Three levels of government collect those taxes. The Federal Board of Revenue collects income tax, sales tax on goods, excise duty and customs. Each province collects sales tax on services, agricultural income tax, property tax and vehicle tax. Local councils charge smaller municipal levies. This guide explains each tax, who collects it, and which ones are likely to apply to you.
How Pakistan's tax system is organised
Pakistan's taxing powers are divided by the Constitution. The Federal Legislative List assigns certain taxes to the federal government. Taxes not on that list belong to the provinces.
The 18th Constitutional Amendment, passed in 2010, confirmed that taxing services is a provincial subject. That single change explains most of the confusion taxpayers run into today.
A business selling goods deals with the Federal Board of Revenue. A business selling services deals with its provincial revenue authority. Many businesses do both and must register with both.
Federal taxes collected by FBR
The Federal Board of Revenue administers four main federal taxes:
- Income tax, under the Income Tax Ordinance 2001
- Sales tax on goods, under the Sales Tax Act 1990
- Federal excise duty, under the Federal Excise Act 2005
- Customs duty, under the Customs Act 1969
FBR also collects sales tax on services inside Islamabad Capital Territory, because ICT is not a province. Returns and registrations for all federal taxes run through the IRIS portal.
Provincial taxes and the 18th Amendment
Each province runs its own revenue authority under its own law.
| Province | Authority | Main services law |
|---|---|---|
| Punjab | Punjab Revenue Authority (PRA) | Punjab Sales Tax on Services Act 2012 |
| Sindh | Sindh Revenue Board (SRB) | Sindh Sales Tax on Services Act 2011 |
| Khyber Pakhtunkhwa | Khyber Pakhtunkhwa Revenue Authority (KPRA) | KP Finance Act 2013, as amended |
| Balochistan | Balochistan Revenue Authority (BRA) | Balochistan Sales Tax on Services Act 2015 |
Provinces also charge agricultural income tax, urban immovable property tax, motor vehicle tax, professional tax and stamp duty. The Excise, Taxation and Narcotics Control department in each province usually handles property and vehicle taxes.
Local government taxes
Municipal corporations and district councils charge smaller levies that vary widely by city. Common examples include water and conservancy charges, advertisement and signboard fees, trade licence fees, and market fees.
These rarely matter much to an individual. A retail business with a shopfront should budget for them.
Direct and indirect taxes: the second way to classify
The tier model tells you who collects a tax. The direct and indirect model tells you who ultimately bears its cost.
A direct tax is charged on a person or company and cannot be passed on. Income tax is the clearest example. An indirect tax is charged on a transaction, and the seller collects it from the buyer. Sales tax is the clearest example.
Both models describe the same taxes from different angles. Punjab's sales tax on services is a provincial tax and an indirect tax at the same time.
Difference between direct and indirect taxes in Pakistan
| Direct taxes | Indirect taxes | |
|---|---|---|
| Charged on | Income, profit, gains, assets | Goods, services, imports |
| Who bears the cost | The person assessed | The final consumer |
| Examples | Income tax, super tax, capital gains tax | Sales tax, excise duty, customs duty |
| Rate structure | Usually progressive, rising with income | Usually a flat rate on the transaction |
| Effect across income levels | Higher earners pay a larger share | Lower earners pay a larger share of income |
| Visibility | Assessed and filed | Built into the price |
Indirect taxes make up the larger share of federal collection in Pakistan. That is one reason the overall burden is often described as regressive.
Direct taxes in Pakistan
Income tax
Income tax is charged under the Income Tax Ordinance 2001. The law divides income into five heads: salary, income from property, income from business, capital gains, and income from other sources.
The tax year runs from 1 July to 30 June. It takes the name of the year in which it ends. Tax year 2027 covers 1 July 2026 to 30 June 2027.
