Understanding how tax is calculated in Pakistan is essential for every salaried person, freelancer, business owner, and corporation. With changing fiscal policies and the increasing digitization of tax systems, the Federal Board of Revenue (FBR) has made several updates in tax brackets, rates, and filing procedures. This guide explains how tax is calculated in Pakistan, who pays it, and how individuals can compute their liabilities.

1. Overview of Tax System in Pakistan

Pakistan operates on a progressive tax system for individuals, meaning higher incomes pay higher tax percentages. The two primary categories of taxes include:

• Direct Taxes: Paid directly by individuals or entities, such as income tax, corporate tax, and capital gains tax.

• Indirect Taxes: Charged on goods and services, including sales tax, excise duty, and customs duty.

The Federal Board of Revenue (FBR) administers tax laws and collects federal taxes, while provincial tax authorities handle taxes such as agriculture tax, property tax, and professional tax.

2. Income Tax for Salaried Individuals (2025–2026)

Income tax for salaried individuals is calculated annually but deducted monthly by employers. The updated income tax slabs for the fiscal year 2025–26 are:

Annual Income (PKR)	Tax Rate
Up to 600,000	0%
600,001 – 1,200,000	5%
1,200,001 – 2,400,000	10%
2,400,001 – 5,000,000	15%
5,000,001 – 10,000,000	25%
Above 10,000,000	35%

Example

Suppose your annual salary is PKR 1,800,000:

• 0% on first PKR 600,000 = 0

• 5% on next PKR 600,000 = PKR 30,000

• 10% on next PKR 600,000 = PKR 60,000

• Total Tax = PKR 90,000/year or PKR 7,500/month

3. Tax for Freelancers and Self-employed Individuals

Freelancers and consultants must file tax returns like salaried individuals. However, they often benefit from lower fixed tax rates or rebates, especially those registered under the IT export category.

For example:

• IT Export Freelancers: 5% fixed tax

• Other Freelancers: Taxed as per regular income slabs

FBR allows online registration and tax filing via the IRIS portal.

4. Corporate Tax Calculation

Companies in Pakistan are taxed based on their net profit. The general corporate tax rates for 2025–26 are:

• Large Companies: 29%

• Banks: 35%

• SMEs: 20% if registered under the SME Policy

• IT Companies: 5–10% on exports

Example

If a company makes PKR 20 million in profit:

• Tax = 20,000,000 x 29% = PKR 5.8 million

5. Withholding Tax (WHT)

WHT is deducted at the source from payments such as salaries, commissions, bank withdrawals, and property transactions.

Examples:

• Salary WHT: As per slabs above

• Bank Withdrawal (for non-filers): 0.6% if amount exceeds PKR 50,000/day

• Property Purchase (for filers): 2% of property value

WHT is adjustable when filing annual returns, meaning it can be claimed against your total tax liability.

6. Sales Tax and FED

Sales tax is 17% on most goods and services unless exempted. Certain goods such as luxury items, tobacco, and sugary drinks also attract Federal Excise Duty (FED).

Example:

• A product priced at PKR 1,000 will be sold at PKR 1,170 (inclusive of sales tax).

Businesses must register with FBR and submit monthly sales tax returns.

7. Property and Capital Gains Tax

Capital gains tax (CGT) applies when selling property or stocks. For immovable property, the CGT varies based on the holding period:

• Held less than 1 year: 15%

• Held 1–2 years: 10%

• Held 2–3 years: 5%

• Held more than 3 years: Exempt

Property tax is also levied annually by provincial governments, based on area and size.

8. Tax Credits and Rebates

You can reduce your tax liability by claiming credits:

• Zakat and charity donations (up to 30% of taxable income)

• Investment in mutual funds or pension schemes (VPS)

• Tuition fee for children

Always provide verifiable documents to claim credits.

9. Filing Tax Returns

Filing returns is mandatory if:

• Your annual income exceeds PKR 600,000 (salaried)

• You own property, a vehicle, or have a bank account

• You’re a business or professional

The IRIS system at FBR’s official site lets individuals file returns online.

Need help calculating your taxes? Use our free online tax calculator at Tax Calculator Pakistan to find accurate figures based on your income.

10. Penalties for Non-Compliance

Failure to file returns or underreporting can lead to:

• Penalties up to PKR 40,000

• Freezing of bank accounts

• Ineligibility for loans or travel visas

Non-filers are also charged higher WHT on property, vehicle registration, and bank transactions.

11. Tips for Easy Tax Compliance

• Keep salary slips, bank statements, and investment records

• Use a registered tax advisor if confused

• File early to avoid late fees

• Ensure your name appears in the Active Taxpayer List (ATL) to benefit from lower WHT

12. Future of Taxation in Pakistan

Pakistan is gradually digitizing its tax system. With initiatives like:

• E-invoicing

• Online payment portals

• Integration with NADRA and SECP

tax compliance is becoming easier. The government's goal is to increase the tax-to-GDP ratio from below 10% to 15% over the next five years.

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By staying informed and using the right tools, individuals and businesses can avoid penalties, take advantage of legal deductions, and contribute to national development through responsible tax practices.