A Guide to Personal Taxes in Pakistan

Taxes are the mandatory amount of money paid, in a certain ratio, to the local authorities. The collected taxes are used by the government to run different errands, maintain infrastructure, and finance national projects like roads, defence, subsidies, laptop schemes and others. There are currently more than 70 taxes, including multiple personal taxes administered in Pakistan; however, understanding all of them can be a daunting task. So, we have listed and explained some of the most important types of personal taxes in Pakistan which should be known by everyone. Types of Personal Taxes

Types of Personal Taxes

Sales Tax

The sales tax is the amount of tax levied on all sorts of goods and services being sold, including fast food, shoes, groceries, gadgets, and apparel. It is collected and monitored by the Federal Board of Revenue (FBR) and added to the government’s treasury. According to the guidelines issued by FBR for 2024, i.e. effective since July 1, 2023, the sales tax rate is 18%, which is applied to the final price of the product or service. The sale tax becomes due at the time of sale. In the case of imports, it becomes due at the time of customs clearance into Pakistan.

Income Tax

Income tax is the type of personal tax where every salaried individual, company or AOP is required to pay a fixed amount of tax levied on the taxable pay* to the government. Income tax is one of the major sources of revenue for the government. The income tax is progressive in nature i.e. it increases with the increased income. The tax is calculated in compliance with the guidelines given by the FBR, which issues a National Tax Number (NTN) to all the individuals receiving salaries, companies and AOP. The income tax is then paid using this NTN. Calculating the tax can be complicated; however, there are income tax calculators available on different websites that can calculate your payable tax in a few seconds! * The net income, excluding deductions and exemption (allowed under the tax laws), earned annually is taxable pay. Overview of Income Tax FY 2023-24

Overview of Income Tax FY 2023-24

Taxable Income Income Tax
Less than Rs. 600,000 0%
Rs. 600,000 – Rs. 1,200,000 2.5%
Rs. 1,200,000 – Rs. 2,400,000 Rs. 15,000+12.5% of the amount exceeding Rs. 1,200,000
Rs. 2,400,000 – Rs. 3,600,000 Rs. 165,000 + 22.5% of the amount exceeding Rs. 2,400,000
Rs. 3,600,000 – Rs. 6,000,000 Rs. 435,000 + 27.5% of the amount exceeding Rs. 3,600,000
More than Rs. 6,000,000 Rs. 1,095,000 + 35% of the amount exceeding Rs. 6,000,000

Property Tax

If you own land/property in Pakistan, then you are levied to pay property tax to the local government. It is calculated depending on the size, demographics, value and category of the property. It may range from 2% to 5%, depending on the above-mentioned factors. To calculate the property tax, the following formula is applied by FBR: Property Tax = (Rental Value of Property x Tax Rate) / 100 It has further three types:

Capital Gains Tax

To put it simply, capital gain tax is the tax levied on the profit earned by selling or exchanging capital assets* i.e. land, stock, or property. Unlike other taxes, this tax is determined, monitored, collected, and deposited by the National Clearing Company of Pakistan Limited (NCCPL). The key point is that it is paid by the seller and not the buyer. It is paid with the annual tax returns. The tax is applied on the profit earned by selling and not on the overall amount of the sold property. Capital Gains Profit = Purchase Price Sale Price

Capital Gains/ Profit = Purchase Price- Sale Price

* Any personal or investment property owned for personal use (there are a few limitations) is called a capital asset.

Capital Value Tax

It is the type of property tax levied on the seller for selling immovable property, either residential or commercial. It holds significant importance in ensuring transparency in property transactions. The CVT rates are imposed by FBR and set by district commissioner offices across Pakistan. The tax rate depends on the type of property and the cost at which it is being sold. However, there are certain exemptions, i.e. in the case of divorce settlement, inherited or gifted property there is no CVT applicable. The tax rate is significantly reduced if the property is being sold to a family member.

Withholding Tax

Withholding tax is taken from the income that can be from insurance, interests, commission, technical services, professional fees or rent at the time of payment. It may vary from 2%-20% depending on the source of income. According to Budget 2023-2024

According to Budget 2023-2024

Conditions Payable Withholding Tax
Filers of income tax returns 3%
Non-filers of income tax returns 6%
Purchasing or transferring immovable property (Filers) 3% in advance tax
Purchasing or transferring immovable property (Non-filers) 10.5%.