.5%
15%
Mutual funds, Real Estate Investment Trust (REIT)
15%
30%
Mutual funds, Real Estate Investment Trust (REIT) (If mutual funds deriving 50% or more income from profit on debt)
25%
50%
A company where no tax is payable by such company, due to exemption of income or carry forward of business losses.
25%
50%
PROFIT ON DEBT – SECTION 151
Description
Filer Rate
Non-Filer Rate
Profit on debt received by Individuals and AOPs
15%
35%
Profit on debt received by Company
15%
35%
EXPORTS – SECTION 154 & 154A
Description
Filer Rate
Non-Filer Rate
Export of goods
1% +1% In addition to existing 1 % tax 1 % will also be deducted under section 147 as an advance tax which is adjustable. The tax collected would be minimum
2%
Export proceeds of Computer Software or IT services or IT enabled services by persons registered with Pakistan Software Export Board
0.25%
0.25%
Any other case
1%
1%
TAX ON DEEMED INCOME – 7E
S.No
Description
Rate of Tax
1
Tax will be paid on Fair Market Value exceeding Rs. 25 million other than exempted / excluded properties.
1%
RENT OF IMMOVABLE PROPERTY – SECTION 155
S.No
Gross Amount of Rent
Rate of Tax For Filer
1
Where the gross amount of rent does not exceed Rs. 300,000
–
2
Where the gross amount rent exceeds Rs. 300,000 but does not exceed Rs. 600,000
5% of the gross amount exceeding Rs. 300,000
3
Where the gross amount rent exceeds Rs. 600,000 but does not exceed Rs. 2,000,000
Rs. 15,000 + 10% of the gross amount exceeding Rs. 600,000
4
Where the gross amount rent exceeds Rs. 2,000,000
Rs. 155,000 + 25% of the gross amount exceeding Rs. 2,000,000
In case of companies, 15% of gross amount of rent payable would be deducted for filers. In case of non-filer double tax will be withheld.
PRIZES & WINNINGS – SECTION 156
Description
Filer Rate
Non-Filer Rate
Prize bond or cross-word puzzle
15%
30%
Raffle, Lottery, quiz, prize on sale promotion by a company
20%
40%
SALE OF PETROLEUM PRODUCTS – SECTION 156A
Description
Filer Rate
Non-Filer Rate
Petroleum products to a petrol pump operator
12%
24%
CASH WITHDRAWALS – SECTION 231AB
Description
Filer Rate
Filer Rate
Cash withdrawal of more than Rs. 50,000 per day
–
0.6
MOTOR VEHICLES – SECTION 231B
Tax on Purchase / Registration of Motor Vehicle
S.No
Engine Capacity
Filer Rate
Non-Filer Rate
1
Up to 850cc
0.5% of the value
1.5% of the value
2
851cc to 1,000cc
1% of the value
3% of the value
3
1,001cc to 1,300cc
1.5% of the value
4.5% of the value
4
1,301cc to 1,600cc
2% of the value
6% of the value
5
1,601cc to 1,800cc
3% of the value
9% of the value
6
1,801cc to 2,000cc
5% of the value
15% of the value
7
2,001cc to 2,500cc
7% of the value
21% of the value
8
2,501cc to 3,000cc
9% of the value
27% of the value
9
Above 3,000cc
12% of the value
27% of the value
Provided that in cases where engine capacity is not applicable and the value of vehicle is Rs 50,00,000 or more, the rate of tax collectible shall be 3% of the import value as increased by customs duty, sales tax and federal excise duty in case of imported vehicles or invoice value in case of locally manufactured assembled vehicles.
Tax on Transfer of Motor Vehicle
S.No
Engine Capacity
Filer Rate
Non-Filer Rate
1
Up to 850cc
–
–
2
851cc to 1,000cc
Rs. 5,000
Rs. 15,000
3
1,001cc to 1,300cc
Rs. 7,500
Rs. 22,500
4
1,301cc to 1,600cc
Rs. 12,500
Rs. 37,500
5
1,601cc to 1,800cc
Rs. 18,750
Rs. 56,250
6
1,801cc to 2,000cc
Rs. 25,000
Rs. 75,000
7
2,001cc to 2,500cc
Rs. 37,500
Rs. 112,500
8
2,501cc to 3,000cc
Rs. 50,000
Rs. 150,000
9
Above 3,000cc
Rs. 62,500
Rs. 187,500
Provided that where engine capacity is not applicable and the value of vehicle is Rs. 50,00,000 or more, the amount of tax collectible shall be Rs. 20,000.
