MGI Doing Business in Pak. Feb 2012

Doing Business
in Pakistan

DOING BUSINESS
IN PAKISTAN

2012

Doing Business in Pakistan 2012

Compiled by: Ilyas Saeed & Co Page | 2

1. TABLE OF CONTENTS

2. Disclaimer . 3

3. About Us . 4

4. The country . 5

5. Forms of business enterprise . 7

6. Direct taxation .. 10

7. Exchange controls .. 14

8. Other forms of taxation . 18

9. Labour relations and social security . 22

10. Grants and incentives .. 24

11. Quality of life .. 24

Appendices .. 28
A Rates of tax .. 29
C Withholding tax rates .. 33



Disclaimer
Every care has been taken in compiling this booklet to give some insight of doing business in
Pakistan.
We have tried our best to make it comprehensive about the general information, legal,
accounting, auditing, tax and labour rules/requirements that regulate businesses in Pakistan.
However, all the laws and requirements cannot be summarized in this general booklet and
specific advice may please be sought.
The booklet is a general information and is not intended to be a comprehensive document.
These notes have been compiled by
Mr. Irfan Ilyas, FCA,
Partner;
Ilyas Saeed & Co.,
Chartered Accountants,
A-4, Sea Breeze Homes, Shershah Block, New Garden Town, Lahore - Pakistan.
Telephone no: +9242 35861852,
+9242 35868849
Mobile no: +92300 8440423
Fax no: +9242 35856145
www.ilyassaeed.com
irfan@ilyassaeed.com

For any further clarification or further details, direct reference may please be made to Mr. Irfan
Ilyas at the address and the telephone numbers given above.
We look forward to assist you in your business growth in Pakistan.


ABOUT US
MGI
Midsnell Group International is a leading worldwide
association of independent auditing, accounting and consulting
firms, established in 1947. It has now over 280 officers in
more than 82 countries.
All MGI members offer personal services with high partner
contact to expanding business both locally and internationally.
Every local MGI firm can provide up-to-the-minute information on world side business practices,
international taxation solutions and strategic alliance opportunities. The detailed report providing
key issues and information for potential investors considering business in different countries is
provided by MGI representative offices.

ILYAS SAEED & CO

Ilyas Saeed & Co., Chartered Accountants is a public accountancy and management consultancy
firm in Pakistan. It provides a wide range of professional services to private and public
companies/corporations and multi-national conglomerates.

Founded in 1979, ISCO maintains its Head Office at Lahore. The Firm also continues to maintain
other offices in the major cities of Pakistan (Karachi, Islamabad and Gujranwala). ISCO is Pakistan
member firm of Midsnell Group International.

The Firm has always been maintaining satisfactory rating of QCR from ICAP and has been placed
in Category A list of Auditors by the State Bank of Pakistan. ISCO, therefore, is fully competent
to undertake any and all sorts of audit and revaluation assignments.

The Firm sticks to its mission as;
Best Professional Services at the most Appropriate Cost and Time


4. COUNTRY
4.1 Geography
Pakistan is a profound blend of landscapes varying from plains to deserts, forests, hills, and plateaus
ranging from the coastal areas of the Arabian Sea in the south to the mountains of the Karakoram
range in the north.
Pakistan is bordered by Afghanistan to the north-west and
Iran to the west while the People's Republic of China borders
the country in the north and India to the east. Along the
southern boundary of Pakistan runs the Arabian Sea with 1,064
kilometers of coastline. Pakistan covers an area of approximately
803,940 square kilometers. Its western borders include the Khyber
Pass and Bolan Pass that have served as traditional migration routes
between Central Eurasia and South Asia.
Pakistan is a federal republic with four provinces, capital territory (Islamabad) and territory consisting
of tribal areas and Gilgit Baltistan. Pakistan also administers Azad Kashmir and the Northern Areas,
portions of the Jammu and Kashmir region.

4.2 Economy
The economy of Pakistan is the 47th largest in the world in
nominal terms and 27th largest in the world in terms of
purchasing power parity (PPP). Pakistan has a semi-
industrialized economy, which mainly encompasses
textiles, chemicals, food processing, agriculture and other
industries. Growth poles of Pakistan's economy are
situated along the Indus River diversified economies of
Karachi and Punjab's urban centers coexist with lesser
developed areas in other parts of the country.

GDP of Pakistan is $ 210.8 billion (nominal) and $ 534 billion (GDP-PPP) at growth rate of 2.4%
for the year 2011.
Exports are around $ 25 billion (2011); mainly comprise of US
15.8%, UAE 7.9%, China 7.3%, UK 4.3% and Germany 4.2%
(2010).
Whereas imports are around $ 41 billion (2011); mainly comprises
petroleum, petroleum products, machinery, plastics, transportation
equipment, edible oils, paper and paperboard, iron and steel. Most
of imports are made from China 17.9%, Saudi Arabia 10.7%, UAE
10.6%, Kuwait 5.5%, US 4.9%, Malaysia 4.8% (2010).


4.3 Currency and Banking:
The rupee is the currency of Pakistan. The issuance of the currency is controlled by the State Bank of
Pakistan, the central bank of the country. The most commonly used symbol for the rupee is Rs, used
on receipts when purchasing goods and services. In Pakistan, the rupee is referred to as the "rupees",
"rupaya" or "rupaye".
The banking sector of Pakistan is very modern and
organized. Most of the leading international banks have
branches in the Country and local banks are also competing
with them with quality services. Both foreign and
national banks have invested heavily in infrastructure and
information technology and thus are able to provide state of
the art facilities to the customers. State Bank of Pakistan
is the regulatory body for the banks, which has established
its autonomous status.

4.4. Government/ Politics
Politics of Pakistan have taken place in the framework of a federal
republic, where the system of government has at times been
parliamentary, presidential, or semi-presidential. In the current
parliamentary system, the President of Pakistan is the largely
ceremonial head of state, the Prime Minister is head of government,
and there is a multi-party system. Executive power is exercised by
the government. Legislative power is largely vested in the
Parliament.
However military coups have been a routine. Military dictatorship sometimes went for Marshal Law
and sometimes a mature of political-military government.

