Presentation1 - Basic Tax Terms

Understanding Tax
Fundamentals in
Pakistan:
A Comprehensive
Overview
Introduction
Introduction
This presentation provides a comprehensive
overview of basics tax fundamentals in Pakistan.
It covers the key aspects of taxation definitions and their

implications on businesses and individuals.
The aim is to enhance understanding of the tax concepts

rstanding Tax Fundamentals in Pakistan:
A Comprehensive Overview
Taxation Laws
Understanding the legal framework of
taxation in Pakistan is crucial.
This section will delve into the Income Tax

Ordinance and other relevant laws governing
taxation.
It will also discuss the role of the Federal

Board of Revenue in enforcing these laws.
Tax : A mandatory financial charge imposed by the government
on individuals or businesses to support public spending.
Taxation: The process by which a government imposes

charges on individuals or entities to fund public expenditures.
Income Tax : A tax levied on the income of individuals or

businesses, often based on a percentage of their earnings.
Sales Tax: A consumption tax imposed at the point of sale on

goods and services.
Value Added Tax (VAT): A type of consumption tax levied at each

stage of the production and distribution chain based on the value
added.
Corporate Tax: A tax imposed on the profits of corporations.
Property Tax: A tax on the value of real estate or personal

property.
Excise Tax: A tax on specific goods, such as alcohol, tobacco, or gasoline.
Capital Gains Tax: A tax on the profit from the sale of assets, like stocks or
real estate.
Progressive Tax: A tax system where the rate increases as the taxable
amount increases.
Regressive Tax: A tax that takes a higher percentage of income from low-
income earners than from high-income earners.
Tax Deduction An expense that can be subtracted from an individual's or

business's gross income to reduce the amount on which income tax is
calculated.
Federal Excise Duty (FED): A tax levied on specific goods at the

manufacturing stage, controlled by the Federal Board of Revenue.
Customs Duty: A tax imposed on goods imported or exported from

Pakistan, regulated by the Customs Act.
General Sales Tax (GST) :A type of sales tax applied to most goods and
services, collected at various stages of the supply chain.
Withholding Tax: A tax deducted at the source, often from income
or payments made to individuals or businesses, as a method of
collecting tax in advance.
Advance Tax: Payments made in anticipation of future income tax

liabilities.
Tax Return: A formal document submitted to the tax authorities that

includes details of income, expenses, and other relevant financial
information for tax assessment purposes.
Taxpayer Identification Number (NTN): A unique number assigned

to individuals and businesses for tax identification purposes.
Tax Year : The 12-month period for which tax is calculated. In

akistan, the tax year usually follows the fiscal year, running from July
1st to June 30th.
Taxable Income : The total income on which tax is calculated after

deducting allowable expenses and exemptions.
Tax Year The period for which income is assessed for tax purposes,
typically from July 1st to June 30th in Pakistan.
Filer: A taxpayer who submits an annual income tax return
to the Federal Board of Revenue (FBR).
Non-Filer: A taxpayer who has not filed an income tax return

with the FBR for the relevant tax year.
Tax Bracket: Different income ranges with corresponding tax

rates. In Pakistan, the income tax system is progressive, with
higher rates for higher income levels.
Tax Exemption: Certain income or expenses that are not

subject to income tax. These may include allowances,
deductions, or specific types of income.
Tax Deduction at Source (TDS): The process of deducting

ax from payments made to individuals or businesses, such as
salary or dividends, at the time of payment.
Tax Credit: A reduction in the actual tax liability, often

provided for specific activities or expenditures.
Self-Assessment: The process where taxpayers calculate

and report their own taxable income and tax liability.
Active Taxpayer List (ATL): A list of taxpayers who have filed
their income tax returns regularly. Being on the ATL may provide
certain benefits.
Tax Year End: The conclusion of the tax year, after which
taxpayers are required to file their income tax returns.
Sales Tax: A consumption tax levied on the sale of goods and

services at the federal and provincial levels in Pakistan.
Input Tax: The sales tax paid by a business on its purchases of

goods and services, which can be offset against the sales tax
collected on its sales.
Output Tax: The sales tax collected by a business on the sale of

