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Income Tax Pakistan

How to Calculate Income Tax in Pakistan - An Overview


Law concerning taxation of income in Pakistan is stated in the Income Tax Ordinance, 2001 (the Ordinance) and the rules framed thereunder viz. Income Tax Rules, 2002 (the Rules). The Ordinance is a Central statute and is, therefore, applicable to the whole of Pakistan .Under section 4 of the Ordinance, income tax is imposed for each tax year at specified rates on every person who has taxable income for the year. The tax payable is calculated by applying the rate(s) of tax to the taxable income of the taxpayer for the year and any tax credit allowed to the taxpayer for that year is deducted from that amount. . The following tax credits are allowed under Chapter 3 Part 10 of the Ordinance: Charitable donations, investment in shares, retirement annuity scheme and profit on debt. Tax Year in Pakistan Tax year is a period of twelve months ending on 30th June and shall be denoted by the calendar year in which the said date falls. Taxable Income in Pakistan It is the total income of a person for a tax year reduced by the total of any deductible allowances, under the Ordinance, for the year. A person is entitled to a deductible allowance for the amount of any Zakat paid by the person in a tax year under the Zakat & Ushr Ordinance, 1980. Total Income It is the sum of a person's income under each of the heads of income for the year. Heads of Income in Pakistan Under the Ordinance income is classified into the following five heads: Salary, Income from property, Income from business, Capital gains and Income from other sources. The income of a person under a head of income shall be the total of the amount derived by the person in a tax year that are chargeable to tax under the head as reduced by the total deductions allowed under the ordinance to the person under that head. Capital Value Tax (CVT) in Pakistan CVT is payable by individuals, firms and companies which acquire an asset by purchase or a right to use for more than 20 years. It is also payable on import of motor vehicles. Workers Welfare Fund (WWF) in Pakistan WWF is levied at 2% of a company's income exceeding Rs.200,000. Corporate Asset Tax (CAT) in Pakistan Levied through section 12 of the Finance Act, 1991 it is one time levy payable by a company on the value of fixed assets held by the company on the "specified date".

Relevant Income Tax Legislation in Pakistan

Income Tax Ordinance, 2001 Income Tax Rules, 2002

History[edit]
Income Tax Act of 1922: prevalent in the British Raj and was adopted by the Government of Pakistan as its Income Tax Law. Income Tax Ordinance, 1979 was the first law on Income Tax which was promulgated in Pakistan from 1 July 1979 by Government of Pakistan. To update the tax laws and bring country's law in accordance with international standards, Income Tax Ordinance 2001 was promulgated on 13 September 2001, which became effective from 1 July 2002. IT rules 2002 were promulgated by FBR on 1 July 2002 in exercise of powers granted under section 237 of the Ordinance.

Problems[edit]
Taxation in Pakistan is a complex system of more than 70 unique taxes administered by at least 37 [1] agencies of the Government of Pakistan. According to the International Development Committee, Pakistan had a lower-than-average tax take. Only [2] 0.57% of Pakistanis, or 768,000 people out of a population of 190 million pay income tax.

Federal taxes[edit]
Federal taxes are administered by the Federal Board of Revenue.

Corruption[edit]
Further information: Corruption in Pakistan According to a 2002 study, 99% of 256 respondents reported facing corruption with regard to taxation. Furthermore, 32% of respondents reported paying bribes to have their tax assessment lowered, and [3] nearly 14% reported receiving fictitious tax assessments until a bribe was paid.

References[edit]
1. Jump up^ Horrigan, Kevin (2010-09-26). "Take a lesson from Pakistan: Taxes are for suckers". Saint Louis Post-Dispatch. Retrieved 2010-11-07. 2. 3. Jump up^ http://www.bbc.co.uk/news/uk-politics-22017091 Jump up^ "Nature & Extent of Corruption in the Public Sector" (PDF). Transparency International Pakistan. 2002. Retrieved 2010-11-07.