4.5 Legal System
The constitution of the Islamic Republic of Pakistan of 1973
provides for Parliamentarian form of Government. The Prime
Minister (elected by the National Assembly) is the head of
Government and the President (collectively elected by the National
Assembly, the Senate and the Provincial Assemblies) is the head of
the federation. The National Assembly has 342 members who are
elected from all provinces, the capital territory and tribal areas on
the basis of population. The Senate derives equal representation
from all the four provinces and has a total membership of 100.
Pakistans legal system is based on English common law, adapted to the needs of an Islamic state.
High Court and Supreme Court of Pakistan are the highest forum of judiciary at provincial and
national level, respectively. Additionally, the Shariat court is responsible for ensuring that the
Countrys laws are as per Islamic injunctions.


5. FORMS OF BUSINESS ENTERPRISE

5.1 Sole Proprietorship
An individual, who desires, may set up his own business as sole proprietorship without any
registration except with tax authorities.

5.2 Partnership Firm
A partnership firm can be established by executing a partnership deed on a stamp paper of Rs. 500/-
and getting the same Notarized by the authorised Notary Public Magistrate. The Partnership Act,
1932 is the legal framework for partnership firms and a firm may or may not be registered with the
Registrar of Firms.

5.3 Limited Partnership
As per Companies Ordinance, 1984 none of the partnership is allowed to be registered as limited
partnership. Liability of partners remains unlimited in all circumstances.

5.4 Companies
The Companies Ordinance, 1984 and The Companies Rules, 1985 provide the
legal framework for operations of companies in Pakistan where as the
Securities and Exchange Commission of Pakistan is the regulatory authority in
this regard. In Pakistan, a company may be formed with or without limited
liability and the Ordinance provides for the following categories of the
companies:
a. A company limited by shares; or
b. A company limited by guarantee; or
c. An unlimited company
Companies formed in any of the above categories can further be classified in two types:
a. Private company
b. Public company
c. Single Member Company (SMC)
Any two or more persons associated for any lawful purpose may, by subscribing their names to the
Memorandum of Association (document that defines the objectives of the company) and complying
with the registration requirements, form a private company. Minimum number of members is three
for a listed company. There is no limitation as to the maximum number of members of public
company where are for private company, there is upper limit of 50 members. After complying with


the prescribed requirements; public may offer its shares and other securities to the general public.
The public company may get its shares and other securities listed on the stock exchange(s).
A private company;
a. Restricts the right to transfer its shares, if any;
b. Limits the number of its members to fifty;
c. Prohibits any invitation to the public to subscribe for the shares, if any, or
debentures of the company.
The name of every public limited company should include the word Limited as the last word of
the name. And the name of every private company and a company limited by guarantee should
respectively include the parenthesis and word Private and Guarantee before the last word
Limited.
Commission may grant licence to a non-profit association for the promotion of commerce, art,
science, religion, sports, social services, charity or any other useful object to be registered as a
company with limited liability without the addition of the words Limited, (Private) Limited or
(Guarantee) Limited as the case may be, to its name.
The schedule of fees for registration of a company is as following:
a. For registration of a company whose nominal share capital does not exceed Rs.
100,000 the fee shall be Rs. 2,500.
b. For registration of a company whose nominal share capital exceeds Rs. 100,000,
a fee of Rs. 2,500 is payable along with an additional fee to determine according
to the amount of nominal share capital as follows.
i. For every 100,000 rupees of nominal share capital or part of 100,000 rupees,
after the first 100,000 rupees, up to 5,000,000 rupees, a fee of Rs. 500.
ii. For every 100,000 rupees of nominal share capital or part of 100,000 rupees,
after the first 5,000,000 rupees, a fee of Rs.125.
For registration of a company the total amount of fee to be paid shall not exceed ten million rupees.
A single person may form a single member company (SMC) on fulfilment of certain legal conditions.
5.5 Trusts
The Trust Act, 1882 provides the legal framework for operations of trusts in Pakistan. The Trust
Act provides for the following categories of the trusts:
a) Public or Charitable
Private
b) Express, i.e, one which is clearly and directly created in express world by the settler.
Implied, indirectly gathered from unexpressed but presumable intention of settler.
c) Constructive, arise by operation of equity in favour of another.
For value
Voluntary
d) Executed, i.e., when it is fully and finally declared by instrument creating it.


5.6 Joint Ventures
A joint venture (JV) is a business agreement in which parties agrees to develop, for a finite time, a
new entity and new assets by contributing equity. They exercise control over the enterprise and
consequently share revenues, expenses and assets. There are other types of companies such as JV
limited by guarantee, joint ventures limited by guarantee with partners holding shares.

5.7 Cooperatives
A cooperative is a business organization owned and operated by a group of individuals for their
mutual benefit. The Cooperative Societies Act, 1925 provide the legal framework for operations of
cooperative society in Pakistan.
Subject to the provisions contained in a Societies Act, 1925 a society which has as its object the
promotion of the economic interests of its members in accordance with co-operative principles, or a
society established with the object of facilitating the operations of such a society, may be registered
under this Act with or without limited liability.


6. DIRECT TAXATION
Direct taxes are levied or charged on the annual income of taxpayer. Direct taxation consists of
Income Tax.

6.1 Income Tax - Individual
The Income Tax Ordinance, 2001 and Income Tax Rules, 2002 provide the legal framework for the
levy, collection and other matter related to income tax. The levy of income tax is an annual charge
on the taxable income of individual taxpayer. The return of total income shall be filed by such dates
as prescribed by Board; in the following table:
Sr.
No.
Taxpayer Last Date of Filling of Return
1

(i) An Association of persons: and
(ii) An Individual.
Filling of the following statement or return:
a) Annual Statement of deduction of
income tax from salary by employers;
b) Return of income by salaried person
through e-portal; or
c) A statement u/s 115(4) (taxable
under FTR)

31
st
day of August next following the
end of the tax year to which it relates.
2 An AOP or an individual other than as
specified above in serial no. 1
30
th
day of September next following
the end of tax year to with return
relates.

