Tax System in Pakistan

Name_______ Muhammad Hamza Zahid

Roll No#______ 180070
Subject#_______ TAXATION
Instructor#______ Sir Tauseef Shaukat
Topic#_______ Tax System In Pakistan
__ASSIGNMENT#02__
Submission Date: 17 April,2020

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Tax System in Pakistan

Tax System In Pakistan

A fee charged by a government on a product, income, or activity is known as tax. A tax can
also be defined as a "pecuniary/financial burden laid upon individuals or property owners to
support the government. Most of the taxation system in the world are classified into two
broad categories/Types known as:

 Direct Tax
 In-direct Tax
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. Taxation in Pakistan is a complex system of more than 70
unique taxes administered by at least 37 agencies of the Government of Pakistan. Fiscal
structure of Pakistan is divided between the Federal & Provincial Government. Every
province have its own board of revenue such as in Punjab we have Punjab Board Of
Revenue and in the province of Sindh we have Sindh board of Revenue and in the Federal
(Islamabad), we have Federal Board Of Revenue Which is also known as FBR, Every
individual pays the tax to government either it is directly or either it is indirectly. When a
person bought a property, he/she also paid tax to government directly against its sales return
and when any individual buy something from the shop he/she must pay the tax to government
but in this scenario individual pay tax by using a source between individual and Government
such as GST. We will discuss both the categories Briefly in the context of taxation system in
Pakistan.

 Direct Tax
A tax in which you pay amount directly in government account is known as direct tax.
When you will buy a car, you will pay some tax on it directly to the government is
seems as direct tax. In the direct tax individual are responsible to pay the tax to
government because individual is directly linked one to one end with the government.
Individual are directly communicating to government through individual’s tax return.
The most common example of direct tax is income tax. In addition to direct tax
Corporate Tax, there are other applicable income taxes including Super Tax,
Minimum Tax and Tax on Undistributed reserves.
 In-Direct/Service Tax
This is the type of tax in which you pay tax to government but indirectly through third
party this type of tax is known as in-direct or service tax. When you go to restaurant
for lunch where you have bill of Rs-/1500 and you will pay Rs-/1700 the extra 200
GST is treated as indirect tax which will be paid to the government on your behalf by
the restaurant to the board of revenue of their province. After the 18th amendment
province has right to collect the service/indirect tax from the service providers such as
telecommunication sector, software industry and restaurant industry etc. Province
have rights to collect tax from different rates as per assign by the province to each
industry and it necessary that tax should be paid till 15th date of each month and filed

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Tax System in Pakistan

the service tax till 18th date of each month. Telecommunication sector have more limit
then other sectors they can paid till 22nd of each month.
 Federal Board Of Revenue
In the all process the federal board of revenue play an important role, FBR collect all
the taxes from all the provinces through proper process of the system including
custom tax, sales tax, property tax, GST etc. Federal Government also announce about
the receipt in which format any entity/organization/shop will return receipt to his
customer,

Importance Of Receipt:
Every provincial government and federal government announce the format of receipt
for service tax, this step is taken to inspect whether any entity paid service tax on the
behalf of their customer or not. Some people are shy they don’t take receipt from the
counter when the purchase something from the shop. Important point to keep in mind
taking receipt are following:
 Is Your receipt printed according to your provincial/federal format?
 You must take receipt when you pay for something and keep with you as a
record as you paid service tax in it.
 Check the invoice number
 If someone don’t give you receipt complain about those shops
 Employee Tax
Tax of employee calculated according to slabs as if a person has Rs-/400,000 that person
don’t need to pay any tax. If tax payer have yearly salary is more than Rs-/400,000 then
tax should be decided according to the slabs which is mention on the website of FBR.
Most entities do not file the return against its employee, employee should need to confirm
about their returns and yearly salary to FBR to save itself from penalty. Employee should
need to declare where he/she works what is monthly salary. The system to file return is
present on the website of FBR with the name of IRIS government follow the simple
system
1. Go to FBR website
2. Put your NTN/CNIC number
3. Follow the steps to get the username and password
4. Fill the form 114 and 116
5. Answer the Questions relating to your with-holding
6. Declared who with-hold your tax on your behalf
When employee follow these guidelines or guidelines which are give on FBR website then
employee just need to declare in which company he/she is working by mentioning the NTN
number in the detail then see the tax which will be calculated automatically, employee don’t
need to be worry those taxes which company is paying on the behalf of employee FBR will
take those taxes from the Company if company is not paying on the behalf of the Employee.
Employee just need to mention all the information in the form number 114 ad 116 accurately

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Tax System in Pakistan

which is like what are your responsibilities in the organization and also what are your
expenses in the whole year including rent house, electricity bills, sui gas bills, children
education etc. You have unique pin code while login on FBR website it is confirmation that
you are the person filing the bill on your behalf.

Procedure of ATL (Active Tax List)

If individual are paying all taxes but they didn’t see their name on the ATL then they will
need to send an email regarding ATL issue then the FBR will work on that issue and then
again individual need to check that if his/her name is Active on ATL or not active on ATL.
FBR will update individual through text msg and E-mail with in a second that you are on
ATL or not.

Why Government Collect Taxes

Most of the middle east countries like Qatar, UAE, Saudi Arabia, Bahrain don’t have income
taxes and no direct taxes because government have sources through which they run their
economy and give relief to the citizen of their country.in Pakistan, Government collect tax to
bear all the expense of country because company don’t have any other source to earn for
country. Citizens are paying taxes on everything like grocery products, transferring the funds.
If individuals are blaming the system, individual is also the part of system. Individuals
are need to recognize the system about how the different department/component of system
works in the Pakistan. FBR just have responsibility to collect the tax and give to government
because FBR is not the system it is the component of system.
Individuals pay taxes then the service taxes go to federal government and direct taxes
go to provincial government. In Pakistan, FBR collect the taxes from the country then
distribute among all the provinces according to their population. Suppose, Punjab have 50%
population of the country then FBR will give 50% taxes as an expense to Punjab to meet the
expenditure of the province at provincial level.
In other countries as UK, where their tax department calculated more amount of tax
then they will spend on that area for different purposes like on roads, on hospitals etc. In
Pakistan, the scenario is totally different. Some of the areas in the UK is highly expensive
where people pay their taxes on time. All individuals are the part of system through which
government run. All individuals of Pakistan need to show their responsibilities as a
responsible citizen of Pakistan. In Pakistan, the Karachi is the only city who pays 95% of
indirect/service tax to the government. Before SRB (Sindh Board of Revenue) FBR just
collect 15 billion rupees in the form tax when SRB formed it was claimed that more than 22
billion rupees were collected (according to website of SRB).
On the other hand, citizen don’t ask from government where thee tax spended all over
the year which expenses government bared through that tax which citizen of Pakistan paid.
All the opposition and government should be answerable in front of citizen.
Government should need to learn Islamic laws as Pakistan is Islamic republic, Government
and citizen should need to adapt all the principles of Islam and should be implemented on the

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Tax System in Pakistan

country. Like Government should need to implement Islamic banking, Islamic taxation all the
principles according to Islam with the help of these principles and with the collaboration of
citizens of the state, so we shall run a system of country in a better way.

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