Pakistan Taxation System - Law Presentation
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Pakistan has a complex taxation system with over 70 different taxes administered by 37 government agencies. The major taxes include income tax, sales tax, customs duties, and excise duties. Income tax is levied on individual and corporate income under the Income Tax Ordinance of 2001. Sales tax of 17% is imposed on goods under the Sales Tax Act of 1990. Customs duties are applied on imports according to a cascaded tariff structure. Excise duties are levied on specific industries and services. The taxation system has a heavy reliance on withholding taxes and exemptions.
Pakistan Taxation System - Law Presentation
- 1. Tax Structure of Pakistan PRESENTED BY OMER SHARIF MADNI ATIF FARRUKH AMEER ALI EMTIAZ RAFIQ REJESH KUMAR
- 2. AGENDA Tax – Definition and Understanding Pakistan’s Taxation System & Structure Income Tax Sales Tax Excise Duty Custom
- 3. KEYWORDS Tax Income Tax Sales Tax Excise Duty Custom Duty Penalties Tax Rates Exemptions
- 4. INTRODUCTION Tax To tax (from the Latin taxo; "I estimate") Word Origin: 1250–1300; To impose a financial charge or other levy Upon Taxpayer (an individual or legal entity) by a state or the functional equivalent of a state Such that failure to pay is punishable by law.
- 5. HISTORY EGYPT Tax collectors were known as scribes Tax on cooking oil GREECE War of the Athenians imposed a tax referred to as eisphora No one was exempted ROMAN EMPIRE 60 A.D Tax on imports and exports called portoria GREAT BRITAIN First tax assessed in England was during occupation by the Roman Empire Lady Godiva - 11th century
- 6. SALIENT FEATURES OF PAKISTAN’S TAX SYSTEM FEDERAL Income Tax - Income Tax Ordinance, 2001 Heavy Reliance (53%) on Withholding Tax Progressive Personal Income Tax (max rate: 20-25%) Corporate Income Tax (35% rate) Universal Self-Assessment Scheme General Sales Tax - Sales Tax Act, 1990 On Goods only VAT features Zero Rating, also of domestic sales of exporters Standard Rate of 17% Exemptions to basic food items, agricultural inputs, medicines, newsprint.
- 7. SALIENT FEATURES OF PAKISTAN’S TAX SYSTEM Custom Duty - Customs Act 1969 Cascaded Tariff Structure (max rate: 25%; six slabs) Tariff Peaks in Automobiles and other luxury goods Share of Dutiable Imports (51%) Excise Duties - Federal Excise Act 2005 On few industries like cigarettes, beverages and cement On Services in VAT mode 1% Excise Duty across-the-board on manufacturing and imports PROVINCIAL Taxes AIT, Land Revenue, Stamp Duty, Motor Vehicle Tax, Property Tax, Excises Sales Tax on Services
- 8. PAKISTAN’S TAX SYSTEM FACTS Taxation in Pakistan is a complex system of more than 70 unique taxes administered by at least 37 agencies of the Government of Pakistan. The government is seriously indebted -- and only 1.9 million people in a country of 170 million filed tax returns at all in 2010. An estimated 10 million people are registered to pay taxes in Pakistan; the great majority don't pay a rupee.
- 9. TYPE OF TAXES IN PAKISTAN Income Tax - Income Tax Ordinance, 2001 Levied on the income of individuals or businesses (corporations or other legal entities) Often called a corporate tax, corporate income tax Individual income taxes apply on total income of the individual (with some deductions permitted) Corporate income taxes often tax net income
- 10. INCOME TAX LAW Income tax Pakistan Law concerning taxation of income in Pakistan is stated in the Income Tax Ordinance, 2001 (the Ordinance) and the rules framed there under viz. Income Tax Rules, 2002 (the Rules). The Ordinance is a Central statute and is, therefore, applicable to the whole of Pakistan. Under section 4 of the Ordinance, income tax is imposed for each tax year at specified rates on every person who has taxable income for the year.