6.2 Income Tax - Company
The Income Tax Ordinance, 2001 and Income Tax Rules, 2002 provide the legal framework for the
levy, collection and other matter related to income tax. The levy of income tax is an annual charge
on the taxable income of company.
The Income Tax Ordinance, 2001 provides a broader definition of the Company which includes:
A company as defined in the Companies Ordinance, 1984
A body corporate formed by or under any law in force in Pakistan
A body incorporated by or under the law of a country outside Pakistan relating to
incorporation of companies
A trust, a co-operative society or a finance society or any other society established or
constituted by or under any law for the time being in force.


A foreign association, whether incorporated or not, which the Federal Board of
Revenue has, by general or special order, declared to be a company for the purposes
of this Ordinance
A provincial Government
A Local Government
A Small Company as defined in section 2(59A) of the Income Tax Ordinance, 2001

6.3 Sources of Income
The Income Tax Ordinance, 2001 classifies income into the following categories (called
heads of income) and prescribes the allowable deductions against each head:
Salary
Income from Property
Income from Business
Capital Gains
Income from Other Sources
Taxable income under a specific head means the income as reduced by allowable
deductions. The net income from each head is added to arrive at the total income for the
year, however, income from certain sources is subject to separate taxation, or is subject
to presumptive tax. Under the presumptive tax regime, the income is subject to
deduction of tax at source which becomes the discharge of final tax liability in respect of
that income. The taxation of income from a certain source under the normal or
presumptive tax regime is notified by the Government and such classification once
advised may also change. At present income from following sources is taxed under the
final tax regime:
Dividend received from a listed company
Prize on a prize bond or winnings from raffle, lottery, quiz or crossword puzzle, or
prize offered by companies for promotion of sale.
Travelling agents commission
Contracts other than service contracts
Royalty and fee for technical services of non-residents

6.4 Scope of Total Income for Tax Purposes
The Residential status of an assessee is also an important concept as it determines the
scope of total income for tax purposes. In the case of a resident assessee the total taxable
income means income from all sources within and outside Pakistan subject to the
provisions of double taxation treaties, while in the case of a non-resident individual it is
restricted to Pakistan source income only.


An individual is a resident individual if he is present in Pakistan for 182 days or more
in a tax year or if he is an employee or official of the Federal or Provincial Government
posted abroad.
A Company is considered to be resident when either it is incorporated or formed by or
under any law enforceable in Pakistan or, the control or management of which is situated
wholly in Pakistan at any time during the tax year.
A registered firm, un-registered firm and association of persons is considered resident
when its management and control is situated (either wholly or partly) in Pakistan.

6.5 Tax Year and Filling of Return
The tax year shall be a period of twelve months ending on 30
th
June of every year
'hereinafter referred to as 'normal tax year''. All assessees except companies are required
to file their return of income for the tax year at the latest by 30
th
September immediately
following the close of that tax year. Companies are required to file their return of income
for the tax year at the latest by 31
st
December immediately following the close of that tax
year.
Federal Board of Revenue has prescribed different period of twelve months to be the
tax year for various businesses. These different periods are called Special Tax Year.
Accordingly the last date for filling the return of income is also different as prescribed
for the normal tax year. Presently prescribed, special tax years and last date of filing the
return are as following:
Business Tax Period Filling of
Return
(Year ending on) (Latest by)
Companies
Manufacturing Sugar 30
th
September 31
st
March
All persons exporting Rice 31
st
December 30
th
June
All persons carrying on the
business of rice husking 31
st
August 28
th
or 29
th
February
All persons carrying on
the business of oil milling 31
st
August 28
th
or 29
th
February
All persons carrying on the
Business of manufacturing
and dealings in shawls 31
st
March 30
th
September
All Insurance Companies 31
st
December 30
th
June
A person may apply, in writing, to the Commissioner of Income Tax to allow him to use
a twelve months' period, other than the normal tax year, as a special tax year and the
Commissioner may by an order, allow him to use such special tax year.
In case of a class of persons having a special tax year, the Central Board of Revenue may permit it,
by a notification in the Official Gazette, to use the normal tax year as its tax year.


6.6 Tax Rates
The rates of tax applicable to various assessees are provided as Annexure 1.
Special Rules for Taxation of Certain Businesses
The Income Tax Ordinance, 2001 provides for separate provisions for taxation of the
following businesses:
The fourth schedule to the Ordinance provides the rules for the taxation of profits
and gains of Insurance Business.
The fifth schedule to the Ordinance provides the rules for the taxation of profits and
gains from the exploration and production of petroleum profits and gains from the
exploration and extraction of mineral deposits (other than petroleum).

6.7 Tax on Capital Gain
Profit and gain form the disposal of capital assets is taxable under the head capital gain. Gain on
capital assets other than securities (not based on interest) shall be taxable u/s 37 of the Income Tax
Ordinance, 2001. While gain on disposal of securities shall be taxable u/s 37A of the Income Tax
Ordinance, 2001.

6.8 Withholding Taxes
The Income Tax Ordinance, 2001 provides a complete procedure for the withholding tax system.
Section 148 to Section 169 of The Income Tax Ordinance, 2001 deals with the deduction of tax at
source on certain payments.
Nature of such payments and pertinent rate of tax deduction is provided as Annexure 2.

6.9 Gift Tax
At the time of transfer of gift, no capital gain or loss shall arise where the recipient is a resident in
Pakistan in the relevant tax year. The recipient of the gift shall be treated to have acquired the gift at
the fair market value at the time of such transfer.

6.10 Death Duties
An inheritance tax or estate tax is a levy, paid by a person who inherits money or property or a tax
on the estate (total value of the money and property) of a person who has died. In some
jurisdictions the term used is death duty. At the time of transfer of property by inheritance, no
capital gain or loss shall arise where the recipient is a resident in Pakistan in the relevant tax year.
The recipient of the property shall be treated to have acquired the property at the fair market value
at the time of such transfer.