Salaried individuals are taxed on the slabs below for tax year 2027, as set by the Finance Act 2026.
| Annual taxable salary | Tax |
|---|---|
| Up to Rs 600,000 | Nil |
| Rs 600,001 to Rs 1,200,000 | 1% of the amount above Rs 600,000 |
| Rs 1,200,001 to Rs 2,200,000 | Rs 6,000 plus 11% of the amount above Rs 1,200,000 |
| Rs 2,200,001 to Rs 3,200,000 | Rs 116,000 plus 20% of the amount above Rs 2,200,000 |
| Rs 3,200,001 to Rs 4,100,000 | Rs 316,000 plus 25% of the amount above Rs 3,200,000 |
| Rs 4,100,001 to Rs 5,600,000 | Rs 541,000 plus 29% of the amount above Rs 4,100,000 |
| Rs 5,600,001 to Rs 7,000,000 | Rs 976,000 plus 32% of the amount above Rs 5,600,000 |
| Above Rs 7,000,000 | Rs 1,424,000 plus 35% of the amount above Rs 7,000,000 |
The Finance Act 2026 also abolished the 9% surcharge that applied to individuals earning above Rs 10 million a year.
Worked example. Someone earning Rs 150,000 a month has an annual salary of Rs 1,800,000. That falls in the third slab. The tax is Rs 6,000 plus 11% of Rs 600,000, which comes to Rs 72,000 for the year, or Rs 6,000 a month.
Only the amount above each threshold is taxed at the higher rate. A pay rise never leaves you worse off.
Business individuals, associations of persons and companies are taxed on separate rate schedules. A company's rate depends on its type and sector rather than on a slab. To check the figure for your own salary, use our salary tax calculator.
Super tax
Super tax under section 4C is an additional charge on high incomes. It sits on top of ordinary income tax rather than replacing it.
The Finance Act 2026 narrowed it considerably. For most taxpayers it now applies only where income exceeds Rs 500 million, and the top rate fell from 10% to 8%.
Banks, oil and gas exploration companies and fertiliser companies remain liable at 10% on income above Rs 150 million. Most small and mid-sized businesses now fall outside super tax entirely.
Capital gains tax
Capital gains tax applies to the profit you make on selling an asset. It is charged on the gain, not on the sale price.
For immovable property acquired on or after 1 July 2024, section 37 applies a flat 15% to sellers on the Active Taxpayers List. Holding the property longer no longer reduces the rate. Sellers not on the list are taxed at normal slab rates, subject to a 15% minimum.
For listed securities acquired on or after 1 July 2024, section 37A applies 15% to filers. Tax on listed securities is computed and collected through the National Clearing Company of Pakistan.
Worked example. You bought a plot for Rs 10 million in 2025 and sold it for Rs 13 million. The gain is Rs 3 million. As a filer, capital gains tax is 15% of Rs 3 million, which is Rs 450,000.
Two other taxes are often mistaken for capital gains tax. Section 236C is collected from the seller at transfer, and section 236K from the buyer. Both are advance taxes charged on the transaction value, currently 2.75% and 1.25% for persons on the Active Taxpayers List. They are adjustable against your final liability, so they are not an extra tax on your gain.
Agricultural income tax
Agricultural income is exempt from federal income tax. It is not tax-free. Each province taxes it under its own law.
The main provinces exempt annual agricultural income up to Rs 600,000. Above that, provinces apply either a tax on income or a flat charge per acre of cultivated land. Several provinces add a further charge once agricultural income passes Rs 150 million.
Rates and per-acre amounts changed in the 2026-27 provincial budgets. Check your provincial revenue authority before relying on an older figure.
Property taxes and what replaced section 7E
Property attracts several different taxes from different authorities. Treating them as one tax is the most common source of confusion.
| Tax | Charged by | When it applies |
|---|---|---|
| Urban Immovable Property Tax | Province, through Excise and Taxation | Annually on urban property, based on assessed annual value |
| Capital gains tax (section 37) | FBR | When you sell at a profit |
| Advance tax (sections 236C and 236K) | FBR | At the time of sale or purchase |
| Capital value tax | Province, or FBR in Islamabad | On certain transfers and asset classes |
| Stamp duty and registration fee | Province | On registering the transfer deed |
One charge has been removed. Section 7E taxed property owners on a notional deemed income of 5% of fair market value at a rate of 20%. That worked out at roughly 1% of value every year, whether or not the property earned anything.
In May 2026 the Federal Constitutional Court held section 7E to be beyond federal powers. The Finance Act 2026 then omitted it with effect from 1 July 2026, and FBR confirmed the abolition in Circular No. 02 of 2026-27.
