Understanding the Tax Year in Pakistan

What is a Tax Year?

In Pakistan, the tax year is a 12-month period that starts on the 1st of July in the current year and ends on the 30th of June in the next year. This is called the “normal tax year” and is named after the calendar year in which it ends.

A few months ago, the Federal Board of Revenue (FBR) clarified how the tax year works in Pakistan, according to the Income Tax Ordinance, 2001, updated until June 30, 2024.

This broad explanation helps taxpayers understand the structure and duration of the tax year for income tax purposes.

Normal vs. Special Tax Year

• Normal Tax Year: Most taxpayers follow this, running from July 1 to June 30.
• Special Tax Year: Some individuals or entities may have different income periods and can use a special tax year, which follows a different 12-month cycle and is named after the calendar year it ends in.

Choosing Your Tax Year

The FBR allows flexibility for taxpayers with different income cycles. Taxpayers can apply to the Commissioner of Income Tax to use a special tax year. The application must show a compelling reason, and the Commissioner will decide after hearing the case.

Taxpayers using a special tax year can also apply to switch back to the normal tax year. This request is also subject to the Commissioner’s approval.

Transitional Tax Year

When switching between a normal and a special tax year, there is a “transitional tax year” to ensure a smooth changeover. This period covers the time between the end of the old tax year and the start of the new one.

Special Circumstances

The FBR can allow certain groups to adopt a different tax year through an official notification in the Gazette, based on their specific needs.

Appeals and Reviews

If taxpayers disagree with the Commissioner’s decision regarding their tax year, they can appeal to the FBR. The Board’s decision on such appeals is final.

The explanation of the tax year helps ensure that all taxpayers in Pakistan understand and comply with the tax system.

By offering the option of a special tax year and a clear review process, the FBR accommodates diverse business and income cycles while maintaining a fair and transparent tax administration.

Taxpayers should stay informed and consult with Befiler’s tax professionals for any specific questions about their tax year and obligations.