7. EXCHANGE CONTROLS
Foreign exchange controls are various forms of controls imposed by a government on the
purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by
nonresidents.
Common foreign exchange controls include:
Banning the use of foreign currency within the country
Banning locals from possessing foreign currency
Restricting currency exchange to government-approved exchangers
Fixed exchange rates
Restrictions on the amount of currency that may be imported or exported

7.1 Repatriation of Earnings and Royalty Payment
Full repatriation of capital, capital gains, dividends and profits, is allowed.
The facility for contracting foreign private loans (which does not involve any Guarantee by
the Government of Pakistan) is available to all those foreign investors, who make investment
in sectors open to foreign investment, for financing the cost of imported plant and
machinery required for setting up the project. However, loan agreements should be
registered / cleared by the State Bank of Pakistan.
Foreign controlled manufacturing companies / concerns will be allowed unlimited domestic
borrowing according to their requirements for working capital.
Authorized Dealers are authorized to grant rupee loans and credits to foreign controlled
companies for meeting their working capital requirements subject to observance of
Prudential Regulations prescribed under the Banking Companies.
Royalty / Technical/ Services / Franchise Fees
a) Manufacturing Sector
There is no restriction on payment of royalty and/or technical service fees for the
manufacturing sector.
However, such agreements shall be registered with the State Bank of Pakistan.
The payments of royalties and technical service fees to foreign companies will be taxed at
15%. However, reduced rates under the treaties with different countries remain applicable.
b) Non-Manufacturing Sector
The payment of franchise, royalty or technical fee in case of non-manufacturing sectors is allowed
subject to following conditions:-
In case of foreign investment in non-manufacturing sectors including food sector, the initial /
lump sum fee should not exceed US$ 100,000 irrespective of number of outlets under on
franchise.


A maximum 5% of net sales (excluding 15% Sales Tax) in the food sector may be allowed as
franchise fee only for those items which are core items of the franchise and are the specialties of
the trade name.
The payment of such fees be allowed on monthly basis. No item will be eligible for twice payment
of royalty/franchise fee, e.g, soft drinks, etc.
Percentage/amount of fees etc., for other non-manufacturing projects is also be upto the
maximum of 5% of net sales (excluding 15% Sales Tax).
Initial period for which such fees may be allowed to projects in non-manufacturing sectors should
not exceed 5 years.
Subsequent extension in time period may be considered provided these projects also make
investment in allied upstream projects.
The agreements conforming to above guidelines will be sent by the sponsors to State Bank of
Pakistan for its information.
However, any relaxation or deviation from the guidelines will require prior approval of the Cabinet
Committee on Investment (CCOI).

7.2 Restriction on Amount Taken Out of Pakistan
Following are the restrictions which may be granted conditionally or unconditionally by the State
Bank, no person in, or resident in, Pakistan shall:
(a) make any payment to or for the credit of any person resident outside Pakistan;
(b) draw, issue or negotiate any bill of exchange or promissory note or acknowledge any debt, so
that a right (whether actual or contingent) to receive a payment is created or transferred in
favour of any person resident outside Pakistan;
(c) make any payment to or for the credit of any person by order or on behalf of any person
resident outside Pakistan;
(d) place any sum to the credit of any person resident outside Pakistan;
(e) make any payment to or for the credit of any person as consideration for or in association
with
(i) the receipt by any person of a payment or the acquisition by any person of property outside
Pakistan;
(ii) the creation or transfer in favour of any person of a right whether actual or contingent to
receive a payment or acquire property outside Pakistan;
(f) draw, issue or negotiate any bill of exchange or promissory note, transfer any security or
acknowledge any debt, so that a right (whether actual or contingent) to receive a payment is
created or transferred in favour of any person as consideration for or in association with any
matter.


7.3 Local Borrowing
Foreign controlled companies are normally required to meet their requirements of capital
expenditure out of their Rupee resources or from loans raised abroad with the permission of the
Federal Government/State Bank. In special circumstances such companies are allowed to raise
Rupee resources through medium and long term local borrowings. As an exception, foreign
controlled companies engaged in manufacturing are permitted to meet their requirements of capital
expenditure by taking loans from banks, development finance institutions and other financial
institutions or by issuing participation term certificates etc.

7.4 Emigrants
Emigration is the act of leaving one's country or region to settle in another. It is the same as
immigration but from the perspective of the country of origin. Human movement in general is
termed migration. There are many reasons why people might choose to emigrate. Some are for
reasons of religious, political or economic freedom or escape. Others have personal reasons such as
marriage. Some people living in rich nations with cold climates choose to move to warmer climates
when they retire.
Motives to migrate can be either incentives attracting people away, known as pull factors, or
circumstances encouraging a person to leave, known as push factors, for example:
Push Factors
Lack of employment or entrepreneurial opportunities
Lack of political or religious rights
Restrictions on practice of religion
Shortage of farmland; hard to start new farms
Oppressive legal/political conditions
Military draft, warfare
Famine or drought
Cultural fights with other cultural groups
Expulsion by armed force or coercion
Pull Factors
Better opportunities for acquiring farms for self and children
Cheap purchase of farmland
Instant wealth (as in California Gold Rush)
More job opportunities
Higher pay
Prepaid travel (from relatives)
Better welfare programmes


Better schools
Join friends and relatives who have already moved
Build a new nation
Build religious community
Political freedom
Cultural richness

7.5 Inheritance
Inheritance provisions in Pakistan depends on religious affinities.
All persons of sound mind, regardless of their nationality or residential status, are entitled by law to
inherit immovable and/or movable property in Pakistan, but the inheritance provisions depend on
whether the deceased was a Christian, a Hindu, or a Muslim. Within the Muslim category, the
definitions of heirs, and their shares, are decided according to their sects and sub-sects, e.g. Cutchi
Memon, Khoja, Sunni or Shia.