There is no longer a federal tax on simply owning property. Provincial property tax continues exactly as before.
Indirect taxes in Pakistan
Sales tax on goods
FBR charges sales tax on goods under the Sales Tax Act 1990. The standard rate is 18%. Reduced rates, zero-rating and exemptions apply to specific items listed in the Act's schedules.
Pakistan has no separate value added tax. Sales tax is itself a value added tax in the way it works.
A registered business charges output tax on its sales and claims input tax on its purchases. It pays FBR the difference. Tax is collected at every stage of the chain, but each business only funds the value it added.
Worked example. A trader buys stock for Rs 100,000 and pays Rs 18,000 input tax. He sells it for Rs 150,000 and charges Rs 27,000 output tax. He deposits Rs 9,000 with FBR, not the full Rs 27,000.
Businesses below the registration threshold do not charge sales tax. They also cannot claim input tax on their purchases, so the tax becomes a cost rather than a pass-through.
Sales tax on services
Provinces tax services, not FBR. Standard rates for 2026-27 are 16% in Punjab and 15% in Sindh, Khyber Pakhtunkhwa and Balochistan. Telecommunication services carry a higher rate, 19.5% in Punjab.
Many services carry a reduced rate in exchange for giving up input tax adjustment. In Punjab that reduced rate rose from 5% to 8% on 1 July 2026, affecting a long list of categories.
The applicable rate usually depends on where the service is consumed, not where your office sits. A Lahore agency billing a Karachi client may fall under Sindh rules for that engagement. Businesses serving clients in several provinces often register with more than one authority.
Federal excise duty
Federal excise duty is charged under the Federal Excise Act 2005 on a defined list of goods and a few services.
The list includes cigarettes and tobacco products, cement, sugary drinks, motor vehicles above certain engine sizes, and some petroleum products. Duty is charged either as a percentage of price or as a fixed amount per unit.
Excise duty sits on top of sales tax on the same goods rather than replacing it. A packet of cigarettes carries both.
Customs duty and import taxes
Customs duty is charged under the Customs Act 1969 on goods brought into Pakistan. The rate depends on the tariff classification of the item.
Importing usually triggers more than customs duty alone. A typical clearance involves customs duty, additional customs duty, regulatory duty on some items, sales tax at import stage, and advance income tax.
The landed cost is often well above the headline duty rate. First-time importers are regularly caught out by this, so price an order on the full clearance cost rather than the tariff alone.
Petroleum levy
The petroleum levy is charged on petrol and diesel as a fixed amount per litre. The federal government sets the rate and revises it periodically.
It is not sales tax, and it does not appear separately on a fuel receipt. For most households it is one of the largest indirect taxes they pay without noticing.
Withholding and advance tax: a method, not a separate tax
Withholding tax is widely listed as a type of tax. It is not one. It is a way of collecting income tax and sales tax earlier.
The law makes the payer deduct tax before handing money over. Your employer deducting tax from your salary is withholding income tax. Your bank deducting tax on a transaction is withholding income tax. The tax being collected is still income tax.
Advance tax works on the same principle. Businesses above certain thresholds pay quarterly instalments against the year's expected liability.
Adjustable, final and minimum tax
How a deduction is treated matters more than its rate.
- Adjustable. The amount is credited against your yearly liability. If too much was deducted, you claim it back through your return.
- Final. The deduction settles the liability on that income completely. Nothing further is due and nothing is refundable.
- Minimum. The deduction sets a floor. You pay the higher of that amount or your calculated liability.
People who never file lose every adjustable deduction made during the year. A refund can only be claimed through a return.
Why filers pay less than non-filers
The Active Taxpayers List is FBR's published list of people and businesses that have filed their return for the relevant year. Appearing on it is what filer status means in practice.
Many withholding rates are set at one level for persons on the list and a much higher level for everyone else. Buying a vehicle, selling property, receiving dividends and several banking transactions all cost more off the list.
For most people the extra withholding over a year exceeds what filing would have cost. If you are not on the list, becoming a tax filer is usually the cheaper option.
Which taxes apply to you
Most readers do not need every tax on this page. They need to know which ones touch their own situation.
