Filer and Non-Filer Tax Rates in Pakistan – Benefits of Becoming Tax Filer

This article is about a comparison between a Tax Filer and a non-Tax filer as well as the many benefits that a Tax-Filer has in Pakistan. I will also discuss the various positive and negative aspects of both of these categories. In fact, I will discuss different rates for a Tax-Filer and a non-Tax filer, also the various benefits of becoming tax-filer in Pakistan. You may have heard that all the governments of Pakistan tried their best to get all the tax-payers into the tax-paying list but neither of these government does well nor the tax-payers themselves ready to enlist themselves in the Tax-Payer list. Actually, A Tax Filer and a non-Tax filer cannot stand on the same stage. You know why? Because of an obedient and a non-obedient person cannot have the same status in the legal world.

I am sure you get my point. So, how to differentiate between a Tax-Filer and a non-Tax filer person? Continue reading this article because you are going to know about important things on this topic like:

Content Index

Difference Between A Tax-Filer And Non-Tax Filer
What Is Withholding Tax?
A Liability?
What Is An Asset?
Who Is Required To File Tax Return Annually
Tax Rates And Benefits Of Becoming Tax Filer In Pakistan
Conclusion

Difference Between a Tax-Filer and Non-Tax Filer

Actually, there is no difference in both of these physically but mentally. I am not saying one is a healthy person and the other is mentally ill. The main difference is the mentality. One has the mentality that whatever happened I will not file my tax return. The other becomes obedient and pursue what is right in the legal world. So now the obedient must have many benefits.

Non-filer is a person or a company who does not file his tax returns by the due date every year. The Filer is that person who regularly files his annual Tax Returns in the Federal Board of Revenue (FBR) by giving all the information of his income and expenses. He also declares legitimate assets and pays accurate tax against them. Unlike a Tax-Filer a non-filer does not file his annual Tax Return. He tries to hide the income in one way or the other.

The FBR has clearly mentioned the major differences between a Tax Filer and non-Filer in Income Tax Ordinance 2011 with the insertion of the Finance Bill of 2014 and 2015. Another difference is, the person whose name is in the “Active Tax Payer” list of the FBR is called a filer. This is the major evidence to treat the person of both of these categories. It is defined in the Ordinance and it will go on time to time with little or more modifications. Also, the compliant tax rates are somewhat the same but for the non-filers, the rates are increased and always vary in many situations.

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So, now you have understood the major difference between a Tax Filer and non-filer. Let me head over to the next level where I’ll discuss the Withholding Tax.

What is Withholding Tax?

A withholding tax is a tax that is payable on an item of income to withhold or deduct tax from the payment and to pay the tax to the government of Pakistan. In many cases, this withholding tax is totally applicable to the employment incomes also. A withholding tax treated as a payment on account of the recipient’s final tax liability. The amount of withholding tax on income payments other than the employment income is usually a fixed amount of percentage. In the case of employment income, the amount of the withholding tax is often based on an estimate of the employee’s final tax liability. The employee and the government both can determine this.

Now we should analyze that who are those persons who have to file the tax return every year.

What is a Liability?

A liability is “the state of being legally responsible for something”. This term simply refers to any money or any kind of service that is under an obligation to another party. Another form of liability is, for instance, would be the property tax that a property owner owes to the local municipal government.

What is an Asset?

An Asset is “an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.” In simple words, a valuable resource with economic value also, that an individual or a company owns with the belief that it will provide future benefits.

Who is Required to File Tax Return Annually

Following are the different types of Taxpayers who are required to file their income tax returns every year:

  • All the Companies
  • All the AOPs (Association of Persons)
  • Sales Tax Registered Persons
  • All Salaried Persons having taxable income greater than or equal to Rs.600,000 per year (as of 2019).
  • All income tax refund claimants Who are required to file the income tax returns

These are the persons who have to file their tax return every year on the due date. Now let me show you the shining part of this article which is the “Benefits of Becoming Tax Filer”.

Tax Rates and Benefits of Becoming Tax Filer in Pakistan

Taxpaying benefits are a lot. Especially in Pakistan, there are numerous benefits that a taxpayer enjoys. Unlike Taxpayer, the non-taxpayer don’t have such privilege. Non-Taxpayer has to face many difficulties in a financial way. So, if you want to get the benefits by becoming a tax-filer then continue reading this article. So, let’s have look at the many of benefits for being a tax filer in Pakistan.

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Amount of Withholding Tax

In Pakistan, a taxpayer is always paying half of the withholding tax. Whereas the non-taxpayer has to pay full withholding tax that is changing time by time. This can be a higher amount or lower amount but a non-tax filer has to pay full withholding tax every time.

Purchase a Property

A Tax-filer or Tax-payer is fully allowed to purchase property beyond the amount of 50 Lakh Rupees or any kind of property he wants. Unlike Tax-filer the non-tax filer is barred to by any property which is more than 50 Lakh (as per the year 2019).