7.6 Immigrants
Immigration (derived from Latin: migratio) is the act of foreigners passing or coming into a country
for the purpose of permanent residence. Immigration is made for many reasons, including economic,
political, family re-unification, natural disaster, poverty or the wish to change one's surroundings
voluntarily.

7.7 Contract Worker/ Temporary Resident
Contract workers are self-employed, and the duration of each contract varies. In most cases,
contract workers are compensated per project or on a per-hour basis and do not qualify for benefits.
Common examples of contract workers are those in the construction field and freelancers. contract
workers in the construction field are often hired by a middleman, commonly known as a contractor.
A person shall be treated as short term resident / temporary resident if the following conditions
are met:
The person is an individual. The nationality of a person is immaterial in this case.
The person is resident only due to his employment in Pakistan; and
The person is in Pakistan for a period which is not more than three years.


8. OTHER FORMS OF TAXATION

8.1 Sales Tax/VAT
The VAT-mode Sale Tax has become a salient feature of the
countrys tax policy. Sales Act 1990 forms the legal frame
work for the operation and collection of sales tax. The
Collectorate of Sales Tax a division of the Central Board of
Revenue (CBR) is the regulatory authority in this regard.
Sales tax is payable on monthly basis at the rate of 15, 17.5 &
20 % of the value of supplies net of the amount of input tax
i.e. paid on purchases. The following persons are required to
obtain the Sales tax registration:
1. A manufacturer whose annual turnover from taxable supplies made in any period during last
twelve months ending any tax period exceeds five million rupees.
2. A service provider whose annual turnover from taxable services made in any period during
last twelve months ending any tax period exceeds five million rupees.
3. A retailer whose value of supplies made in any period during last twelve months ending any
tax period exceeds five million rupees.
4. An importer.
5. A wholesaler including dealer and distributor.
The Government promotes the sales tax registration and it is a must for doing business with most of
Government departments, Corporations and large Companies. To solicit such business a
manufacturer, service provider or retailer may obtain voluntary registration at the time of
commencing the business even if his turnover does not fall within the limits prescribed for
compulsory registration.

8.2 Stamp Duty
The Stamp Act, 1899 is the legal framework for stamp duties. All instruments chargeable with duty
and executed by any person in Pakistan shall be stamped before or at the time of execution.

8.3 Property Tax
Property Tax levied by the Provinces through their respective Property Tax Act. In Punjab, The
Urban Immovable Property Tax Act, 1958.
Levy of Tax:
Government may by notification specify urban areas where tax shall be levied under this Act.
Provided that one urban area may be divided into two or more rating areas or several urban areas
may be grouped as one rating areas.



8.4 Payroll Taxes
Payroll taxes are also called salary taxes. Provisions relating to the tax of a resident salaried person
are as follows:
What is Salary?
Salary means amount received by an employee from any employment, whether of a capital or
revenue nature. It includes pay and perquisites.
Pay means wages or other remuneration like leave pay, payment in lieu of leave, overtime payment,
bonus, commission, fees and gratuity.
Perquisite means benefit whether convertible to money or not given to employee over and above
pay and wages, e.g. - utilities allowance, conveyance allowance, provision of vehicle and
accommodation etc.

Who is a Salaried Person?
An individual is treated as a salaried person if more than 50% of his total income comprises of salary
income or he/she derives income entirely from salary. Every salaried person is obliged to pay tax on
salary, if salary exceeds prescribed limits.

Taxability of Salary
While computing the taxable salary income of a person, all perquisites, allowances or benefits,
except exempt items are to be included in the salary and such gross figure shall be treated as the
taxable salary income of a taxpayer.
Following allowances are exempt from tax subject to the following conditions:
Medical Allowance
Exempt upto 10% of basic salary, if free medical treatment or hospitalization or re-imbursement of
medical or hospitalization charges is not provided.
(See Clause (139)(b) of Part I of Second Schedule of ITO 2001)
Special Allowance
Exempt if granted to meet expenses for the performance of official duties.
(See Clause (39) of Part I of Second Schedule of ITO 2001)
Tax Reducers
The tax calculated above can be reduced to a prescribed limit if the salaried person is a senior citizen
or a full time researcher or teacher. The gross tax calculated as per applicable rates of tax is subject
to reduction for senior taxpayers and full time teacher or researcher.
Teacher or Researcher


A reduction of 75% of tax on income from salary is available to a full time teacher or researcher,
employed in a non-profit education or research institution duly recognized by HEC, any university
or board and government training and research institution.

Senior Taxpayers
If the age of the taxpayer on the first day of a tax year is 60 years or more and taxable income does
not exceed Rs.1,000,000 the gross tax qualifies for a reduction of 50%.
(See Clause (1A) of Part III of Second Schedule of ITO 2001)

Tax Rates
Tax rates applicable to salaried person are enclosed as per Appendices A.

8.5 Fringe Benefits Taxes
Perquisite means benefit whether convertible to money or not given to employee over and above
pay and wages, e.g. - utilities allowance, conveyance allowance, provision of vehicle and
accommodation etc.
While computing the taxable salary income of a person, all perquisites, allowances or benefits,
except exempt items are to be included in the salary and such gross figure shall be treated as the
taxable salary income of a taxpayer.

8.6 Tariffs
A tariff may be either tax on imports or exports (trade tariff), or a list or schedule of prices for such
things as rail service, bus routes, and electrical usage (electrical tariff, etc.).

8.7 Thin Capitalization Rules
Thin capitalization rules determine how much of the interest paid on corporate debt is deductible
for tax purposes. Such rules are primarily of interest to private-equity firms, which use significant
amounts of debt to finance leveraged buyouts.
A company said to be thinly capitalized when its capital is made up of a much greater proportion of
debt than equity, i.e. its gearing, or leverage, is too high. This is perceived to create problems for two
classes of people:
creditors bear the solvency risk of the company, which has to repay the bulk of its capital
with interest; and
revenue authorities, who are concerned about abuse by excessive interest deductions.



