Individual - Significant developments

Last reviewed - 01 January 2021

Currently, keeping in view the extraordinary economic circumstances due to the prevalent COVID-19 pandemic, the government of Pakistan has introduced amendments in the following areas:

  • Payments to non-resident persons in respect of dividend, royalty, fee for technical services, insurance, re-insurance, and profit and debt are now excluded from the requirement of 100% enhanced withholding (subject to certain conditions), even if their names are not appearing in the Active Taxpayers List (ATL).
  • Profit on debt payment to non-resident individuals on debt instruments issued by the Federal Government under relevant law is now made subject to 10% tax/tax withholding. The tax so deducted is a final tax, with no requirement for non-resident individuals to file a return of income in Pakistan.
  • For determining capital gains on disposal of immovable property and the related holding periods, the distinction with reference to ‘open plots’ and ‘constructed properties’ has been removed. For details, please see Capital gains in the Income determination section
  • The threshold of 4 million Pakistani rupees (PKR) for exercising the option to tax ‘income from property’ on a net income basis has been done away with. The limit of expenditure allowable as ‘administration and collection charges’ against rental income has been reduced from 6% to 4%.
  • Certain beneficial provisions have been introduced to incentivise the construction industry, with the taxation regime for builders and developers also revamped. For details, please see Taxation of builders and developers in the Taxes on corporate income section in the Corporate tax summary
  • The facility of tax credit/deduction available to an individual donor on donations made to an associate has been restricted to a maximum of 15% of taxable income, as against the generally applicable threshold of 30% of taxable income.
  • Certain withholding provisions requiring deduction/collection of advance tax on transactions have been omitted (e.g. advance tax on functions and gatherings, insurance premium, education related expenses remitted abroad, withdrawal of balance from pension fund). 
  • The threshold of ‘turnover’ in order for an individual/association of persons to qualify as a ‘prescribed person’ for withholding of tax on payments for goods and services has been enhanced from PKR 50 million to PKR 100 million. 
  • The concept of an ‘agreed assessment’ has been introduced. The tax authorities also empowered to determine taxable income on the basis of ‘sectoral benchmarks/ratios’ in certain cases. For details, please see the Tax administration section in the Corporate tax summary
  • A specific process has been introduced for automated initial scrutiny of returns of income by the Federal Board of Revenue (FBR) system. The Commissioner of Inland Revenue also empowered for electronic access of records and conduct of audit proceedings electronically. For details, please see the Tax administration section in the Corporate tax summary.
  • From 1 January 2021, electronic filing of appeal with the Commissioner of Inland Revenue (Appeals) has been introduced under the law.
  • Certain industries are now required to install fiscal electronic devices and software for online integration of their businesses.