Income tax in Pakistan

Taxation Researcher | November 10, 2020

INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. Married couples are taxed separately, joint taxation is not allowed in Pakistan.

The tax year is the 12-month period ending on 30 June and is denoted by the calendar year in which it ends. The tax year 2020 is from 01 July 2019 up to 30 June 2020.The tax year 2021 is from 01 July 2020 up to 30 June 2021.

INCOME TAX

There are five categories of income: (1) employment income, (2) income from profession and business, (3) income from property, (4) capital gains, and (5) income from other sources.

Income tax is levied at progressive rates. Different income tax rates apply on employment income and on other income.

INCOME TAX 2020-2021

TAXABLE INCOME, PKR(US$)
TAX RATE
Up to 400,000 (US$3,810)
0%
400,000 – 600,000 (US$5,714)
5% over US$3,810
600,000 – 1,200,000 (US$11,429)  
10% over US$5,714
1,200,000 – 2,400,000 (US$22,857)
15% over US$11,429
2,400,000 – 3,000,000 (US$28,571)
20% over US$22,857
3,000,000 – 4,000,000 (US$38,095)
25% over US$28,571
4,000,000 – 6,000,000 (US$57,143)
30% over US$38,095
Over 6,000,000 (US$57,143)
35% over US$57,143
Source: Global Property Guide

RENTAL INCOME
Income from property, including rental income, is taxed at progressive rates. The tax base is the gross rent.

CAPITAL GAINS
Capital gains realized by individuals from selling real property are taxed at progressive rates.

CAPITAL GAINS TAX 2021 FOR FILERS

TAXABLE INCOME, PKR(US$)
TAX RATE
Up to 5,000,000 (US$47,619)
2.50%
5,000,000 – 10,000,000 (US$95,238)
5%
10,000,000 – 15,000,000 (US$142,857)
7.50%
Over 15,000,000 (US$142,857)
10%
Source: Global Property Guide

CAPITAL GAINS TAX 2021 FOR NON-FILERS

TAXABLE INCOME, PKR(US$)
TAX RATE
Up to 5,000,000 (US$47,619)
2.50%
5,000,000 – 10,000,000 (US$95,238)
5%
10,000,000 – 15,000,000 (US$142,857)
7.50%
Over 15,000,000 (US$142,857)      
10%
Source: Global Property Guide

The taxable gain will depend on the holding period of the property as follows:

CALCULATION OF TAXABLE GAIN

HOLDING PERIOD
APPLICABLE RATE(%)
Less than 1 year
100%
1 year – 2 years
75%
2 years – 3 years
50%
3 years – 4 years
25%
Over 4 years
0%
Source: Global Property Guide

PROPERTY TAX


Property Tax

Property tax is a provincial tax levied on the value of property. It is generally levied at a flat rate of 10% but the tax rates vary, depending on the province.

Property tax is levied at progressive rates in the Punjab province.

In the province of Sindh, property tax is levied at a flat rate of 20% on the annual rental value of the land and building.

Capital Value Tax

Individuals who purchase real property in urban areas or acquire the right to use the real property for more than 20 years are liable to pay capital value tax. The tax is levied at 4% on the property’s recorded value. If no property value is recorded, the tax is levied at PKR100 (US$0.95) per square yard of the property.

CORPORATE TAXATION

INCOME TAX

Income and capital gains earned by companies are subject to corporate income tax at a flat rate of 29%. Income-generating expenses are deductible when calculating taxable income.

The corporate tax rate will be reduced by 1% each year from 2019, and the applicable corporate tax rate is 25% in 2023.

 

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