Pay and Income Tax in Pakistan

Income Tax is the tax that you pay on your income. Income Tax is paid by wage earners i.e., salaried class, self-employed and non-incorporated firms. Income Tax is one of the important sources through which a government finances its activities.

Income Tax is the tax that you pay on your income. Income Tax is paid by wage earners i.e., salaried class, self-employed and non-incorporated firms. Income Tax is one of the important sources through which a government finances its activities.

What is Income Tax?

Income Tax is the tax that you pay on your income. Income Tax is paid by wage earners i.e., salaried class, self-employed and non-incorporated firms. Income Tax is one of the important sources through which a government finances its activities. The personal income tax revenue is only 1.1% of GDP in Pakistan (11% of total tax revenues) and only 2% of working age population is registered as taxpayer.

Is Income Tax applicable on all of my income?

If your income is less than the exemption threshold of PKR 400,000 (whether you are a salaried or non-salaried individual), you don’t have to pay any income tax.

What is the income tax rate for women in Pakistan?

Prior to the amendments made in the year 2010 in the Income Tax Ordinance, 2001, the income tax law used to give special and favourable treatment to the salaried women taxpayers (by allowing a higher exemption threshold). However, after the amendment in 2010, this relief has been withdrawn. Now there is same tax rate for both men and women salaried workers. There are no special tax deductions or tax credits applicable only to women.

Tax treatment of married couples in Pakistan is individual based and tax schedules used to differ slightly for men and women before 2010. The tax rate varies between 2% and 30% in Pakistan.

What are the tax rates for salaried and non-salaried individuals?

Tax calculation has been rationalized in the current fiscal year and is made simpler as compared to last year. The current applicable tax rate for salaried workers and self-employed workers are as follows.

Tax Rates for Salaried Individuals

S.  N.

Taxable income

Tax Rate (%)

1

Where the taxable income does not exceed Rs.400,000

0%

2

Where the taxable income exceeds Rs.400,000 but does not exceed Rs.500,000

2% of the amount exceeding Rs.400,000

3

Where the taxable income exceeds Rs.500,000 but does not exceed Rs.750,000

Rs.2,000+5% of the amount exceeding Rs.500,000

4

Where the taxable income exceeds Rs.750,000 but does not exceed Rs.1,400,000

Rs.14,500+10% of the amount exceeding Rs.750,000

5

Where the taxable income exceeds Rs.1,400,000 but does not exceed Rs.1,500,000

Rs.79,500+12.5% of the amount exceeding Rs.1,400,000

6

Where the taxable income exceeds Rs.1,500,000 but does not exceed Rs.1,800,000

Rs.92,000+15% of the amount exceeding Rs.1,500,000

7

Where the taxable income exceeds Rs.1,800,000 but does not exceed Rs.2,500,000

Rs.137,000+17.5% of the amount exceeding Rs.1,800,000

8

Where the taxable income exceeds Rs.2,500,000 but does not exceed Rs.3,000,000

Rs.259,500+20% of the amount exceeding Rs.2,500,000

9

Where the taxable income exceeds Rs.3,000,000 but does not exceed Rs.3,500,000

Rs.359,500+22.5% of the amount exceeding Rs.3,000,000

10

Where the taxable income exceeds Rs.3,500,000 but does not exceed Rs.4,000,000

Rs.472,000+25% of the amount exceeding Rs.3,500,000

11

Where the taxable income exceeds Rs.4,000,000 but does not exceed Rs.7,000,000

Rs.597,000+27.5% of the amount exceeding Rs.4,000,000

12

Where the taxable income exceeds Rs.7,000,000

Rs.1,422,000+30% of the amount exceeding Rs.7,000,000

Tax Rates for Self-Employed Individuals

S.  N.

Taxable income

Tax Rate (%)

1

Where the taxable income does not exceed Rs.400,000

0%

2

Where the taxable income exceeds Rs.400,000 but does not exceed Rs.500,000

7% of the amount exceeding Rs.400,000

3

Where the taxable income exceeds Rs.500,000 but does not exceed Rs.750,000

Rs.7,000+10% of the amount exceeding Rs.500,000

4

Where the taxable income exceeds Rs.750,000 but does not exceed Rs.1,500,000

Rs.32,000+15% of the amount exceeding Rs.750,000

5

Where the taxable income exceeds Rs.1,500,000 but does not exceed Rs.2,500,000

Rs.144,500+20% of the amount exceeding Rs.1,500,000

6

Where the taxable income exceeds Rs.2,500,000 but does not exceed Rs.4,000,000

Rs.344,500+25% of the amount exceeding Rs.2,500,000

7

Where the taxable income exceeds Rs.4,000,000 but does not exceed Rs.6,000,000

Rs.719,400+30% of the amount exceeding Rs.4,000,000

8

Where the taxable income exceeds Rs.6,000,000

Rs.1,319,500+35% of the amount exceeding Rs.6,000,000

 

What is the ratio of female income taxpayers in Pakistan?

