Value-added tax (VAT)
VAT (locally termed as ‘sales tax’) is ordinarily levied at 17% on the value of goods, unless specifically exempt, after allowing related input credits. Export of goods is subject to sales tax at 0%.
Sales tax on services is levied by all four provinces, Islamabad Capital Territory, Gilgit-Baltistan, Azad Jammu, and Kashmir at rates ranging from 13% to 16%. Sales tax paid on services, federal sales tax on goods, and federal excise duty are adjustable against each other, with a few exceptions.
Significant zero-rated goods are as follows:
- Supplies and repair and maintenance of certain ships and aircraft.
- Supplies to diplomatic missions and diplomats.
- Supplies of raw materials, components, and goods for export processing zones.
- Supplies of locally manufactured plant and machinery to export processing zones and supplies of certain specified machinery to the exploration and production sector.
Significant exemptions are as follows:
- Live animals and live poultry.
- Live plants.
- Vegetables, pulses, edible fruits (excluding imported fruits), certain spices, sugar cane, table salt, etc.
- Milk preparations.
- Newsprints, newspapers, journals, periodicals, books, certain stationary items, etc.
- Bicycles and wheelchairs.
- Agricultural produce not subjected to any process.
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.
Local supplies made by persons operating in the five export-oriented sectors (textile, leather, footwear, surgical goods, sport goods) are subject to sales tax at an applicable rate of 17%, with reduced rate facility available in certain cases.
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 manufacturing, import of goods, and rendering of services at varying rates. Sales tax on services, which is a replacement of FED, under the constitution, is to be levied and collected by the provinces 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 and the employees. Employers are responsible to collect and pay on a monthly basis.