TAX STRUCTURE OF PAKISTAN

INTRODUCTION:

One of the major functions of the government is to tax people. Taxes, like death
are one of the two certainties that affect our existence.

Taxation structures and the extent of taxation vary from country to country, and
often governments within a country may suggest taxation reform based on their
particular political dispensation (ideology). In Pakistan, a well-defined
constitutional framework determines the nature of resource mobilization and
responsibilities of each of the different tiers of the government.

TAX STRUCTURE OF PAKISTAN:

Structure of government and taxation in Pakistan is based on 1973 constitution.
This document outlines the taxes and duties that the federal government can collect
based on federal legislative list.

These are as follows:

 Duties of customs, including export duties, duties of excise, includes duties

on salt but not those on narcotics.
 Duties on property, duties on succession of property, estate duty in respect
of property.
 Taxes on income other than agricultural income.
 Taxes on corporations.
 Taxes on sales and purchases of goods imported, exported, produced and
consumed.
 Taxes on capital value of the asset.
 Taxes on mineral oil, natural gas, and minerals used in generation of nuclear
energy.
 Tax and duty on production capacity of any plant, machinery etc.
  Terminal taxes on goods or passengers carried by railways, sea or air, taxes
on their fares and freight.

The provincial governments have authority to make laws with respect to any
matter other than those reserved for federal government similarly provincial
government has authorized local governments to collect taxes which they do not
collect themselves.

Revenue sources based on rates and taxes that the provincial government
collects are:

 Taxes on agricultural income

 Tax on trade professions, callings and employment
 Capital gains tax on immovable property
 Water rate
 Excise duties on alcoholic liquor and narcotics
 Land revenue
 Motor vehicle tax
 Stamp duty
 Electricity duty
 Entertainment duty
 Tolls on roads and bridges
 Taxes on cinemas and hotels
 Arms license fee
 Court fee

Almost all major taxes worth any real revenue potential are with federal
government.

As GDP rises, share of total taxes should also raise, particularly direct taxes play a
greater role in the overall taxation structure. Pakistan’s tax effort is quite poor
compared to countries with similar levels of income.

Federal government collects about 90% of total revenue and of tax receipts.
STRUCTURAL PROBLEMS OF THE TAX SYSTEM OF PAKISTAN:

1. Overall level of fiscal effort is low, tax-to-GDP ratio has remained stagnant
between 12-13%, and this leads to budget deficit.
2. Overdependence on direct taxes which constitutes major portion of revenue.
This increases regressivity and imposes higher excess burden of taxation.
3. Within indirect taxes there is domination of taxes on international trade,
which promoted inefficiency, distorted the allocation of resources and
encouraged illicit trade.
4. Effective tax bases of most taxes are narrow due to wide ranging exemptions
and concessions and rampant tax evasion.
5. Tax-administration is characterized by out dated procedures, complex laws,
and corruption

INCOME TAX IN PAKISTAN: A/c to Income Tax Ordinance 2001;

Taxable income =total income for yr. – total of any deductible allowances

TAX RATES: For salaried class = 0.5 % -20%

For others = 0.5% - 25%

Salaried male = if income exceeds PKR 200,000

Salaried female = if income exceeds PKR 260,000

Non- salaried = PKR 100,000

TAX DEDUCTIONS AND ALLOWANCES: Only for non-salaried class.

CORPORATE TAX RATE: Pakistan’s corporate tax = 25% of net taxable income

PAKISTAN’S SALES TAX: standard rate of sales tax = 16%

PENALTIES: failure to file tax returns earns penalty of about 0.1% each day:

Minimum amount = PKR 500

Maximum amount = 25% of tax

TAX FILING STATUS: each individual must file a tax separately, no joint returns.

RESIDENCE: An individual is resident for tax year if he/she is in Pakistan for 182
days.