Recent data shows that out of the population of 177 million individuals in Pakistan, only 01 million tax returns are filed in a year. Of these 1 million, 99% individual tax filers are male whereas only 01% are females at a time when labor force participation rate for women is around 15%. It appears from the data that women are earning below the high exemption threshold (well, it is not that high. A person earning PKR 30,000/US$ 333 per month can make PKR 350,000 in a year). The low number of female income tax filers also signifies huge income gap between men and women.

What does the Tax law say if I am married?

As explained above, the Pakistani tax law treats married couples at individual level and follows individual based tax system.

Is preferential tax treatment provided to some individuals? And on what basis?

The gross tax can be reduced by a certain limit if the salaried person is a senior citizen or a full time researcher or a teacher. In accordance with the Income Tax Ordinance, if your age is 60 years or more (or if you are a disabled person holding a National Database Registration Authority‘s Computerized National Identity Card for disabled persons) and your taxable income does not exceed PKR 1 million, you can qualify for a 50% reduction in the gross tax. Similarly, you can qualify for a reduction of 40% (earlier 75%) on gross tax if you are employed in a:

  1. A board of education or a university recognized by HEC, including government training and research institution
  2. Non-profit education or research institution duly recognized by HEC

When pregnant, do I get paid according the law?

Under the Mines Maternity Benefits Act 1941 and Maternity Benefit Ordinance 1958, every employed woman is entitled to a maximum of 12 weeks (around 3 months) of fully paid maternity leave. If you are pregnant, you can take this leave six weeks before the delivery and six weeks after the delivery.

Moreover, in accordance with the above two laws, no women can be employed (by the employer knowingly of her situation) during the six weeks following the delivery of her child.

If you are a civil servant, you are eligible for 90 days leave (around 13 weeks) maternity leave on full wages under Revised Leave Rules 1980.

For more information on pregnancy benefits, please see Maternity Law

When can my kids work, what is allowed? How are they protected?

The Employment Of Children Act 1991 defines “child” as a person below 14 years of age and an “adolescent” as a person below 18 years of age. The Constitution of Pakistan also regards the minimum age as 14 years for hazardous work. However, under the 18th amendment, even the minimum full time working age has actually been implicitly raised up to 16 years. Article 25(A) of the Constitution says that the state now has to provide compulsory education to all children between the ages of five and sixteen years, which means that, a child can’t be allowed to work before 16 years of age.

Section 50 of the Factories Act prohibits employment of children (under the age of 14 years) in any factory. Section 51 requires adolescent workers (who are above 14 years of age and below the age of 18 years) are not allowed to work in a factory unless:

  • A certificate of fitness has been issued to them by a qualified medical practitioner and that certificate is in the custody of the manager
  • He carries, while at work, a token making reference to such certificate

According to the Employment of Children Act (in the current form applicable only to engagement of children in hazardous work), a child or adolescent can’t work more than 7 hours a day (it includes one hour of rest, so essentially 6 hours of work). The work has to be arranged in such a way that after every 3 hours of continuous work, the worker can has an interval of at least one hour of rest. A child can’t be permitted or required to work between 07:00 p.m. to 08:00 a.m. Moreover, a child can’t be required or even permitted to work overtime.

For more information on Children employment, please see Child Labour


What about pay, when my partner had an accident or is ill?

The labour laws do not explicitly provide for the leave on family emergency grounds. However, if your partner has an accident or is ill, you can take leave on compassionate grounds from your accumulated annual leave on full or half pay.

If your partner was employed somewhere, he can also be eligible for sickness benefit or disability/invalidity benefit. For more information, please see Workmen Compensation and Sickness Benefits

What if my partner has a pension?

If your partner has reached retirement age (60 years), he is eligible for old age pension. He is also eligible for invalidity pension if some sickness or occupational accidents has affected his earning capacity. In the event of his death (while receiving any of the above pensions), you are eligible for a survivor’s pension.

For more information on survivors’ pension, please see Social Security and Pension System in Pakistan

October 2015 Next update: August 2016

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