Understanding the pros and cons of being a tax filer in Pakistan
In today’s discussion, we examine the intricacies of the tax system in Pakistan, the pros and cons of being a tax filer versus a non-filer. With the subject of tax filing becoming increasingly prevalent, this article aims to provide a comprehensive understanding of the subject, especially for those involved in business or salaried employment.
Why should you pay taxes?
Many question the need to pay taxes, often citing significant taxes already levied on everyday goods and services. However, it is important to understand the different types of taxes and the benefits of compliance. In Pakistan, whether you are running a business or working as a salaried employee, obtaining a National Tax Number (NTN) is essential for various transactions and operations.
Who is the filer?
A filer is an individual who has filed their tax returns on time. It is important to note that late submissions disqualify you from being a filer. gave Federal Board of Revenue (FBR) Provides an option to become a filer by paying penalty for missing tax returns before March 1 every year. Timely filing of tax returns classifies you as a filer from March 1 of the following year.
Benefits of being a filer
- Reduction in tax rates on property transactions: Filers benefit from significantly lower tax rates at the time of property purchase. While non-filers may pay about 10% withholding tax, filers pay about 3%.
- Low withholding tax: Various withholding tax rates are generally halved for filers. For example, filers have no tax on cash withdrawals above PKR 50,000 from banks, while non-filers are taxed.
- Profit on bank deposits: Filers enjoy a lower tax rate of 15% on bank profits compared to 30% for non-filers.
- Business and import/export benefits: Must be a filer to carry out business activities, import, export, buy or sell. Non-filers face restrictions and higher taxes, making business operations less viable.
- Buying and selling of vehicles: New vehicle purchase tax is more than double for non-filers compared to filers.
Disadvantages of being a filer
Despite the benefits, some individuals express concerns about being filers. A fundamental issue is the need to maintain accurate financial records. Salaried persons usually file taxes directly, while business owners must maintain detailed accounts of sales, purchases and expenses. Proper management of bank statements and understanding of credit entries is important to avoid problems with FBR.
Best practices for filers
- Maintain accurate records: Business owners should keep comprehensive records of all transactions and ensure that their bank statements accurately reflect them.
- Understand financial entries.: Properly manage how funds are deposited and debited in your bank accounts. Mismanagement can lead to complications with FBR.
- Avoid common mistakes.: Mixing different types of taxes, such as gains tax and withholding tax, can be confusing. It is important to understand the specific taxes applicable to various transactions.
Result
Being a filer in Pakistan has many advantages, especially in terms of lower tax rates and the ability to conduct essential business activities. Although there are responsibilities associated with maintaining accurate financial records, the benefits far outweigh the disadvantages, making it a wise choice for both individuals and businesses.
Read more: https://lahorerealestate.com/pakistan-real-estate-tax-2024-25-will-prices-rise-or-fall/
