What type of taxes do Pakistanis pay?

A general perception in Pakistan is that taxpayers in the country are far less in numbers. In an address to the nation last month, Prime Minister Imran Khan had strengthened this notion. He had said that about one percent out of 220 million Pakistanis paid taxes. He had said that the one percent taxpayers were carrying the burden of 220 million population.

If you take it as given then what about the taxes we pay on commodities such as petrol, electricity, gas, mobile phone cards, electronics products, food items and almost on anything and everything. The question here arises if Imran Khan was not talking about levy tax, withholding tax, sales tax, federal excise duty, custom duty and other so many taxes which we have to face on a daily basis.

Taxes in Pakistan are divided in different categories such as direct taxes and indirect taxes.

What are direct taxes?

Direct taxes in Pakistan include taxes levied on income, agriculture and property.

Income tax is mostly paid by salaried persons and businessmen. The government has categorized people according to their annual income for this tax. Those who earn up to Rs0.4 million a year are exempt from taxation. While, those earning Rs0.4 million or more a year have to pay only one thousand rupees and those earning from Rs0.8 to Rs1.2 million a year have to pay Rs2,000 tax. Those who are earning more than Rs1.2 million a year will have to pay 15 percent, 20 percent and 25 percent of taxes.

Taxes of salaried persons are cut by the organisations where they work which is known as ‘tax at source’. The businessmen who have earning up to Rs1.2 million a year have to pay same amount of tax as salaried persons, while five percent tax will be imposed on those businessmen who earn between Rs1.2 million to Rs2.4 million a year. The maximum rate in this category is 29 percent for those who earn Rs5 million a year. The tax is charged from businessmen when they file annual returns with the Federal Board of Revenue (FBR), otherwise they are counted among non-taxpayers.

The government has made different categories regarding property tax and their rate at the federal and provincial levels are different. If you are earning up to Rs0.2 million a year from property then you are exempt from tax, while the maximum rate of property tax is 25 percent.

Likewise, provincial agriculture taxes are also categorized differently according to taxation imposed by each province.

 What are indirect taxes?

Almost every Pakistani pays indirect taxes and the government imposes such taxes on various necessities of life. The most common among the indirect taxes are general sales tax, federal excise duty, sales tax on services, custom duty and several levies tax.

Talking to BBC Urdu, FBR Spokesperson Dr Hamid Atiq said the maximum rate of sales tax in the country was 17 percent, while regular rate of federal excise duty was 10 percent. He said federal excise duty applied on specific products only such as cigarette.

There is another tax ‘sales tax on services’ which is applied on provincial level and its normal rate is 16 percent.

On custom duty tax, the spokesman said it was imposed on imported vehicles, chocolates, mobile phones and electronics items with the rate of 20 percent.

Tax levies and surcharge taxes on petrol, CNG, LNG, electricity and gas and mobile phone services are decided by the government on monthly basis. Another tax that consumers have to bear is withholding tax, whose minimum rate is 10 percent.

You have to pay taxes while withdrawing cash from a bank. Recently, the government has exempted filers from this tax, while non-filers will have to pay 0.7 percent on withdrawing Rs50,000 and 0.6 percent while transferring from one account to another.

How many people file tax return?

Atiq Hamid said the number of people who file tax return in the country was 1.9 million. He said the government was trying its best to bring as many Pakistanis under the tax network as possible.

Expert Opinion

Talking to BBC Urdu, Economic expert Shahid Kardar said there were a number of indirect taxes which citizens were paying but the government would always imply as if nobody was paying taxes.

Senior journalist and economic expert Khurram Hussain said he did not agree with the prime minister that only one percent Pakistanis paid taxes. He said the PM should have said that tax filers were in very low number rather than tax payers. He said most of the taxes in the country were being generated through indirect system which were being paid by every Pakistani.