8.8 Transfer Pricing
When purchase and sale contracts are signed between the subsidiary and the parent company, at
trade terms that favor the parent firm, it results in profit repatriation through transfer pricing. This
kind of tilted transfer pricing, that favors high prices when the parent company sells something to its
subsidiary, allows for effective transfer of profits from the subsidiary to the parent. Though this
method is legal, it can cross the borders of legality if the transfer prices used are completely out of
line with the market rates and are also blatantly overinflated. It is legal but only if the transfer prices
are reasonable and justifiable.



9. LABOUR RELATIONS AND SOCIAL SECURITY

9.1 Labour Market
Pakistan has one of the largest labour and manpower resources in the world, due to its large
population, which is the sixth largest in the world. According to data produced by the CIA World
Factbook, the total number of Pakistan's labour force is 55.8 million, making it the ninth largest
country in terms of available human workforce. About 43% of this labour is involved in agriculture,
20.3% in industry and the remaining 36.6% in other services.

9.2 The Right to Work Nationals
Since creation of Pakistan, five labour policies have been announced by the government in year
1955, 1959, 1969, 1972, 2002 and Labour Policy 2010.
Pakistan has a huge work force, around 55.8 million people. And every one has right to work except
child labour.

9.3 The Right to Work - Non Nationals
Around 4 million refugees from Afghanistan came over Pakistan in wars with Russia and America.
They are free to work in Pakistan anywhere. And no specific rules restrict them and they are just
required to get registered with NADRA authorities.

9.4 The Employer-Employee Relationship
Employment is a contract between two parties, one being the employer and the other being the
employee. An employee may be defined as:
"A person in the service of another under any contract of hire, express or implied, oral or written,
where the employer has the power or right to control and direct the employee in the material details
of how the work is to be performed."

9.5 Labour Regulations
Since creation of Pakistan, five labour policies have been announced by the government in year
1955, 1959, 1969, 1972, 2002 and Labour Policy 2010.
According to Labour Policy 2010,
Workers right to form unions.
Adequate security of job
Facility of proper matching job opportunities
Promotion to higher jobs
Better work conditions


Social insurance schemes
Force labour in all forms to be eliminate

9.6 The Social Partnership Worker Participation
Provincial Employees Social Security Ordinance 1965 is in operation and covers the contingencies
of employment injury, sickness and maternity. It is financed entirely through employers
contribution at the rate of 6 % of the wages of secured workers up to Rs. 10,000/-p.m. The scheme
is administrated by the provincial governments.
Employees old age benefits scheme is operated under Employees Old Age Benefits Acts, 1967 and
covers establishments employing 5 or more persons. All employees, irrespective of their salaries
cover under the scheme.



10. GRANTS AND INCENTIVIES
10.1 Grants Available
Grants are funds disbursed by one party (Grant Makers), often a Government Department,
Corporation, Foundation or Trust, to a recipient, often (but not always) a nonprofit entity,
educational institution, business or an individual.

11. QUALITY OF LIFE
11.1 Housing
Pakistan Housing Authority, a subsidiary of Ministry of Housing & Works, was established to
undertake construction of high quality apartments at affordable prices. It is for the first time ever
that the Government of Pakistan has engaged itself in actual construction of affordable housing.
PHA has recently been tasked to undertake following schemes.
Construction of housing units for the Officers of Federally Constituted Occupational
Groups.
Construction of housing units for low paid Federal Government Employees on ownership
basis.
Construction of housing units for the poor/needy segment of society.

11.2 Education
Education in Pakistan is overseen by the government Ministry of Education and the provincial
governments, whereas the federal government mostly assists in curriculum development,
accreditation and some financing of research.
The education system in Pakistan is generally divided into five levels: primary (grades one through
five); middle (grades six through eight); high (grades nine and ten, leading to the Secondary School
Certificate or SSC); intermediate (grades eleven and twelve, leading to a Higher Secondary (School)
Certificate or HSC); and university programs leading to undergraduate and graduate degrees.
In Pakistan, the quality of education has a declining trend. Shortage of teachers and poorly equipped
laboratories has resulted in the out-dated curriculum that has little relevance to present day needs.

11.3 Transportation and Communication Sector in Pakistan
The transport and communication are of basic importance in the development process of a
country, and density of the transport network is an index to economic development. As compared
with developed countries, Pakistan possesses a less developed transportation network. Government


is making serious efforts to develop an efficient transport and communication network to meet the
growing needs of the country
A. Importance of Transport and Communication

a) Economic Importance

It promotes the internal and external trade, utilization of natural resources, mobility of labour,
reduction in unemployment, increase in agricultural production, reduction in population pressure
and elimination of starvation and hunger etc.

b) Political Importance
It creates the political awareness in people, maintenance of law and order in society etc. It also helps
bringing out the opinion of the masses.

c) Social Importance
Linkage of people develops brotherhood and sense of unity, and this can stimulate economic activity
within the country. It promotes the education across the country and provides the modern
information by TV, Internet, radio etc.

B. Transport in Pakistan
a) Road

Road transport is most popular and it carries about 90%
of the total passenger traffic. The country has about
248,340 kilometers of roads, of which more than 50
percent are paved. The rest are graveled or unimproved
tracks. Road traffic is increasing to nearly overwhelming
proportions, with mixtures of animal carts, high-speed
cars, buses, and trucks. The principal roads of Pakistan
are GT (Grand Trunk) Road, Super Indus Highway (N-
55), Karakoram Highway (N-35), Makran Coastal
Highway (N-10) and Motorway Projects (M1, M2, M3,
M8, M9).

b) Railways
Pakistan's railways cover roughly 7,791 kilometers. Most are in the Indus Valley, from Karachi to the
Punjab, with a few lines into the North-West Frontier and one westward across northern
Baluchistan to the Iranian border.



c) Air

Pakistan is served by numerous international airlines as well as its
own Pakistan International Airlines, which provides both
international and domestic service. International airports are
located at Karachi, Islamabad, Peshawar, Quetta, and Lahore.
Prior to the early 1990s the domestic airline industry was regulated
by the state. After deregulation, several privately owned airlines
began to operate in Pakistan. PIA has made remarkable progress.
It began with a fleet of 15 aircraft. By 1999-2000, it had 45 aircraft.
Today, there are three private airlines operating in the country
haheen, Air Blue and Aero Asia.

d) Water

Ocean shipping is extensive through Karachi, on the coast of the Arabian Sea. The city's port
handles more than 95 percent of all of Pakistan's imports and exports. The city of Qasim also has a
port to handle a share of the country's trade. And government is also establishing new port,
Gawadar port.