- 11. INCOME TAX LAW Taxable Income It is the total income of a person for a tax year reduced by the total of any deductible allowances, under the Ordinance, for the year. Total Income It is the sum of a person's income under each of the heads of income for the year. Residence An individual is considered resident for a tax year if he/she is in Pakistan for more than 182 days in that tax year
- 12. INCOME TAX LAW Heads of Income in Pakistan Under the Ordinance income is classified into the following five heads: Salary Income from property Income from business Capital gains Income from other sources
- 13. INCOME TAX LAW Penalties The penalty for failure to file a tax return is 0.1% of the amount of the tax payable for each day of default. The minimum penalty is PKR 500 and the maximum is 25% of the amount of tax payable.
- 14. INCOME TAX LAW Tax rates Tax rates for the salaried class in Pakistan are 0.5% to 20%, and for other taxpayers, 0.5% to 25%. Basis – Income tax is payable by salaried individuals if taxable income exceeds PKR 350000 The limit not chargeable to tax for Tax Year 2012 is: Rs. 350,000.
- 15. Sr Amount 2011-2012 % of Tax 1 INCOME TAX LAW Where the taxable income does not exceed Rs.350,000 0% 2 Where the taxable income exceeds Rs.350,000 but does not exceed Rs.400,000 1.50% 3 Where the taxable income exceeds Rs.400,000 but does not exceed Rs.450,000 2.50% 4 Where the taxable income exceeds Rs.450,000 but does not exceed Rs.550,000 3.50% 5 Where the taxable income exceeds Rs.550,000 but does not exceed Rs.650,000 4.50% 6 Where the taxable income exceeds Rs.650,000 but does not exceed Rs.750,000 6% 7 Where the taxable income exceeds Rs.750,000 but does not exceed Rs.900,000 7.50% 8 Where the taxable income exceeds Rs.900,000 but does not exceed Rs.1,050,000 9% 9 Where the taxable income exceeds Rs.1,050,000 but does not exceed Rs.1,200,000 10% 10 Where the taxable income exceeds Rs.1,200,000 but does not exceed Rs.1,450,000 11% 11 Where the taxable income exceeds Rs.1,450,000 but does not exceed Rs.1,700,000 12.50% 12 Where the taxable income exceeds Rs.1,700,000 but does not exceed Rs.1,950,000 14% 13 Where the taxable income exceeds Rs.1,950,000 but does not exceed Rs.2,250,000 15% 14 Where the taxable income exceeds Rs.2,250,000 but does not exceed Rs.2,850,000 16% 15 Where the taxable income exceeds Rs.2,850,000 but does not exceed Rs.3,550,000 17.50% 16 Where the taxable income exceeds Rs.3,550,000 but does not exceed Rs.4,550,000 18.50% 17 Where the taxable income exceeds Rs.4,550,000. 20%
- 16. SALES TAX LAW Sales Tax - Sales Tax Act, 1990. Consumption tax charged at the point of purchase for certain goods and services The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale Collected from the buyer by the seller Commonly charged on sales of goods and services
- 17. SALES TAX LAW Pakistan Sales Tax The standard rate of Sales Tax in Pakistan is 16%. Taxable transactions Sales Tax is levied on the supply of goods and services, and the import of goods. Sales Tax Registration is mandatory for manufacturers if turnover exceeds PKR 5 million; for retailers, if the value of supplies exceeds PKR 5 million; and for importers and other persons if required by another federal or provincial law
- 18. SALES TAX LAW Filing and sales tax payment Sales Tax returns and payments must be made on a monthly basis
- 19. TYPES OF TAXES Following are major taxes levied by the federal and provincial governments. Federal Government Taxes: Income Tax Super Tax Wealth Tax Gift tax Turnover Tax Corporate Asset Tax Corporate Income Tax (A) Import Duties Import Surcharge Export Duties Iqra Surcharge Income Tax on imports Import Licence Fee Import Registration Fee
- 20. TYPES OF TAXES Export Registration Fee Central Excise Duty Sales Tax on Manufactured goods Capital Value Tax Export development Surcharge Development Surcharge on Petroleum Gas Development Surcharge General Sales Tax Federal Education Cess Workers Participation Fund Workers Welfare Fund Estate Duty Zakat Ushr Oilseeds Development Cess on Companies
