Income tax is a levy imposed on individuals, including self-employed individuals, salaried workers, and non-incorporated firms, based on their earnings. It serves as a significant contributor to government revenue and is governed by Section 4 of the Income Tax Ordinance 2001, applicable to individuals with taxable income during each tax year at government-declared rates.
The tax year spans a twelve-month period from July 1st to June 30th, aligning with the calendar year in which the end date falls.
Taxable income in Pakistan is defined as an individual’s total income calculated within the tax year after deducting applicable allowances, such as Zakat, etc.
Total income is the cumulative amount earned by an individual across various income heads, as per the classifications outlined in the Tax Ordinance 2001. These income heads include income from property, salary, business income, income from other sources, or capital gains on investments.
The taxation structure of a country significantly influences its economic strength. In Pakistan, citizens are obligated to declare their assets, file annual tax returns, and pay taxes promptly. Recent tax reforms aim to simplify and streamline the taxation system, encouraging people to document their tax returns and fulfill their tax obligations in a timely manner.
Contrary to a common misconception that paying taxes is optional, tax evasion is a criminal offense. Those found evading taxes may face penalties for violating the law.
The regulatory framework for tax matters in Pakistan is defined in the Income Tax Ordinance 2001, with the Federal Board of Revenue (FBR) overseeing the country’s taxation system. For the proper documentation of tax returns, individuals are required to have NTN registration.