What is mean by Tax?

Compulsory monetary contribution to the states revenue assessed and imposed by the
government on activities, expenditure, income, occupation, privilege, property of an individual
or organization.
In Pakistan, Federal Board of Revenue imposes & charges tax on all Individuals &
Organizations.
The Federal Board of Revenue (FBR) is the apex regulator of taxation in Pakistan, following
three are its main functions;1)
2)
3)
4)
5)
6)
7)

Formulation and administration of fiscal policies,

Levy and collection of federal taxes,
Quasi judicial function of hearing of appeals.
Collecting nearly 90% of tax revenue of the State
Contribution towards federal and provincial total revenue (tax and non-tax) is around65%
Revenue collected is sufficient to meet 75% to 80% of Government expenditure
Generation of resources for smooth economic management of Federal as well as

Provincial and Local Governments

8) Keeping the economy vibrant
9) Monitor Fiscal Policy through tax incentives to encourage flow of FDI

Tax types in Pakistan:

There are two types of taxes in Pakistan, which are described as fallow:
1) Direct Tax
2) Indirect Tax

Direct Tax:
Direct tax is basically compromised of Income/ Wealth of an Individual and an Organization.

Tax on an Individual:
The Income/ Wealth can be generated from many heads:
1) Salaries.

2)
3)
4)
5)
6)

Interest on Securities.
Income from Property.
Income from Business or Profession.
Income from Capital Gain.
Income from Other Sources.

Direct Tax is imposed from range of 10% to 35% on income under income heads mentioned
above.

Tax on Companies:
All public companies (other than banking companies) incorporated in Pakistan are assessed for
tax at corporate rate of 30% to 35%. However, the effective rate is likely to differ on account of
allowances and exemptions related to industry, location, exports, etc.

Inter-Corporate Dividend Tax:

Tax on the dividends received by a public company from a Pakistan company is payable at the
rate of 5% and at the rate of 15% in case dividends are received by a foreign company. Intercorporate dividends declared or distributed by power generation companies is subject to reduced
rate of tax i.e., 7.5%. Other companies are taxed at the rate of 20%. Dividends paid to all noncompany shareholders by the companies are subject to withholding tax of 10% which is treated
as a full and final discharge of tax liability in respect of this source of income.

Treatment of Dividend Income:

Dividend income received as below enjoys tax exemption, provided it does not exceed Rs.
10,000/-.
Dividend received by non-resident from the state enterprises Mutual Fund set by the Investment
Corporation of Pakistan.
Dividends received from a domestic company out of income earned abroad provided it is
engaged abroad exclusively in rendering technical services in accordance with an agreement
approved by the Central Board of Revenue.

Unilateral Relief:
A person resident in Pakistan is entitled to a relief in tax on any income earned abroad, if such
income has already been subjected to tax outside Pakistan. Proportionate relief is allowed on
such income at an average rate of tax in Pakistan or abroad, whichever is lower.
Agreement for avoidance of double taxation:
The Government of Pakistan has so far signed agreements to avoid double taxation with 39
countries including almost all the developed countries of the world. These agreements lay down
the ceilings on tax rates applicable to different types of income arising in Pakistan. They also lay
down some basic principles of taxation which cannot be modified unilaterally. The list of
countries with which Pakistan has concluded tax treaties is given below: