Benefits of Becoming a Tax Filer in Pakistan

Not everyone is required to file an income tax return each year. If your annual income does not exceed certain thresholds, you do not need to file an income tax return. In Pakistan, citizens falling under the criterion mentioned in Income Tax Ordinance, 2001, must file their income tax returns.

Before we start our discussion about the benefits of becoming an income tax filer in Pakistan, you should be clear about a few things

• Income tax for salaried individuals is deducted and submitted at source by the employer. So, all your income taxes are already paid if your source of income is only your salary. So, why are you afraid of filing your income tax return?

• Majority of salaried individuals don’t have their NTN and as a result they don’t file their income tax returns and end up in paying excessive taxes without any reason.

• Salaried individuals can enjoy maximum benefits of filing taxes as their tax has already been deducted from their salary and submitted by their employer to FBR.

Who is considered a filer in Pakistan?

If we look internationally, the term filer is used for the person submitting an application or documents to any court of law or government department. In Pakistan, this is not the case here filer is the person who files his income tax return and is listed on the “Active Taxpayers List” (ATL) published by the Federal Board of Revenue (FBR).

If you want to become a filer in Pakistan, you must submit your annual income tax return. Once you are done with it, your name will appear in ATL, which is a public document after that, you will be eligible for all benefits available for income tax filers.

What are the key benefits of becoming a tax filer in Pakistan?

Reduced tax rates

Withholding tax (WHT) rates in Pakistan differ for filers and non-filers. If you plan to buy a car or purchase immovable property, the withholding tax rates for non-filers are almost double.

WHT adjustments

Filers can adjust their WHT paid against their income tax liability. If you have purchased a vehicle or an immovable property and paid WHT for that, you can easily claim it and reduce your income tax liability. However, a non-filer cannot do this.

Read more to understand Withholding Tax rates in Pakistan.

Following are the details of tax credits, allowances, and advance withholding taxes that are available for adjustment against tax on salary:

Advance Tax

• Advance tax on telephone, Internet and mobile bills
• Advance tax on international credit card transaction
• Advance tax collected on electricity bills exceeding Rs. 25,000 in case of non- filers.
• Advance tax collected at the time of buying and selling immovable property.

Tax Credits & Allowances

• Investment in Voluntary Pension Schemes (VPS);
• Donation/zakat to approved charitable organizations; and
• Allowance for educational expenses of children if your annual taxable salary is up to Rs. 1.5 million – lower of (a) 5% of tuition fee (b) 25% of taxable income and (c) 60,000 x no. of children.

Although the government has withdrawn the tax credit on investment in IPO investment, mutual funds, and life insurance and tax allowance available on profit on debt for acquisition/construction of house loan with effect from Tax Year 2023, there are still a lot of avenues available for salaried individuals to reduce their tax incidence through various tax credits, allowances and advance taxes collected/paid at source as discussed in foregoing paragraphs.

If you have not yet filed your income tax return, stop worrying, as you are on the right platform. You need not surf elsewhere because all your tax filing-related confusions will be answered here at Befiler.