Tax at the time of registration if locally manufactured motor vehicle sold prior to registration by the original purchaser
S.No
Engine Capacity
Filer Rate
Non-Filer Rate
1
Up to 1,000cc
Rs. 100,000
Rs. 300,000
2
1,001cc to 2,000cc
Rs. 200,000
Rs. 600,000
3
2,001cc and above
Rs. 400,000
Rs. 1,200,000
BROKERAGE AND COMMISSION – SECTION 233
Description
Filer Rate
Non-Filer Rate
Advertising Agents
10%
20%
Life Insurance Agents receiving less than Rs. 500,000 per annum
8%
16%
Persons not covered above
12%
24%
Motor Vehicles (other than Passenger Transport Vehicle plying for hire) per engine capacity
S.No
Engine Capacity
Filer Rate
Non-Filer Rate
1
Up to 1,000cc
Rs. 800
Rs. 1,600
2
1,001cc to 1,199cc
Rs. 1,500
Rs. 3,000
3
1,200cc to 1299cc
Rs. 1,750
Rs. 3,500
4
1,300cc to 1,499cc
Rs. 2,500
Rs. 5,000
5
1,500cc to 1,599cc
Rs. 3,750
Rs. 7,500
6
1,600cc to 1999cc
Rs. 4,500
Rs. 9,000
7
2,000cc and above
Rs. 10,000
Rs. 20,000
Motor Vehicles per engine capacity on lump sum basis
Rs. 1,950 + 12% of the amount exceeding Rs. 20,000 for commercial customers. Rs. 1,950 + 5% of amount exceeding Rs. 20,000 for industrial customers.
4
Domestic consumer, if not included in ATL (if the amount of monthly bill exceeds Rs.25,000)
7.5%
SALE BY PUBLIC AUCTION – SECTION 236A
Description
Filer Rate
Non-Filer Rate
Any property or good other than immovable property
10% of Gross Sale Price
20% of Gross Sale Price
Sales of immovable property
5% of Gross Sale Price
10% of Gross Sale Price
TRANSFER OF IMMOVABLE PROPERTY – SECTION 236C
Description
Filer Rate
Late Filer Rate
Non-Filer Rate
Where the gross amount of the consideration received does not exceed Rs. 50 million
3%
6%
10%
Where the gross amount of the consideration received exceeds Rs. 50 million but does not exceed Rs 100 million
3.5%
7%
10%
Where the gross amount of the consideration received exceeds Rs. 100 million
4%
8%
10%
FUNCTIONS & GATHERINGS – SECTION 236CB
Description
Filer Rate
Non-Filer Rate
Functions and gatherings
10%
20%
PURCHASE OF IMMOVABLE PROPERTY – SECTION 236K
Description
Filer Rate
Late Filer Rate
Non-Filer Rate
Where the fair market value does not exceed Rs. 50 Million
3%
6%
12%
Where the fair market value exceeds Rs. 50 million but does not exceed Rs. 100 million
3.5%
7%
16%
Where the fair market value exceeds Rs. 100 million
4%
8%
20%
Late Filers: A new concept has been introduced for explaining late filers, whereby persons who have not filed current year’s tax return within the deadline will be considered late filers. However, persons who filed their tax returns within the deadline for the last three years will not be considered as late filer.
AMOUNT REMITTED ABROAD THROUGH CREDIT , DEBIT OR PREPAID CARDS – SECTION 236Y
Description
Filer Rate
Non-Filer Rate
Advance tax on amount remitted abroad through credit, debit or prepaid cards
5%
10%
BONUS ISSUE BY COMPANIES SECTION 236Z
Description
Filer Rate
Non-Filer Rate
Every company, issuing bonus shares to the shareholders of the company
10% of bonus shares issued
20% of bonus shares issued
CAPITAL GAIN ON DISPOSAL OF IMMOVABLE PROPERTY UNDER SECTION 37
Rate of Tax on properties acquired on or before 30th day of June, 2024
S.No
Holding Period
Open Plots
Constructed Property
Flats
Rate of Tax on properties acquired on or after 1st day of July, 2024
1
Where the holding period does not exceed 1 year
15%
15%
15%
Filer: 15%
2
Where the holding period exceeds 1 year but does not exceed 2 years
12.5%
10%
7.5%
Non-Filer: At normal tax rates for individuals and AoPs subject to minimum tax of 15%.
