Taxes in Pakistan

Posted January 16, 2010 by basiliskt in Economic Development. 18 Comments

Government earns revenue through plenty of ways like interests , dividends

,trading profits etc and tax is one of the primary tool of revenue in above mentioned ways. Some one
rightly describes tax as;
A fine is a tax for doing something wrong whilst tax is a fine for doing something
right.
Pakistan, the state of 180,800,000 people collected the total tax revenue of Rs 1,317,857 millions
according to Budget estimate (B.E) 2008-09 which is less than satisfactory and witnessed actual slow
in real term. I will begin my writing with Ogden Nashs stanza
The more you earn, the less you keep,
And now I lay me down to sleep.
I pray the Lord my soul to take,
If the tax-collector hasnt got it before I wake.
The sources of tax revenue in Pakistan are:
Federal Taxes
Provincial Taxes
1. Federal Taxes

Lets take a detailed view of direct and indirect taxes of Pakistan.

Income Tax
It is kind of direct tax that is lived on a person having income more than the certain level. According to
Plato:
When there is an income tax, the just man will pay more and the unjust less on the
same amount of income.

The revised slabs for taxable income through Finance Act 2008 are given below;
S. Taxable income Rate of tax.
No.
(1) (2) (3)
1. Where taxable 0%
income does not
exceed Rs.180,000 For
women taxpayer it
is Rs.240,000.
2. Where the taxable 0.50%
income
exceedsRs.180,000 but
does not exceed
Rs.250,000
3. Where the taxable 0.75%
income
exceedsRs.250,000 but
does not exceed
Rs.350,000
4. Where the taxable 1.50%
income
exceedsRs.350,000 but
does not exceed
Rs.400,000
5. Where the taxable 2.50%
income
exceedsRs.400,000 but
does not exceed
Rs.450,000
6. Where the taxable 3.50%
income
exceedsRs.450,000 but
does not exceed
Rs.550,000
7. Where the taxable 4.50%
income
exceedsRs.550,000 but
does not exceed
Rs.650,000
8. Where the taxable 6.00%
income
exceedsRs.650,000 but
does not exceed
Rs.750,000,
9. Where the taxable 7.50%
income
exceedsRs.750,000 but
does not exceed
Rs.900,000,
10. Where the taxable 9.00%
income
exceedsRs.900,000 but
does not exceed
Rs.10,50,000,
11. Where the taxable 10.00%
income exceeds
Rs.10,50,000 but does not
exceed
Rs.12,00,000,
12. Where the taxable 11.00%
income
exceedsRs.12,00,000 but
does not exceed
 Rs.1450,000,
13. Where the taxable 12.50%
income
exceedsRs.1,450,000 but Workers Welfare Tax
does not exceed It is charged at 2% on the
Rs.1,700,000, manufacturers having income of Rs
100,000 and above. Employees Old
14. Where the taxable 14.00% Age Benefit Scheme is financed
income through this fund.
exceeds Rs.1,700,000 but Capital Value Tax
does not exceed Capital Value Tax is payable by every
individual, association of persons,
Rs.1,950,000, firm and company, not born on the
15. Where the taxable 15.00% National Tax Register. Currently CVT
income is payable with different rates on
exceeds Rs.1,950,000 but immovable commercial and non
commercial property, residential flats,
does not exceed and purchase of shares of stock
Rs.2,250,000, exchange.
16. Where the taxable 16.00% Worker Profits participation
income Fund
This tax is paid by the industrial
exceeds Rs.2,250,000 but undertaking having more than 10
does not exceed workers at 5% of their profits for
Rs.2,850,000, distribution amongst workers. Any
17. Where the taxable 17.50% leftover amount after distribution
amongst the workers is deposited
income with the government to become part
exceeds Rs.2,850,000 but of the WWF.
does not exceed Custom Duties
Rs.3,550,000, Customs duties are levied through
Customs Act, 1969 on goods imported
18. Where the taxable 18.50%
into Pakistan. It contributes 24.4% in
income the indirect taxes and 15% in total
exceeds Rs.3,550,000 but taxes collected by FBR. The collection
does not exceed of custom duties is important as it
Rs.4,550,000, also contributes in the base
calculation of other taxes like sales tax
19. Where the taxable 19.00% on imports and withholding tax. Only
income 15 major commodity groups
exceeds Rs.4,550,000 but contributed 78% of the total customs
does not exceed duties during 2007-08. Auto sector is
the top contributor of the customs
Rs.8,650,000, duty. The composition of gross
20. Where the taxable 20.00% customs duty collection is provided as
income following:
exceeds Rs.8,650,000 1. Import Duties
2. Warehouse Surcharge
3. Export Development Surcharge
4. Misc (auctions, recovery of arrears, defense etc)
Federal Excise
Federal Excise Duties are levied on domestic production, imports and services rendered in the
country. The major excisable commodities include cigarettes, cement, beverages, natural gas and POL
products, whereas excisable services are; Air Travel, Insurance, Non-Fund Services provided ( In FY:
2007-08 the NFS were extended to full coverage of Non-fund Financial Services (NFS), and FED on
Air Travel was rationalized.) by banking or non-bank financial companies and Franchise services. The
old Central Excises Act, 1944 has been replaced by The Federal Excise Act, 2005, with effect from 1st
July, 2005. As part of budgetary measures for the year 2007-08, Special FED at 1% has been levied on
goods which are manufactured or are imported in Pakistan.
Sales Tax
Sales tax is liable on sales of all goods and services produced in the country excluding those goods
exempted in the Sales Tax Act, 1990. The rate structure was different for native products and imports.
The details of sales tax collection at import stage also point out the higher concentration as fifteen
major commodity groups have contributed around 87% of total ST (imports) collection. The major
commodity groups include POL Products (27), Edible Oil (15), Plastic (39), Vehicles and Parts (87),
Iron and Steel (72), Mechanical Machinery (84), Electrical Machinery (85), Organic Chemicals (29),
Paper & Paper Board (48), Oil seeds etc (12), Misc Chemicals Products (38), Rubber (40), Coffee, Tea,
and Spices (9), Aluminum Products (76) and Articles of Iron & Steel (73).
Provincial Taxes

Conclusion
In above mentioned direct tax caption you must have been noticed that there is no wealth tax which is
thought provoking. It has been stopped since 2007.Wealth tax for 2006-07 were Rs 47m .Will Durant
rightly says;
If our economy of freedom fails to distribute wealth as ably as it has created it, the
road to dictatorship will be open to any man who can persuasively promise security to
all?
One of the primary maxims of taxation is that,the burden of tax should fall on the people
according to their ability .But in Pakistan the case is opposite I-e taxed poor, exempt wealthy.
Wealth tax is the best tool of controlling the alarming rate of unequal distribution in under developing
economies like Pakistan. But unfortunately every next government of Pakistan starts loading its bank
accounts rather than addressing the real problems of country. Gandhi brilliantly states;
The things that will destroy us are: politics without principle; pleasure without
conscience; wealth without work; knowledge without character; business without
morality; science without humanity; and worship without sacrifice.