Islamic Republic of Pakistan
Navigating international regulations with confidence
Currency
Pakistani Rupee – PKR
Official Language
Urdu
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Fiscal Year
1 Jul - 30 Jun
Payroll Frequency
Weekly, Bi-weekly & Monthly
Tax System and Regulations
Income Tax Structure
Pakistan’s income tax structure is based on a progressive system, where individuals are taxed at increasing rates as their income rises. Non-residents are taxed on income earned in Pakistan, while residents are taxed on their global income. Income tax is levied on various sources, including salaries, business income, property, capital gains and other sources. The income tax system is governed by the Income Tax Ordinance, 2001 and the Federal Board of Revenue (FBR) administers tax collection and enforcement. Salaried individuals are taxed under specific slabs, based on annual income thresholds set out each year in the Finance Act, and employers are responsible for withholding and remitting taxes on behalf of employees. In addition to normal income tax, a super tax (high-income surcharge) of 9% may apply to individuals, including salaried individuals, whose annual taxable income exceeds Rs 10 million.
Payroll Taxes
Employers must manage several mandatory payroll tax deductions and contributions. Besides income tax withholding, employers contribute 5% and employees 1% of wages, up to a prescribed salary ceiling, to the Employees’ Old-Age Benefits Institution (EOBI), which supports pensions. Employers must also contribute to Provincial Social Security Institutions (such as PESSI in Punjab or SESSI in Sindh), which provide healthcare and injury-related benefits. The total contribution is 6%, of which an employer has to pay a contribution equal to 5% of the minimum wage per month. An employee has to pay that contribution at the rate of 1% of minimum wage. There is no national minimum wage. Each province has its own minimum wage. Additionally, employers may be required to contribute 2% of their income to the Workers Welfare Fund (WWF) if the total income for the accounting year is Rs 500,000 or more, which is used to fund housing and welfare initiatives for workers. Lastly, employers must allocate 5% of their profits to the Workers Profit Participation Fund (WPPF), which distributes profit sharing to eligible employees.
Tax Reporting and Payment Deadlines
Employers must adhere to strict reporting and payment deadlines for payroll taxes. Income tax withheld from employees’ salaries must be deposited with the FBR by the 15th of the following month. Employers are also required to submit monthly withholding tax statements (Form 7) by the 15th of the following month, and an annual salary statement (Form 115 / Form 19) detailing all employee payments and deductions by 30 September. Social security and EOBI contributions are also due by the 15th of the following month, with payments made to the respective provincial or federal institutions. Employers must file regular statements and returns detailing these deductions and payments. Applicable industrial establishments must pay WWF at a rate of 2% of assessable income, and this amount is reported and paid along with the annual corporate income tax return, which is typically due by 30 September for companies with a fiscal year ending on 30 June. In addition, companies are required to allocate 5% of their profits to the WPPF and must establish the fund within nine months after the end of the financial year, together with the submission of audited financial statements.
Compliance and Record-keeping
Employers in Pakistan must comply with various tax and labour law obligations related to payroll and employee record-keeping. This includes all employee payments, tax deductions and statutory contributions for a minimum of six years. These records include salary registers, tax deduction certificates, attendance records and proof of EOBI and social security contributions. Compliance with tax laws and labour regulations is enforced by both federal and provincial authorities, and the FBR may conduct audits to ensure adherence. Employers who fail to deduct or deposit income tax on time may face a minimum penalty of PKR 40,000 or 10% of the outstanding amount (whichever is higher). Additional civil penalties may apply for late filing of returns, under-reporting income or providing false information, with fines potentially escalating up to 100% of the tax due. Labour law violations, such as failure to maintain statutory employment records or contribute to EOBI or social security, can also result in separate penalties or prosecution by provincial labour departments.
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