3
Where the holding period exceeds 2 years but does not exceed 3 years
10%
7.5%
0%
4
Where the holding period exceeds 3 years but does not exceed 4 years
7.5%
5%
–
5
Where the holding period exceeds 4 years but does not exceed 5 years
5%
0
–
6
Where the holding period exceeds 5 years but does not exceed 6 years
2.5%
–
–
7
Where the holding period exceeds 6 years
0%
–
–
CAPITAL GAIN ON DISPOSAL OF SECURITIES UNDER SECTION 37A
S.No
Holding Period
Rate of Tax on disposal of securities acquired between 1st July, 2022 and 30th June, 2024 (both dates inclusive)
Rate of Tax on disposal of securities acquired on or after 1st July, 2024
1
Where the holding period does not exceed 1 year
15%
Filer: 15%
2
Where the holding period exceeds 1 year but does not exceed 2 years
12.5%
Non-Filer: At normal tax rates for individuals and AoPs subject to minimum tax of 15%.
3
Where the holding period exceeds 2 years but does not exceed 3 years
10%
4
Where the holding period exceeds 3 years but does not exceed 4 years
7.5%
5
Where the holding period exceeds 4 years but does not exceed 5 years
5%
6
Where the holding period exceeds 5 years but does not exceed 6 years
2.5%
7
Where the holding period exceeds 6 years
0%
8
Future commodity contracts entered into by members of Pakistan Mercantile Exchange
5%
5%
Provided that for securities except at S. No. 8 of the Table: (i) the rate of 12.5% tax shall be charged on capital gain arising on disposal where the securities are acquired on or after the 1st July, 2013 but on or before the 30th June, 2022; and (ii) the rate of 0% tax shall be charged on capital gain arising on disposal where the securities are acquired before the 1st July, 2013: Provided further that the rate for companies in respect of debt securities shall be as specified in Division II of Part I of the First Schedule: Provided also that a mutual fund or a collective investment scheme or a REIT scheme shall deduct Capital Gains Tax at the rates as specified below, on redemption of securities as prescribed, namely
Category
Rate
Individual and association of persons
5% for stock funds 15% for other funds
Company
15% for stock funds 25% for other funds
Provided also that in case of a stock fund if dividend receipts of the fund are less than capital gains, the rate of tax deduction shall be 15%: Provided also that no capital gain shall be deducted, if the holding period of the security acquired on or before 30th June 2024 is more than 6 years. Explanation. – For the removal of doubt, it is clarified that provisions of this proviso shall be applicable only in case of mutual fund or collective investment scheme or a REIT scheme
SUPER TAX ON HIGH EARNING PERSONS SECTION 4C
S.No
Description
Rate of Tax
1
Where Income does not exceed Rs. 150 million
0%
2
Where Income does not exceed Rs. 150 million but does not exceed Rs. 200 million
1%
3
Where Income does exceed Rs. 200 million but does not exceed Rs. 250 million
2%
4
Where Income does exceed Rs. 250 million but does not exceed Rs. 300 million
3%
5
Where Income does exceed Rs. 300 million but does not exceed Rs. 350 million
4%
6
Where Income does exceed Rs. 350 million but does not exceed Rs. 400 million
6%
7
Where Income does exceed Rs. 400 million but does not exceed Rs. 500 million
8%
8
Exceeding Rs. 500 million
10%
9
For Banking Companies – Where income exceeds Rs. 300 million
10%
TAX ON BUILDERS AND DEVELOPERS UNDER SECTION 7F
S.No
Description
Rate of Tax
a
Construction and sale of residential, commercial or other buildings
10% of gross receipts
b
Development and sale of residential commercial or other plots
15% of gross receipts
c
Activities as mentioned in (a) and (b) above
12% of gross receipts
The Tax Card 2024-2025 provides a comprehensive overview of the tax obligations and benefits for different income groups and entities.