C. Communication

Communication plays an important role in the economic and cultural development of a country.
Pakistan has following means of communication.

a) Postal Service

The Post office is a Federal Government entity which provides
postal facilities through a network of 12828 (2178 urban and
10650 rural) post offices across the country. The department is
providing various traditional postal services to the consumers at
a reasonable price.

It also provides the facility of life insurance, payment of military
pensions, collection of motor vehicle tax, renewal of arms and
driving licences etc.

b) Radio

Pakistan Broadcasting Corporation (PBC) has played a pivotal role in promoting national interest by
providing information, entertainment and education to audiences at home and abroad in 35
languages (19 regional, 1 sub regional, 16 foreign) from 24 Radio Stations and 5 FM Stations.


c) Television

First television station was introduced in Pakistan by a private television company, in November 26,
1964. In June 1967, it was converted into private limited company named as Pakistan Television
Corporation Limited, with prime objectives to establish a Television Network in Pakistan for the
provision of broadcasting news, documentaries, education and entertainment.

There are two channels in the country namely PTV Home and PTV News. There are also operating
22 private TV channels across the country.

d) Telecommunication

The Telegraph and Telephone department was converted into Pakistan Telecommunication
Corporation on 15th December 1990 for better telecommunication system in the country. On 1st
January 1996, the corporation was recognized by establishing the Pakistan Telecommunication
Authority (PTA), the National Telecommunication Operation (NTC) and Pakistan
Telecommunication Company Limited (PTCL). PTCL has issued 60,000 telephone connections to
its customers. 6 Mobile companies are operating their network in Pakistan under PTA. There are at
least six crore people are using mobile phone in Pakistan.

e) Information Technology (IT)

IT has assumed unprecedented importance in the global economy. Government has accorded a very
high priority to this sector. IT is one of the key determinants of competitiveness and growth of
economy. For promotion of IT, above than 400 cities have been provided internet facility. Pakistan
has established Software Technology Park at Lahore, Karachi and Peshawar. Currently, in 2006-07
Pakistan has earned 50 million dollars from software industry. The Ministry of Science and
Technology has approved different projects which will be implemented in the next few years.
11.4 Social Securities Benefits
Following benefits are provided by Employees Social Securities Ordinance, 1965:
Sickness benefit.
Maternity benefit.
Death grant.
Medical care during sickness and maternity.
Medical care of dependents, etc.
Injury benefits.
Disablement Pension.
Disablement Gratuity.
Survivors Pension.



Appendices



Appendices A
I NCOME TAX RATES FOR 2 0 1 2

RATES OF TAX FOR INDIVIDUALS,

Upto Rs. 350,000 NIL
Rs.350,001 Rs.500,000 7.50%
Rs.500,001 Rs.750,000 10.00%
Rs.750,001 Rs.1,000,000 15.00%
Rs.1,000,001 Rs.1,500,000 20.00%
Exceeds Rs.1,500,000 25.00%

RATES OF TAX FOR SALARIED INDIVIDUALS

In the case of a Salaried taxpayer, being a person having salary in excess of 50% of his taxable
income, the rate of tax chargeable from the tax year 2012 as follows:-

Income Slab Rate of Tax
Upto Rs.350,000 NIL
Rs.350,001 400,000 1.50%
Rs.400,001 450,000 2.50%
Rs.450,001 550,000 3.50%
Rs.550,001 650,000 4.50%
Rs.650,001 750,000 6.00%
Rs.750,001 900,000 7.50%
Rs.900,001 1,050,000 9.00%
Rs.1,050,001 1,200,000 10.00%
Rs.1,200,001 1,450,000 11.00%
Rs.1,450,001 1,700,000 12.50%
Rs.1,700,001 1,950,000 14.00%


Rs.1,950,001 2,250,000 15.00%
Rs.2,250,001 2,850,000 16.00%
Rs.2,850,001 3,550,000 17.50%
Rs.3,550,001 4,550,000 18.50%
Exceeds Rs. 4,550,001 and above 20.00%

MARGINAL RELIEF

Where the total income of a salaried taxpayer marginally exceeds the maximum limit of a slab in the
table the income tax payable shall be the tax payable on the maximumof that slab plus an amount
equal to:-

20% where the total income does not exceeds Rs.550,000
30% where the total income does not exceeds Rs.1,050,000
60% where the total income exceeds Rs.4,550,000

REBATE FOR TEACHERS & RESEARCHERS POSTED IN
GOVT. INSTITUTIONS

The tax payable by a full time teacher or a researchers, employed in a non profit education or research
institution duly recognized by Higher Education Commission, a Board of Education or a University
recognized by the Higher Education Commission, including government training and research institution,
shall be reduced by an amount equal to 75% of tax payable on his income from salary.



INCOME FROM PROPERTY

o Rate of tax to be paid u/s 15 in case of Individual and AOP

Where the GARV does not exceeds Rs.150,000 NIL
Rs.150,000 ---- Rs.400,000 5%
Rs.400,000 ---- Rs.1,000,000 12500+7.5%
Rs.1,000,000 ---- above 57500+10%

SENIOR CITIZEN ALLOWANCE
A tax rebate of 50% is available to senior citizens above the age of 60 years, if their income did not exceed
Rs.1,000,000/-.