goods and services.
Taxable Supply: Any supply of goods or services that is subject

to sales tax. This includes sales, imports, and other transactions
specified by the tax laws.
Exempt Supply: A supply of goods or services that is not subject

to sales tax. Exempt supplies do not contribute to the input tax
credit.
Zero-Rated Supply: supplies of goods or services taxed at a zero rate,
eaning the tax rate is 0%, but businesses can claim an input tax credit on
related purchases.
Tax Invoice: A document issued by a registered person providing details

of a taxable supply, including the amount of sales tax.
Taxable Person: An individual or entity registered for sales tax purposes

and required to collect and remit sales tax on taxable supplies.
Value Added Tax (VAT): A type of sales tax where tax is applied at each
tage of the production and distribution chain based on the value added.
Retail Price: The price at which goods are sold to the final consumer,
including sales tax.
Input Tax Credit (ITC): The mechanism that allows businesses to offset
the sales tax they paid on inputs against the sales tax they collected on
outputs.
Sales Tax Return: A document filed by registered taxpayers detailing

their sales and purchases along with the corresponding sales tax.
Tax Assessment: The process by which tax authorities review
a taxpayer's submitted information to determine the correct
amount of tax payable.
Tax Compliance: The adherence to tax laws and regulations,

including timely filing of tax returns and payment of taxes.
Tax Evasion: The illegal act of deliberately underreporting

income or inflating expenses to reduce tax liability.
Tax Audit: An examination of a taxpayer's financial records

and transactions by the tax authorities to ensure compliance
with tax laws.
Withholding Tax: The deduction of tax at the source before

making payments such as salaries, dividends, or interest.
Tax Exemptions: Certain income or activities that are not

subject to taxation based on specific provisions in tax laws.
Tax Planning: Strategically organizing financial affairs to

minimize tax liability within the legal framework.
Conclusion
This presentation has provided a comprehensive understanding of tax fundamentals in Pakistan.
It is essential for businesses and individuals to adhere to tax laws while leveraging opportunities
for tax optimization. Continuous awareness and compliance are key to a sustainable tax
environment.
Thanks!
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Understanding Tax

It covers the key aspects of taxation definitions and their

The aim is to enhance understanding of the tax concepts

This section will delve into the Income Tax

It will also discuss the role of the Federal

Taxation: The process by which a government imposes

Income Tax : A tax levied on the income of individuals or

Sales Tax: A consumption tax imposed at the point of sale on

Value Added Tax (VAT): A type of consumption tax levied at each

Corporate Tax: A tax imposed on the profits of corporations.

Property Tax: A tax on the value of real estate or personal

Tax Deduction An expense that can be subtracted from an individual's or

Federal Excise Duty (FED): A tax levied on specific goods at the

Customs Duty: A tax imposed on goods imported or exported from

Advance Tax: Payments made in anticipation of future income tax

Tax Return: A formal document submitted to the tax authorities that

Taxpayer Identification Number (NTN): A unique number assigned

Tax Year : The 12-month period for which tax is calculated. In

Taxable Income : The total income on which tax is calculated after

Non-Filer: A taxpayer who has not filed an income tax return

Tax Bracket: Different income ranges with corresponding tax

Tax Exemption: Certain income or expenses that are not

Tax Deduction at Source (TDS): The process of deducting

Tax Credit: A reduction in the actual tax liability, often

Self-Assessment: The process where taxpayers calculate

Sales Tax: A consumption tax levied on the sale of goods and

Input Tax: The sales tax paid by a business on its purchases of

Output Tax: The sales tax collected by a business on the sale of

Taxable Supply: Any supply of goods or services that is subject

Exempt Supply: A supply of goods or services that is not subject

Tax Invoice: A document issued by a registered person providing details

Taxable Person: An individual or entity registered for sales tax purposes

Sales Tax Return: A document filed by registered taxpayers detailing

Tax Compliance: The adherence to tax laws and regulations,

Tax Evasion: The illegal act of deliberately underreporting

Tax Audit: An examination of a taxpayer's financial records

Withholding Tax: The deduction of tax at the source before

Tax Exemptions: Certain income or activities that are not

Tax Planning: Strategically organizing financial affairs to

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