Value-added tax (VAT)
VAT (locally termed as ‘sales tax’) is ordinarily levied at 18% on the value of goods, unless specifically exempt or subject to sales tax at a reduced rate, after allowing related input credits.
Sales tax on services is levied by the Provinces, Islamabad Capital Territory, Azad Jammu and Kashmir within their jurisdictions at rates ranging from 13% to 16%. Reduced rates have been prescribed for certain specific services. Input tax adjustment is generally not allowed in case of a reduced rate.
Sales tax paid on services, federal sales tax on goods, and federal excise duty are adjustable against each other, with a few exceptions.
Supplies made by certain specific persons/sectors are subject to specific sales tax regimes (e.g. retail price/fixed tax regime) or otherwise subject to reduced rates of sales tax.
Commercial import of goods is subject to VAT at 3%, in addition to the sales tax payable at the standard rate at the import stage. Further tax of 4% is applicable in case of supplies to inactive taxpayers, subject to certain conditions.
Customs and import duties
Customs and certain other duties are collected at the import stage at varying rates classified under the Harmonized System (HS) Code.
Federal excise duty (FED) is leviable on certain types of excisable goods and services at varying rates. For services, its ambit is restricted to Islamabad Capital Territory. Sales tax on services, which is a replacement of FED, under the constitution, is to be levied and collected by the provinces/Islamabad on services rendered within their jurisdictions.
Property owners are required to pay property tax levied and collected by provincial governments through municipal governments at varying rates.
In the case of sale or transfer of immovable property, stamp duty is payable (with varying rates on the basis of location of the property) on the value of the property.
Other than social security contributions (see below), employers are not responsible to pay any other tax in respect of their employees or their salaries.
Social security contributions
Nominal social security and Employees Old Age Benefit contribution is collected from the employers. Employees are also required to make a small contribution to Employee Old Age Benefit. Employers are responsible to collect and pay on a monthly basis.