Income tax law signifies a type of tax that governments impose on income generated by individuals and businesses within their jurisdiction. As per law, taxpayers must file an income tax return annually to determine their tax obligations. Income taxes are a source of revenue for governments as these are used to fund public services, fulfil governmental commitments and facilitate the people.
Virtually every business decision today has tax consequences. You deserve the most practical, tuned-in and well-crafted tax solutions. We provide a comprehensive range of services from the completion of tax returns under corporation tax, self assessment to complex consultancy assignments and strategic tax planning. Here you may find information about income tax law and lawyers in Pakistan. Our dedicated team of professional tax lawyers and consultants best assists their clients in understanding the domestic tax law of Pakistan.
Our ability to focus on our clients and deliver innovative tax solutions is enhanced by our knowledge of specific business environments including financial services, leisure, retail, sport, high growth companies, manufacturing and automotive, technology and communications, public sector, property and utilities. We also have a number of specialist tax groups who deal with specific complex areas of tax law. Our consultants can help you plan, grow and structure your business. We are known for our straightforward approach to solving our clients’ most complex business challenges. We work hand-in-hand with clients to improve the business performance, drive shareholder value and create the competitive advantage.
To facilitate the people in public works and services and to build and maintain the infrastructures used in a country, a government usually taxes its individual and corporate entities. The tax collected is used for the advancement of the economy and all living within it. In Pakistan and many other parts of the world, income taxes are applied to some form of money received by a taxpayer. The money could be income earned from salary, capital gains from investment, dividends or interest received as additional income, payment made for goods and services, etc.
A tax requires a percentage of the taxpayer’s earnings or money to be taken and remitted to the government. Payment of taxes at rates imposed by the government is compulsory, and tax evasion, the deliberate failure to pay one’s full tax liabilities is punishable by law. On the other hand, tax avoidance actions taken to lower your tax liability and maximize after-tax income is perfectly legal. Government usually use an authority or department to collect taxes. In Pakistan, this function is performed federally by the Federal Board of Revenue (FBR).
INCOME TAX LAW OBJECTIVE
Every enactment has an objective for which the legislature decides to promulgate and enforce it. The prime objective of income tax in a growing society is to levy and collect tax on income of a person and then use it for equal purposes. The words “income” and “person” have been specifically defined in the Ordinance, though in respect of “income” there always remains continuous battle between the tax department and taxpayers for determination of its quantum as well as scope of chargeability. In addition to collection of personal income tax, income tax law is aimed at two other important roles: firstly, the redistribution of wealth through progressive taxation (the principle that the higher you earn the higher you pay is at the core of direct tax legislation) and secondly, it serves as an instrument of fiscal policy, i.e., by granting exemption to a particular income or class of income, person or class of persons the intention is to promote a specific economic activity.
It should be remembered that progressive taxation, i.e., taxation at rates which rise with income, is a sound principle of taxation so far as it corrects excessive economic inequality and precludes inordinate enduring differences among families or economic strata in wealth, power and opportunities. But it is not a sound principle of taxation when it reaches the point where initiative is hamstrung, work and ability are not allowed to earn security and well-being, and endeavour and energy are wasted on the slippery slope of tax avoidance invigorated and given a momentum in the direction of constructive work and increase in national wealth.
INCOME TAX LAW SERVICES IN PAKISTAN
- Corporate and individual tax planning along with trusts, cooperative societies and NGOs.
- Compliance services including preparation of income tax returns and clearance.
- Representing clients before income tax authorities and assisting in preparing appeals before Appellate Tribunals, High Courts and Supreme Court.
- International tax consultancy based on international transactions and advising on double taxation treaties.
- Assisting with income tax matters including registration, and assessment.
- Obtaining advance ruling on proposed investments or business transactions.
- Establishing gratuity funds, provident funds and other employees benefit schemes and their approval from tax authorities.
- Providing general tax advice based on current and evolving laws and rulings.
TAX LAW SYSTEM IN PAKISTAN
Federal taxes in Pakistan like most of the taxation systems in the world are classified into two broad categories, viz., direct and indirect taxes. A broad description regarding the nature of administration of these taxes is explained below:
Direct taxes primarily comprise income tax. For the purpose of the charge of tax and the computation of total income, all income is classified under the following heads:
- Income from Business or Profession
- Interest on Securities
- Income from Property
- Capital Gains
- Income from Other Sources
All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the rates ranging from 5% to 35% for the Tax Year 2022.
TAX ON COMPANIES
All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at corporate rate of 29% for the Tax Year 2022 and onwards. However, the effective rate is likely to differ on account of allowances and exemptions related to industry, location, exports, etc.
A banking company shall continue to be taxed at the rate of 35% for the Tax Year 2022 and onwards.
Wealth Statement as per law is compulsory, where declared income is based on person’s total assets and liabilities, total assets and liabilities of the person’s spouse, minor children and other dependents, assets transferred by the person to any other person, the total expenditure incurred by the person, and the person’s spouse, minor children and other dependents along with the reconciliation statement of wealth.
Every resident taxpayer being an individual having foreign income of not less than ten thousand US dollars or having foreign assets with a value of not less than one hundred thousand US dollars shall furnish a statement, known as foreign income and assets statement.
INTER-CORPORATE DIVIDEND TAX
Tax on the dividends @ 7.5%, distributed by independent power producers where such dividend is a pass-through item under an implementation agreement or power purchase agreement and is required to be reimbursed by Central Power Purchasing Agency (CPPA-G) or its predecessor or successor entity.
Tax on dividend @ 15%, received from a mutual fund, real estate investment trust and cases other than those mentioned in Sec. 1 & 3.
Tax on the dividend @ 25%, received from a company where no tax is payable by such company due to exemption of income or carry forward business losses or claim of tax credits.
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.
PERFORMING A HIGH QUALITY AUDIT
In today’s ever changing global economy, businesses need trusted advisers. Our audit specialists take the time to understand your business as well as the industry in which you operate, whether it is in Pakistan and / or abroad.
Our audit approach focuses on understanding the clients’ business and control issues from the inside out. It combines a rigorous risk assessment, diagnostic processes, and audit testing procedures as well as a continuous assessment of our clients’ service performance. Our state of the art, audit tool, Audit System supports all phases of the audit process including planning, executing, reporting.
INVESTMENT ADVISORY SERVICES
All investment carries some risk and thus needs careful analysis and expert advice. The key to be a successful investor is to achieve appropriate risk/return trade off by identification of risks that exist and their proactive management.
Our Investment Advisory Service professionals specialize in identifying risks arising from regulation, competition and macro economic forces and designing strategies to manage it to your advantage. Our range of services includes:
- Advice on analyzing investment prospects and mode of doing business in Pakistan including advising on the form of legal entity, incorporation, obtaining of necessary permissions and help in dealing with local regulators.
- Identification of suitable business partners and conducting due diligence.
- Feasibility studies including preparation of projected financial statements and project.
- Appraisal through NPV, IRR, Payback and DCF analysis including cost assessment and revenue projections.
- Sensitivity analysis
- Tariff and pricing studies
The contents as narrative above are subject to change through annual amendment.