Staying informed about these regulations helps in strategic financial planning and ensures compliance with the latest tax laws in Pakistan.
Don’t wait any longer! Become a tax filer and start enjoying the financial benefits it offers. Remember, a little planning today can lead to significant savings tomorrow.
In Pakistan, the tax year is a 12-month period that starts on the 1st of July in the current year and ends on the 30th of June in the next year. This is called the “normal tax year” and is named after the calendar year in which it ends.
A few months ago, the Federal Board of Revenue (FBR) clarified how the tax year works in Pakistan, according to the Income Tax Ordinance, 2001, updated until June 30, 2024.
This broad explanation helps taxpayers understand the structure and duration of the tax year for income tax purposes.
Normal vs. Special Tax Year
Normal Tax Year: Most taxpayers follow this, running from July 1 to June 30.
Special Tax Year: Some individuals or entities may have different income periods and can use a special tax year, which follows a different 12-month cycle and is named after the calendar year it ends in.
Choosing Your Tax Year
The FBR allows flexibility for taxpayers with different income cycles. Taxpayers can apply to the Commissioner of Income Tax to use a special tax year. The application must show a compelling reason, and the Commissioner will decide after hearing the case.
Taxpayers using a special tax year can also apply to switch back to the normal tax year. This request is also subject to the Commissioner’s approval.
Transitional Tax Year
When switching between a normal and a special tax year, there is a “transitional tax year” to ensure a smooth changeover. This period covers the time between the end of the old tax year and the start of the new one.
Special Circumstances
The FBR can allow certain groups to adopt a different tax year through an official notification in the Gazette, based on their specific needs.
Appeals and Reviews
If taxpayers disagree with the Commissioner’s decision regarding their tax year, they can appeal to the FBR. The Board’s decision on such appeals is final.
The explanation of the tax year helps ensure that all taxpayers in Pakistan understand and comply with the tax system.
By offering the option of a special tax year and a clear review process, the FBR accommodates diverse business and income cycles while maintaining a fair and transparent tax administration.
Taxpayers should stay informed and consult with Befiler’s tax professionals for any specific questions about their tax year and obligations.
The government of Pakistan has finalized tax slabs for salaried individuals for the fiscal year 2024-2025.
Although, the federal government has set an increased tax rate of 5% for those earning between Rs. 600,000 and Rs. 1,200,000 per annum.
They have also maintained the tax slabs to six, as the tax burden continues to increase on the inflation-burdened salaried class.
Following are the changes in tax laws recently enacted through the Finance Act 2024 that will impact salaried individuals:
Taxable Income
Rate of Tax
Where taxable income does not exceed Rs. 600,000
0%
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000
5% of the amount exceeding Rs. 600,000
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,200,000
Rs. 30,000 + 15% of the amount exceeding Rs. 1,200,000
Where taxable income exceeds Rs. 2,200,000 but does not exceed Rs. 3,200,000
Rs. 180,000 + 25% of the amount exceeding Rs. 2,200,000
Where taxable income exceeds Rs. 3,200,000 but does not exceed Rs. 4,100,000
Rs. 430,000 + 30% of the amount exceeding Rs. 3,200,000
Where taxable income exceeds Rs. 4,100,000
Rs. 700,000 + 35% of the amount exceeding Rs. 4,100,000
A comparison of tax impact on the salaries under previous tax slab 2023-2024 is presented as follows:
Taxable Income
Rate of Tax
Where taxable income does not exceed Rs. 600,000
0%
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000
2.5% of the amount exceeding Rs. 600,000
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,400,000
Rs. 15,000 + 12.5% of the amount exceeding Rs. 1,200,000
Where taxable income exceeds Rs. 2,200,000 but does not exceed Rs. 3,600,000
Rs. 165,000 + 22.5% of the amount exceeding Rs. 2,400,000
Where taxable income exceeds Rs. 3,200,000 but does not exceed Rs. 6,000,000
Rs. 435,000 + 27.5% of the amount exceeding Rs. 3,600,000
Where taxable income exceeds Rs. 6,000,000
Rs. 1,095,000 + 35% of the amount exceeding Rs. 6,000,000
The Finance Bill 2024’s tax slabs show that those making at least Rs. 6 million (Rs. 500,000 per month) will be most affected. For these earners, the tax obligation rises by Rs. 22,500.
