Tax is a levy imposed on the individuals, firms or corporates by the government. It is enforced to raise funds for spending, expenditures, resource allocation, income redistribution, and economic stability among the people of the country. These taxes can be progressive, proportional or regressive in nature.
Direct and Indirect Taxes
Taxes are bifurcated into two types i.e. direct and indirect tax
Direct tax is paid directly by an individual or organization to the tax authority includes Income tax, Property Tax, Wealth tax, Inheritance tax, Gift tax etc. These taxes cannot be passed on to a different person or entity; they are solely responsible for the fulfillment of the full tax payment. It is considered to be progressive tax since your tax depending upon the ability of the taxpayer to pay
An indirect tax is levied on goods or services, which increases the price of a good or services includes Custom duty, Sales Tax, Federal Excise Duty, VAT, Service Tax etc. These taxes can shift from one taxpayer to another i.e. collected by one person but actually born by another person. The tax is actually paid by the end consumer, by way of a higher retail price.
Indirect taxes are levied equally upon all taxpayers irrespective of their income and these taxes are passed on, as the price of the tax is compensated for by simply increasing the overall price of the good or service. It is considered to be a regressive tax since all taxpayers whether rich of poor have to bear the same burden.
Income tax is a direct tax levied by the federal government, paid annually by the individual, AOP or a company against their income charged under different head of income namely.
- Income from Salary
- Income from Business
- Income from Property
- Income from Capital Gain
- Income from Other sources (dividend, Royalty, delayed refunds)
As per the sales tax Act 1990
- Sales tax means the tax, additional tax , fine, penalty, default surcharged levied under sales tax Act 1990
- Any other sum payable under the provision of Sales tax Act 1990
Sales tax is an indirect tax collectable from the whole supply chain i.e. importers, manufacturers, wholesalers, and retailers and is payable on the value of taxable supplies and on the value of goods imported into Pakistan.
Sales tax is 17% and further tax is2 % which is charged on the goods supplied to unregistered persons that made to the total of 19% on supply of goods to unregistered person. Further tax shall not be charged on
– Supply of goods directly to end consumer
– Items falling under 3rd schedule like Cement, Fertilizers, Detergent and soaps
– Electric supplied to domestic and agricultural consumers
– Natural gas supplied to domestic consumers and CNG stations
Further tax shall not become part of output tax which means that further tax is payable to the FBR as bottom line figure
Sales tax on services
Sales tax on services is charged by the provincial government levied on the services provided or rendered specified in the provincial Act
Professional tax levied by the provincial government on the persons engaged in trades, professions, calling and employment such as holder of export license, on categories on paid up capital
Value-added tax (VAT)
VAT (locally termed as ‘sales tax’) is ordinarily levied at 17% on the value of goods, unless specifically exempt, after allowing related input credits. Export of goods is subject to sales tax at 0%.
Customs and import duties
Customs and certain other duties are collected at the import stage at varying rates classified under the Harmonized System (HS) Code.
Federal excise duty (FED) is leviable on certain types of manufacturing, import of goods, and rendering of services at varying rates. Sales tax on services, which is a replacement of FED, under the constitution, is to be levied and collected by the provinces on services rendered within their jurisdictions.
Property owners are required to pay property tax levied and collected by provincial governments through municipal governments at varying rates.
In the case of sale or transfer of immovable property, stamp duty is payable (with varying rates on the basis of location of the property) on the value of the property.
Other than social security contributions (see below), employers are not responsible to pay any other tax in respect of their employees or their salaries.
Social security contributions
Nominal social security and Employees Old Age Benefit contribution is collected from the employers and the employees. Employers are responsible to collect and pay on a monthly basis.