- 21. TYPES OF TAXES Tobacco Cess Cotton Cess Development Surcharge on Electricity Textile Technology Cess Airport Tax Cargo throughout @ 2% charges freight charges and an additional three 3% for immediate clearance at Quaid-e-Azam Airport, according to an advertisement in daily, Business Recorder, February 12, 1998. Capital Gain Tax
- 22. TYPES OF TAXES Provincial Taxes: Professional Tax Property Tax Vehicle Tax Stamp Duty Entertainment Tax Betterment Tax Social Security Contribution Explosive Licence Fee Provincial Education Cess Capital Gain Tax Punjab Airport Tax Provincial Excise Duty Karachi Dock Labor Board Cess Cess on Hotels Cotton Fees Paddy Development Cess Provincial Excise Duty Land Revenue Tax Employee Old Age Benefit Contribution Trade Tax on Jewelers, Garment shops imposed by Baluchistan govt in 1997-98 budget
- 23. PAKISTAN’S TAXATION SYSTEM Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes. Direct Taxes Direct taxes primarily comprise income tax, along with supplementary role of wealth tax. For the purpose of the charge of tax and the computation of total income, all income is classified under the following heads: Salaries Interest on securities Income from property Income from business or professions Capital gains Income from other sources
- 24. PAKISTAN’S TAXATION SYSTEM Personal Tax All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the rates rending from 10 to 35 per cent. Tax on Companies All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at corporate rate of 39%. However, the effective rate is likely to differ on account of allowances and exemptions related to industry, location, exports, etc.
- 25. PAKISTAN’S TAXATION SYSTEM Inter-Corporate Dividend Tax Tax on the dividends received by a public company from a Pakistan company is payable at the rate of 5% and at the rate of 15% in case dividends are received by a foreign company. Inetr-corporate dividends declared or distributed by power generation companies is subject to reduced rate of tax i.e., 7.5%. Other companies are taxed at the rate of 20%. Dividends paid to all non-company shareholders by the companies are subject to with holding tax of 10% which is treated as a full and final discharge of tax liability in respect of this source of income
- 26. PAKISTAN’S TAXATION SYSTEM Unilateral Relief: A person resident in Pakistan is entitled to a relief in tax on any income earned abroad, if such income has already been subjected to tax outside Pakistan. Proportionate relief is allowed on such income at an average rate of tax in Pakistan or abroad, whichever is lower
- 27. PAKISTAN’S TAXATION SYSTEM Customs Goods imported and exported from Pakistan are liable to rates of Customs duties as prescribed in Pakistan Customs Tariff. Customs duties in the form of import duties and export duties constitute about 37% of the total tax receipts. The rate structure of customs duty is determined by a large number of socio-economic factors. However, the general scheme envisages higher rates on luxury items as well as on less essential goods. The import tariff has been given an industrial bias by keeping the duties on industrial plants and machinery and raw material lower than those on consumer goods.
- 28. Pakistan Customs - Central & Operational Hierarchy
- 29. PAKISTAN’S TAXATION SYSTEM Central Excise Central Excise duties are leviable on a limited number of goods produced or manufactured, and services provided or rendered in Pakistan. On most of the items Central Excise duty is charged on the basis of value or retail price. Some items are, however, chargeable to duty on the basis of weight or quantity. Classification of goods is done in accordance with the Harmonized Commodity Description and Coding system which is being used all over the world. All exports are exempted from Central Excise Duty.
- 34. CONCLUSION Pakistan Taxation System consists of various heads and sub divisions with a complex structure Understanding these sstem is essential in order to avoid any illegal act Business can also benefit in certain ways e.g. Subsidies and Refunds Understanding the system can help to reduce expenses Due to this complex structure many individuals avoid enrolling in Tax system