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".