If you live in Pakistan or draw any income from there, you’re likely to have to pay tax on some or all of your earnings to the Pakistani authorities.
It’s important that you understand your own personal situation when it comes to tax. This overview of the Pakistani income tax system is a great starting point, but if you think you might need to pay tax on some or all of your income in Pakistan, getting professional advice to make sure you pay the right amount, might be a smart decision.
Income in Pakistan can fall under any of the following categories:
- Salary from employment
- Income from property
- Business income
- Capital gains
- Other sources, such as dividends, royalties, interest payments, and prize money
Different types of income are taxed in different ways. So for example, interest payments are taxed at a flat rate of 10%, while earned income from employment falls under the income tax rates set out below.
Like with most things connected to tax, it’s relatively complicated, so if you’re unfamiliar with the Pakistani income tax system, taking professional advice is essential.
(Source 18 December 2017)
Tax in Pakistan is administered by the Federal Board of Revenue - the FBR. You’ll need to register with the FBR to be able to manage your tax affairs more easily online - more on that later.
You first have to determine whether you’re classified as either:
- A resident taxpayer
- A non-resident taxpayer
Then you can start to figure out what tax you might have to pay, and to which authorities.
In Pakistan, the tax year is 1 July through to 30 June. Ifp during a specific tax year, you live in Pakistan for 183 days or more, you’re classed as a resident taxpayer for that tax year. It doesn’t matter if the time you spend in Pakistan is consecutive, or made up of several trips - it’s the total amount of time you spend there that’s important.
As a resident taxpayer, you have to pay tax on any income you make anywhere in the world, to Pakistani authorities.
If you live in Pakistan for less than 183 days over the course of a tax year, you might be deemed to have non-resident tax status. This means you pay tax in Pakistan only on relevant income you’ve earned in Pakistan. Don’t forget though that you could have other obligations elsewhere in the world - wherever you lived for the rest of the year might also want you to pay tax.
( Source 18 December 2017)
The rules set out above would apply. If you’re out of Pakistan for more than half the year - 183 days or over - then probably you’ll only have to pay tax in Pakistan on the money you earned there. But if you’re in the country for more than 183 days, you still have to declare and pay tax on your worldwide income to the Pakistani tax authorities for that tax year.
Pakistan has a progressive tax system. There’s a lower limit of earnings under which no tax is charged - and then a progressively higher tax rate is applied based on how much you earn above that level.
The most up to date rates available for resident, employed, taxpayers in Pakistan are as follows:
|Income range||Pakistan income tax rate (%) 2017|
|Up to Rs 400,000||0%|
|Rs 400,000 - Rs 500,000||2%|
|Rs 500,000 - Rs 750,000||5%|
|Rs 750,000 - Rs 1,400,000||10%|
|Rs 1,400,000 - Rs 1,500,000||12%|
|Rs 1,500,000 - Rs 1,800,000||15%|
|Rs 1,800,000 - Rs2,500,000||17.5%|
|Rs 2,500,000 - Rs 3,000,000||20%|
|Rs 3,000,000 - Rs 3,500,000||22.5%|
|Rs 3,500,000 - Rs 4,000,000||25%|
|Rs 4,000,000 - Rs 7,000,000||27.5%|
|Over Rs 7,000,000||30%|
( Source 18 December 2017)
You might also be able to reduce your tax burden by claiming deductions, which can then be removed from your gross income before tax is calculated. Usually, to be eligible for any of these deductions you have to include them on your tax declaration, and you may be obliged to provide proof of payments.
You can deduct payments made for medical care, up to 10% of your gross salary. You can also deduct donations made to approved charities, as long as they don’t total over 30% of your gross taxable income. There’s also a deduction available for Zakat - the alms contribution required of Muslims who have sufficient wealth.
You might also be eligible for special credits which can be set against interest paid on house loans, some charitable donations, and investments in specified shares. It could help to get some tailored advice if you think there are other items you could claim as deductions or exemptions, as the system is quite complex.
( Source 18 December 2017)
Many countries have what’s known as double taxation agreements, to make sure that people who have tax liabilities in more than one country don’t actually need to pay tax twice on the same income.
Pakistan has double taxation agreements with the following countries:
Pakistan double taxation agreements
|Bosnia and Herzegovina||Netherlands|
(Source 18 December 2017)
When it comes to paying your taxes, if you’re a Pakistani citizen you’ll need your Computerised National Identity Card (CNIC). This is issued to all adult citizens in Pakistan and is used for everything from opening a bank account, voting, getting a driving license, making major purchases - and paying your taxes.
Reporting your tax electronically is encouraged in Pakistan. You have to register online with the FBR’s e-FBR system to submit your tax return and if you have anything left to pay, you can deal with it online. You may find, however, that your employer withholds all tax at source, and so you do not need to make any further payments.
If you have multiple income streams, or other types of income to declare which aren’t from employment, you might find that you have to pay taxes directly to the FBR in Pakistan, rather than having all tax automatically withheld by your employer.
If you’re an expatriate, that might mean making an international transfer from a bank account held in a different country or currency. This can cost more than you think. When you’re doing your sums, make sure you take into consideration any charges that will be added to the transfer you make to pay your taxes.
It’s not just the upfront charges which can be a headache. The exchange rate used when converting your cash is often not that great. That’s because banks and money exchange services don’t necessarily give customers the real, mid-market rate, which you’d find on Google. Instead, they mark up the rate by an average of 4-5%. They keep the difference as their profit, and you end up out of pocket.
If your usual bank or money exchange service is ripping you off with a poor exchange rate, you could get a better deal if you use TransferWise. That’s because TransferWise works differently to banks. You can still get your money transferred quickly and safely, but it’ll always be done using the real exchange rate, and just a small, upfront fee.
TransferWise can offer better value for customers because they don’t use the pricey SWIFT system for making bank transfers. Instead, their smart new technology is cheaper than traditional options, and the savings are passed on to the customer.
If you find you need to pay directly to the FBR for any outstanding tax bill, you might be able to do so directly using a TransferWise transfer, it’s good idea to check with the FBR if they can receive payments from third parties - such as TransferWise - though. Otherwise, if you don’t already have a bank account in Pakistan, you could transfer the payment to a friend or family member who does, to bring down the costs.
It’s important to understand your options - and your duties - when it comes to tax. But wherever you are, if you’re paying your taxes with an international money transfer, you don’t want to lose out because of unfair fees, or a bad exchange rate. The good news is that TransferWise might be able to help you save money on cross-border transactions. See if you can get a better deal from TransferWise if you find yourself needing to pay your taxes abroad.
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