It’s interesting to note that salaried individuals making up to Rs. 12 million annually (Rs. 1 million per month) will also see a tax rise of Rs. 22,000.
The income tax exemption threshold, which remains at Rs. 50,000, was not touched by the government; however, responsibility has increased for all other salary levels. For instance, a person making Rs. 100,000 per month will now pay Rs. 2,500, instead of Rs. 1,250 as previously.
As Pakistan struggles with its economic challenges, the International Monetary Fund (IMF) has put forth a significant proposal.
The IMF recommends imposing a standard individual income tax rate of up to 45% on agricultural income.
This move aims to address income tax disparities without requiring constitutional amendments.
Key Points:
Background and Structural Benchmarks:
Pakistan seeks an IMF bailout to stabilize its economy.
The IMF’s condition is part of the structural benchmarks for the next bailout program.
Provincial laws must align with federal income tax rates by October 2024.
The IMF also calls for ending income tax exemptions for the livestock sector by October this year.
Constitutional Constraints:
Under the Constitution, the federal government cannot tax agricultural income.
Provinces collect taxes from the agriculture sector, contributing 24% to the economy but only 0.1% of total taxes nationwide.
The IMF avoids touching the constitutional arrangement but urges provinces to adopt non-salaried business individuals’ income tax rates (up to 45% of net income).
Tax Rates and World Bank Estimate:
Before the budget, salaried income tax was 35% on monthly gross income over Rs. 500,000.
Right after the budget it is 35% on the monthly income of Rs. 341,000 and 39% on the monthly income of Rs. 833,000.
The new rate is 45% of the net income and after adding surcharge it is 50% for non-salaried individuals.
The World Bank estimates that Pakistan can generate farm income tax equal to 1% of GDP (approximately Rs1.22 trillion).
Provincial Consent and Challenges:
Provincial governments largely agree with the IMF’s demand.
The Sindh government finds the 35% to 45% income tax rate for the agriculture sector too high compared to the existing 15% maximum rate.
Implementation Timeline and Impact:
Provinces must align agriculture income tax regimes with federal rates.
Corporate farming will also be subject to corporate income tax.
Each province will collect up to 45% agriculture income tax by January 2025.
Khyber-Pakhtunkhwa exempts up to one acre of land from income tax.
Punjab’s rates vary based on annual agriculture income.
Transparency and GST Expansion:
The IMF also asks provinces to expand the GST on services by ending current exemptions.
The goal is to enhance transparency and reduce loopholes.
Challenges Ahead:
The IMF’s proposal aims to eliminate income tax disparities and treat agricultural income like other sources.
The government faces deadlines for finalizing agreements with the IMF and improving credit ratings.
Although the IMF had also demanded a levy of 18% sales tax on fertilizer and pesticides, but the federal government successfully protected farmers.
Balancing tax reforms while protecting farmers remains a challenge.
The proposed changes will significantly impact Pakistan’s fiscal landscape and economic stability.
The Finance Bill 2024-2025, presented in the National Assembly on June 12, 2024, was approved and became the Finance Act 2024 on June 28, 2024.
The recently approved federal budget for the fiscal year 2024-25 has sparked widespread discussions and debates, leading to significantly impacting the lives of Pakistani citizens.
The coalition-led federal government touts it as a step towards fiscal consolidation and economic growth. However, this budget’s main aim is to secure the long-term financial loan package from the International monetary fund (IMF).
The 2024-25 federal budget in Pakistan will have significant implications for citizens. Let’s explore how these measures will impact various aspects of citizens’ lives:
1. Higher Tax Rates for Non-Salaried Individuals and AOPs:
One of the significant changes in the new budget is the revision of tax rates for non-salaried individuals and Associations of Persons (AOPs).
The tax rate has been increased from 35% to 45% for non-salaried individuals and AOPs, except for professional firms regulated by law, which will face a maximum tax rate of 40%.
This increase aims to generate additional revenue for the government but may place a higher financial burden on small business owners and freelancers who fall under these categories.
2. New Penalties for Non-Filers:
To enforce tax compliance, the new budget introduces several penalties for non-filers.
These include restrictions on foreign travel, blocking of mobile SIM connections, and discontinuation of utility services.
