A BRIEF DESCRIPTION OF THE LOCAL TAX SYSTEM WITH A FOCUS ON

WITHHOLDING INCOME TAX AND SALES TAX

Taxes are required to meet the expenditure that a country needs to serve its people. Pakistan operates
through hybrid system whereby Federal Board of Revenue (FBR) collects taxes on goods and the provinces levy on
services.
Pakistan's Current Taxation system is defined by Income Tax Ordinance 2001 (for direct taxes) and Sales
Tax Act 1990 (for indirect taxes) and administrated by Federal Board of Revenue (FBR).

Direct taxes /Income Taxes:

Federal income taxes are administered by the Federal Board of Revenue. Period from July 1st to June 30th
is considered as a normal tax year for Pakistan tax law purposes. Corporate Income tax rates currently, the Corporate
Income tax rate is 29% for tax year 2019 and onwards whereas corporate tax rate is 35% for Banking Industry for
TY 2019. In addition to Corporate Tax, there are other applicable income taxes including Super Tax, Minimum Tax
and Tax on Undistributed reserves.

Indirect taxes:

Indirect tax or more commonly known as sales tax is also applicable on supply of goods and provision of
services. Under the 18th amendment to the Constitution of Pakistan, the right to charge sales tax on services has
been given to the provincial governments whereas the right to charge sales tax on goods has been given to the
federal government. Consequently, provincial revenue authorities were created to manage and collect provincial
sales tax in their respective provinces.

Collection and Withholding of Income Tax at Source

Implemented taxation act makes it obligatory to collect and deduct tax at source on certain specified
persons commonly known as ―Withholding Agentsǁ at a time when an economic activity takes place
Taxation laws guides withholding agents on withholding of income taxes on certain transactions held under below
mentioned trades along with their concerned Sections in tax law
148 Import of goods
149 Payment of salary
150 Payment of dividend
151 Payment of profit on debt 151
152 Payment to non-resident for Royalty and fee for technical services and Execution of contracts etc.
153 Payment for goods; services and execution of contracts
154 Payment of export realizations
155 Payment of rent of property 36 156 Payment of prizes or winnings
156A Payment of commission / discount on petroleum products
231A Payment of cash against withdrawal from bank
233 Payment of brokerage or commission
234 Receipt of motor vehicle tax (token tax)
235 Receipt of electricity consumption bills
236 Receipt of telephone usage bills
By Ahsin Raza (0345-5048247)