Salaried employees
Your employer deducts income tax monthly under section 149. You still file an annual return. Filing is how you claim credits, declare other income and stay on the Active Taxpayers List.
You also pay indirect taxes on everything you buy. Add provincial property tax or vehicle tax if you own either.
Freelancers and IT exporters
Export of IT and IT-enabled services is taxed under a concessionary regime rather than normal slabs. Banks usually collect the tax when proceeds are remitted.
Keep your earnings coming through formal banking channels and retain the bank credit advice. The concession depends on documented remittance. Freelancers serving domestic clients may also fall within provincial sales tax on services.
Small businesses and retailers
A business selling goods registers with FBR for sales tax and files monthly. A business selling services registers with its provincial authority instead.
Income tax applies to business profit, and advance tax instalments begin once turnover reaches the relevant threshold. Point-of-sale integration and electronic invoicing obligations now apply to a widening set of businesses.
Property owners and landlords
Rental income is taxed as income from property. Annual urban immovable property tax is charged by the province.
Selling brings capital gains tax and section 236C advance tax. Buying brings section 236K advance tax, stamp duty and registration fees. The annual deemed income charge under section 7E no longer applies.
Companies
A company pays corporate income tax on profit, super tax if it crosses the threshold, and sales tax on its supplies.
It also acts as a withholding agent. That means deducting tax on salaries, rent, contracts and services it pays for, then depositing it with FBR. Annual filings go to both FBR and SECP.
Common mistakes Pakistani taxpayers make
- Assuming salary deduction means filing is done. Deduction and filing are separate obligations. Only filing puts you on the Active Taxpayers List.
- Registering with FBR for a services business. Services are provincial. A Lahore consultancy registered only with FBR is still not compliant with PRA.
- Treating section 236C or 236K as capital gains tax. Both are adjustable advance taxes on the transaction. Tax on your gain is calculated separately.
- Losing refundable deductions by not filing. Adjustable withholding collected during the year is only recoverable through a return.
- Relying on last year's rates. Slabs, thresholds and provincial rates change with each Finance Act. Always check which tax year a figure belongs to.
- Ignoring provincial taxes. Property tax, vehicle token tax and professional tax come from the province, not FBR. They are easy to miss until a notice arrives.
Frequently asked questions
How many types of taxes are there in Pakistan?
There is no single official count, because federal, provincial and local authorities each levy their own. About ten matter for most people and businesses: income tax, super tax, capital gains tax, sales tax on goods, sales tax on services, federal excise duty, customs duty, petroleum levy, property tax and vehicle tax.
What is the difference between direct and indirect tax in Pakistan?
A direct tax is charged on your income or assets and cannot be passed to anyone else. Income tax is the main example. An indirect tax is charged on a transaction and reaches you inside the price, as sales tax does.
Which taxes does FBR collect?
FBR collects income tax, sales tax on goods, federal excise duty and customs duty. It also collects sales tax on services within Islamabad Capital Territory.
Is Pakistan's sales tax the same as VAT?
In how it works, yes. Pakistan has no separate value added tax. Sales tax under the Sales Tax Act 1990 runs on a VAT input and output mechanism, so each business pays tax only on the value it adds.
Is section 7E still applicable in 2026?
No. The Federal Constitutional Court held section 7E to be beyond federal powers in May 2026. The Finance Act 2026 omitted it with effect from 1 July 2026, and FBR confirmed the abolition in Circular No. 02 of 2026-27.
Is agricultural income tax-free in Pakistan?
It is exempt from federal income tax but taxable by the province where the land lies. The main provinces exempt annual agricultural income up to Rs 600,000.
Is withholding tax a separate type of tax?
No. It is a collection method. The tax being withheld is income tax or sales tax, collected in advance by whoever is making the payment.
What is the tax year in Pakistan?
The tax year runs from 1 July to 30 June and takes the name of the year it ends in. Tax year 2027 covers 1 July 2026 to 30 June 2027.
Getting help with your taxes
Knowing which taxes apply to you is usually the hard part. Working out what is due and when follows from that.
Our team in Rawalpindi and Islamabad handles registration, return filing and provincial sales tax compliance for individuals, freelancers and companies. Contact us and tell us what you do, and we will set out what you are liable for.