Such measures are expected to increase the tax net but may also create challenges for individuals who are unable to file their returns on time due to various reasons.
3. Changes in Capital Gains Tax on Property Sales:
The capital gains tax on the sale of properties acquired on or after July 1, 2024, has been set at 15% for filers, while non-filers will face a variable tax rate ranging from 15% to 45%.
This change is intended to streamline property transactions and encourage more individuals to file their tax returns.
However, it could also deter real estate investments, particularly among those who have not been regular filers.
Impact on Different Sectors:
4. Real Estate:
The real estate sector is one of the most affected by the new budget.
With the introduction of higher capital gains taxes and penalties for non-filers, the government aims to bring more transparency and regulation to this sector.
While these changes may lead to short-term disruptions, they are expected to foster a more stable and documented real estate market in the long run.
5. Salaried Individuals:
This budget has significantly altered the tax rates for salaried individuals, which will be a huge burden on the middle class.
However, increased indirect taxes and inflationary pressures would further affect their disposable income.
The overall economic environment created by the budget will influence job security and wage growth in various sectors.
6. Businesses and Corporations:
For businesses, especially exporters and large corporations, the budget brings a mix of challenges and opportunities.
Exporters are now under the normal tax regime, and the minimum tax on export proceeds has been set at 1%.
Additionally, high-income non-salaried individuals and AOPs with earnings over Rs. 500 million will face an effective tax rate of around 60% due to the introduction of super and additional taxes.
Social Impact:
7. Inflation and Cost of Living:
As the government implements measures to increase revenue through higher taxes and reduced exemptions, the cost of living is expected to rise.
Items that were previously exempt from sales tax, such as certain medical and diagnostic kits and stationery items, will now be taxed, potentially increasing their prices.
8. Employment and Wages:
While the budget aims to stabilize the economy and boost government revenues, its impact on employment and wages remains to be seen.
Increased taxation on businesses may lead to reduced investment in new projects, affecting job creation.
On the other hand, it is to be seen how this budget would succeed in creating a more robust economic environment, that could eventually lead to better job opportunities and wage growth.
The Pakistan Budget 2024-2025 introduced significant changes to boost tax revenues and enhance compliance. While necessary measures for health, education, and human development lacks reforms which pose significant challenges for these sectors.
Non-salaried individuals and property owners face an increased tax burden. Stricter penalties for non-filers underscore the government’s focus on broadening the tax base.
The social and economic impact depends on implementation and the broader environment. Citizens and businesses must stay informed and adapt. Long-term success hinges on transparency and fairness.
The much-anticipated annual federal budget for Pakistan’s fiscal year 2024-2025 was announced on June 12, 2024.
The latest budget introduces significant increases across various income and sales tax categories, with even more severe implications for non-filers and late filers.
In this article, we’ll delve into the key aspects of the budget. Our main focus will be on changes to income tax and sales tax, as these elements significantly influence the financial landscape.
Review the 2025 budget highlights for more information.
1. Personal Income Tax: The tax rates for non-salaried individuals and AOPs have been revised upwards from 35% to 45%.
2. Income Tax for Salaried Individuals: The tax rate remains at 35%. However, the incremental rates have been increased across different income slabs.
3. Advance Tax on Immovable Property Purchases: The rates have been adjusted as follows:
Up to Rs. 50 million: 3% for filers, 12% for non-filers, and 6% for late filers.
Between Rs. 50-100 million: 3.5% for filers, 16% for non-filers, and 7% for late filers.
Over Rs. 100 million: 4% for filers, 20% for non-filers, and 8% for late filers.
4. Advance Tax on Immovable Property Sales: The rates have been adjusted as follows:
Up to Rs. 50 million: 3% for filers, 10% for non-filers, and 6% for late filers.
Between Rs. 50-100 million: 3.5% for filers, 10% for non-filers, and 7% for late filers.
Over Rs. 100 million: 4% for filers, 10% for non-filers, and 8% for late filers.
5. Capital Gains on Properties: For properties acquired on or after July 1, 2024, the rates are 15% for filers and 15-45% for non-filers.
6. Capital Gains on Securities: For securities acquired on or after July 1, 2024, the tax
rate will be flat 15% for filers, and non-filers will be taxed at normal rates with a minimum of 15% and maximum of 45%.