RATES OF TAX FOR ASSOCIATION OF PERSONS

The rate of tax imposed on the taxable income of Association of Persons shall be 25%.

RATES OF TAX ON RETAILERS

Turnover Rate of Tax
i) Upto Rs.5 million 1%
ii) Exceeding Rs.5 million but does
no exceed Rs.10 million
Rs.25,000 plus 0.5% of the amount of
turnover exceeding Rs.5 million
iii) Exceeding Rs.10 million Rs.50,000 plus 0.75% of the amount
of turnover exceeding Rs.10 million



CAPITAL GAINS ON DISPOSAL OF SECURITIES

The rate of tax to be paid under section 37A shall be as follows:

Type Rate of Tax %
Where holding period of a security less than six
months
10%
Where holding period of a security is more than six
months but less than twelve months
8%
Where holding period of a security is more than one
year
0%

RATES OF TAX FOR COMPANIES

The rate of tax for companies falling under various categories are as under:-

Type Rate of Tax %
Public Company other than a banking company 35%
Private Company other than Banking Company 35%
Banking Company 35%
Small Company 25%

Rates of tax to be paid for RENTAL INCOME in case of company

Where the GARV does not exceeds
Rs.400,000
5%
Rs.400,000 ---- Rs.1,000,000
20000+7.5% of the amount exceeding
Rs.400,000 up to Rs.1,000,000
Rs.1,000,000 ---- above
65000+10% of the amount exceeding
Rs.1,000,000


Appendix B
TAX YEAR 2012

DEDUCTION OF TAX AT SOURCE

Sec.
Nature of Payments Tax Rates Remarks
Adjustable or Final Discharge
148 Imports 5% In case of industrial undertaking importing
goods as raw material for its own use. Tax
Rate is 3% which is adjustable.
Final discharge

150 Dividend 10% --- Final discharge
151 Profit or yield under National Saving
Scheme.
Profit on accounts maintained with
banks and financial institutions.
Bonds, Certificates, Debenture issued by
a Banking Company or Financial
Institution
Profit on any Security issued by Federal
Govt. Provincial Govt. or Local
Authority

10%
o After Deduction of Zakat
o In case of companies it is adjustable
Final discharge
6 Payment to non-residents on royalties or
fees for technical services.
15% --- Final discharge
152 Payment to a non-resident on execution
of a contract.
Payment of insurance premium to a non-
resident person
Any other payment (other than above) to
a non-resident person
6%

5%

20%
---
Final discharge

Final discharge

Adjustable


153 Every prescribed person
(a) Sale of Rice, Cotton seed, Edible Oils
(b) Sale of any other goods
(c) For Transport services
(d) For other services
(e) Execution of a contract (except listed Coys)
(f) Payment to non resident media person
(g) Payment of services of stitching, dyeing,
printing, washing, sizing and wearing

(a) 1.5%
(b) 3.5%
(c) 2%
(d) 6%
(e) 6%
(f) 10%
(g) 0.5%
-- Sale of Goods by manufacturer in case
of individual and AOP Final
Discharge

(a) Final discharge
(b) Final discharge
(c) Minimum Tax
(d) Minimum Tax
(e) Final discharge
(f) Final discharge
(g) Final discharge
154 Exports 1% --- Final discharge
154(2) Indenting Commission 5% --- Final Discharge
155 Rent of house property (including furniture,
fixture & services).
5% to 10%
--- Final Discharge
156 Prize and Winning 10% --- Final discharge
156(1) Prize on Prize Bonds 10% --- Final discharge
156(1) Raffle, Lottery, Quiz, Prize for Promotion
of Sales, Cross Words Puzzle
20% --- Final discharge
156-A Commission or Discount to Petrol Pumps 10% --- Final discharge
231-A Cash withdrawal from Exceeding
Rs.25,000/-
0.2% of the amount withdrawn --- Adjustable
231-AA Sale against cash of any instrument D.D,
P.O, CDR, SIDR, SDR, RTC
0.3% --- Adjustable
231-B Purchase of Motor Car and Jeeps Rs.7,500/- to Rs.50,000/- --- Adjustable
233(1) Commission and Brokerage 10% --- Final discharge
233-A Members of Stock Exchange

---



(a) On Purchase of Share
(b) On Sale of Shares
(c) Trading of Shares
(d) Financing of Carryover Trades
(a) 0.01% of Purchase Value
(b) 0.01% of Sale Value
(c) 0.01% of Traded Value
(d) 10% of Carryover Charge
Minimum Tax
Minimum Tax
Minimum Tax
Adjustable
234 Passenger Transport

(a) Goods Transport vehicles.
(b) Private Motorcars.
(c) Passenger Transport/Vehicle plying for hire
having seating capacity 4 or more.

(a) One Rupee per Kg. of Laden Weight
(b) Rs.750 to Rs.8000/-
(c) Rs.25/- to Rs.100/- per seat

---

(a) Final discharge
(b) Adjustable
(c) Adjustable

234-A CNG Station 4% --- Final Discharge
235 Electricity Consumption Rs.80 to Rs.1500/- if Bill does not exceeds
Rs.20,000/-
10% if bill exceeds Rs.20,000/- for
commercial consumers
5% if Bill exceeds Rs.20,000/- for Industrial
Consumers
--- Adjustable in case of company.
Minimum tax upto bill amount of
Rs.30,000/- per month for taxpayers
other than company.
Adjustable if bill amount is above
Rs.30,000/- per month for taxpayers
others than company.
236 Telephone user
(a) Upon Mobile and pre-paid cards
(b) Post Paid Telephone Bills

(a) 10%
(b) 10% of the amount of bill where bill
exceeds Rs.1,000/-
---
Adjustable
Adjustable
236-A Advance Tax at the time of Sale by Auction
5% of the Gross Value of Auction
Amount
--- Adjustable.
236-B Advance Tax on purchase of domestic Air
Tickets.
5% of the Gross amount of Air Ticket
--- Adjustable.

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