Imports and Exports

A Tax-payer will pay only 5.5 percent tax on all the raw material imports in the country. Whereas the non-filer is bound to pay more tax which is equal to 8 percent on all the imports in the country.

A tax-filer will pay only 6 percent on all his commercial exports to any part of the world. A non-filer will pay 9 percent which is far more than the tax amount of a tax-filer.

Tax on Government Tenders

On all the tender that government announces, a tax-filer will pay only 7.5 percent of the tax. Whereas the non-filer will pay 15 percent tax.  Except these, if a company which is a tax-filer participate in any auction then he will pay only 10 percent of the tax.

Auctions Tax Amount

On auction of government companies or property, a tax-file will pay only 10 percent of tax whereas, the non-tax filer will pay 15 percent of tax.

Tax on Prize Bond Amount

A tax-filer will pay only 15 percent on the winning prize bond amount. The non-filer will pay 25 percent of the winning prize bond amount. For example, if a non-filer person wins the prize of 10 lakh, then he has to pay 2,50,000 as a tax which is equal to 25 percent of the total amount.

Dividends

A tax-filer will pay only 15 percent on the dividends (profit of a company) whereas, the non-filer will pay 20 percent tax.

Bank Saving Amount

On Bank and different saving schemes, there is also a lot of gap between tax-filer and non-tax filer. A tax-filer will pay 10 percent and non-tax filer will pay 15 percent.

Tax on Bank Transactions

One noticeable thing is that when a filer withdraws an amount which is more than 50 thousand Rupees he will pay only 0.3 percent as a tax. On the other hand, a non-tax filer will pay 0.6 percent. For example, 600 Rupees tax on a withdraw of Rupees 1 lakh.

One more benefit for the tax-filer is that he will not pay any amount of tax on any kind of demand draft, cross-check and pay orders. Whereas, the non-tax filer will pay 600 Rupees as a Tax.

Tax on Transfer of Property

A Regular tax-filer will pay only 0.1 percent tax of the total amount of property whereas, the non-tax filer will pay 0.2 percent of tax.

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If a tax-filer purchase a property of more than 40 lakh then he will pay 2 percent of the total property amount whereas, the non-tax filer will pay 4 percent of the total amount.

Tax on Purchase of Vehicle

On purchase of a car or similar vehicle, a tax-filer will pay only 800 to 10,000 Rupees for annual token tax. A non-filer will pay between  1200 to 30,000 Rupees for annual token tax.

After purchasing of a vehicle the withholding tax for registration fo that vehicle, the tax-filer will pay between 15,000 Rupees to 2,50,000 Rupees which vary from vehicle to vehicle. A non-tax filer will have to pay between a minimum amount of 40,000 and a maximum amount of 4 lakh.

I am also giving a complete overview of of the tax on purchasing of vehicle, registration, and transfer of vehicle that how much you have to pay the tax on these transactions.

Tax Amount on Purchasing, Registration, and Transfer of Vehicle

Different Amounts on Purchase of Vehicle

Purchase of VehicleNon- Tax FilersTax Filers
Vehicle Under 851 cc10,000 Rupees10,000 Rupees
Between 851 to 1000 cc25,000 Rupees20,000 Rupees
Between 1001 – 1300 cc40,000 Rupees30,000 Rupees
Between 1301 – 1600 cc1,00,000 Rupees50,000 Rupees

Different Amounts on Registration of Vehicle

Registration of VehicleNon-Tax FilersTax Filers
Vehicle Under 851 cc10,000 Rupees10,000 Rupees
Between 851 to 1000 cc25,000 Rupees20,000 Rupees
Between 1001 – 1300 cc40,000 Rupees30,000 Rupees
Between 1301 – 1600 cc1,00,000 Rupees50,000 Rupees

Different Amounts on Transfer of Vehicle

Transfer of Vehicle RegistrationNon-Tax FilersTax Filers
Vehicle Under 851 cc5,000 Rupees0 Rupees
Between 851 to 1000 cc15,000 Rupees5,000 Rupees
Between 1001 – 1300 cc20,000 Rupees7,500 Rupees
Between 1301 – 1600 cc65,000 Rupees12,500 Rupees

Conclusion

Now after understanding all of these benefits and tax rates you must want to register for NTN and include your name in FBR’s Active Taxpayers list, you must get to know the process of becoming a Tax-filer in Pakistan.

So, now you have understood the difference between a tax-filer and a non-tax filer. You also understand what is withholding tax, Liability, and assets. You also read about the persons who are required to file tax returns every year. Most importantly, you have read about the many benefits of becoming a Tax filer in Pakistan. As there is a lot of difference of tax rates between a tax-filer and a non-tax filer in Pakistan. So, that’s it. Now if you have any question regarding this whole discussion you are free to ask your questions in the comment section below.

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Jawad
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Jawad

“Tax on Transfer of Property” is it on total amount of property.

Sahar Adv
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Sahar Adv

You have done an exceptional and detailed work. I understand now the main difference between tax filer and non tax filer

Ghulam Hussain
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Ghulam Hussain

Really awesome and fully detailed article. I appreciate your work.

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