7. Tax Rates on Dividend Income: For mutual funds earning 50% or more income from profit on debt, the tax rate on dividend has been increased from 15% to 25%.
8. Tax Rates on Capital Gains from Mutual Funds and REITs: The tax rate has been increased from 10% to 15%.
9. Profit on Debt: Non-Filers will now be paying tax at 35% on the interest income instead of 30%.
10. Super Tax: Super tax has been retained. However, high-income non-salaried individuals and AOPs face an effective rate of up to 55%.
11. Exporters: Exporters will be brought under the normal tax regime. However, 1% tax on export proceeds will be treated as a minimum tax (does not apply to IT exports).
12. Exemption Certificates: For withholding tax exemption certificates have been withdrawn, only reduced rate certificates will be issued in certain cases.
13. Penalties for Non-filers and Late Filers: Enhanced penalties have been introduced, including restrictions on foreign travel (except NICOP Holders, Minor & Students) and higher advance tax rates. Additional measures include blocking of mobile sim connections and discontinuation of utility connections.
14. Advance Tax on High-Value Assets: Increased rates for advance tax have been introduced on motor vehicles, property transactions, and other high-value assets.
Sales Tax Changes:
1. Withdrawal of Exemptions
Edible Vegetables & Fruits from Afghanistan: Exemption on imports has been withdrawn.
Medical & Diagnostics Kits/Equipment: Exemption on these imports and supplies has been removed.
Supplies to Charitable Hospitals: Exemption on supplies to hospitals run by charitable institutions have been withdrawn.
Imports by Non-Profit Institutions: Exemption on imports of goods by non-profit institutions have been withdrawn.
Stationery Items: Exemption on specified stationery items (e.g., ball pens, erasers, exercise books) has been withdrawn and now taxed at 10%.
2. Introduction of New Exemptions
Natural Disasters: Import of goods in case of natural disaster or other catastrophic events are exempted.
Milk: Milk excluding that sold under a brand name is exempted.
Iron & Steel Scrap: Exemption is introduced for iron and steel scrap.
3. Changes in Sales Tax Rates
LPG: Sales tax rate on LPG has been increased from 10% to 18%.
Hybrid Electric Vehicles: Locally manufactured hybrid electric vehicles will now be taxed at 18%.
Petroleum Products: Zero-rating of petroleum products converted into exemption.
Medicaments: Sales tax on medicaments classified under Chapter 30 of the Customs Act has been reintroduced at 18% from the existing 1%.
Mobile Phones: Mobile phones will be taxed at the standard rate of 18%, with phones over $500 taxed at 25% irrespective of existing classification.
POS Tier 1 Retailers: The reduced rate of 15% sales tax on finished articles of textile and leather supplied by Tier 1 Retailers through POS integrated outlets has been withdrawn. These will now be taxed at the standard rate of 18%.
Personal Computers and Laptops: Sales tax rate on the import of personal computers and laptops have been increased from 5% to 10%.
4. Withholding Sales Tax
Specified Goods: The registered person would be liable to withhold 80% of the sales tax applicable on purchase of lead batteries, gympsum, coal, waste paper, plastic waste, crush stone and silica from the person even registered with sales tax.
5. Administrative and Compliance Changes
Minimum Prices for Third Schedule Goods: FBR can now set the minimum price for items listed in the Third Schedule.
Sales Tax on Advance Payments: The definition of “time of supply” has been revised. The proposed changes imply that sales tax has to be paid on advance payments from customers, reinstating the condition that was removed vide Finance Act, 2021.
Tax Fraud: The scope of tax fraud has been broadened, shifting the responsibility to the registered person who committed the fraud to prove that it was not intentional.
Default Surcharge: The default surcharge is proposed to be calculated at SBP’s KIBOR rate plus 3%, replacing the existing straight rate of 12%.
This new budget has also highlighted the importance of tax filing for individuals, by introducing a new term ‘late filers’ in order to emphasize on the taxpayers to timely fulfill their tax obligations.
In order to facilitate “non-filers and late filers”, Befiler has developed an innovative online platform, The Befiler App and Web Portal, that empowers individuals to effortlessly become filers and effectively file their taxes with utmost convenience.
