This Blog is written by Mr. M. Baser Dawer, Senior Associate Taxation Services. Please read this blog and provide your valued comments.

Income Tax and Sales Tax Withholding Mechanism

Withholding Agent (Income Tax)

According to sub section.7 of Section.153 of Income tax Ordinance,2001, following persons are hereby specified as withholding agents for the purpose of deduction and deposit of income tax;

  • the federal government ;
  • a company;
  • an association of persons constituted by, or under a law ;
  • a non-profit organization;
  • a foreign contractor or consultant ;
  • an exporter ;
  • an association of persons having turnover of fifty million rupees or above in any of the preceding tax years ;
  • an individual, having turnover of fifty million rupees or above in any of the preceding tax years ;
  • a person registered under the Sales Tax Act,1990 ;

For the purpose of Income tax withholding follow the below mentioned procedure:

Check Status  ( e.g Individual /Aop /Company)

  1. Go to ” e.fbr.gov.pk “.
  2. Go to search taxpayer tab and click on ” NTN Inquiry ” .
  3. If you have NTN of person/supplier select ” NTN ” in parameter Tab or if you have CNIC # then Select ” CNIC ” and write the same in ” Registration ” Tab , write Captcha and click on ” verify button “.
  4. It will show you the status whether the subject Taxpayer is an Individual or AOP or a Company.

Check ” Filer / non-Filer status “

  1. Now click on ” Active Taxpayer List (Income tax) ” tab appearing in left side panel.
  2. Write NTN without dash and last digit or CNIC number without dashes.
  3. In ” Date tab ” select the date on which you are checking the status then write Captcha and click on ” verify button “.
  4. If status comes out as ” Active ” it means person is a ” Filer ” and Withholding Tax Rates for Filer are applicable for it. If status comes out as ” Inactive ” it means the person is ” Non-filer ” and Withholding Tax Rates for Non-filer are applicable for it.

Purchase of Goods from Company

  • For purchase of “Goods” from “Company” exceeding Rs.75,000/- if Income tax status is Active deduct 4% of Gross invoice amount and if status is Inactive deduct 8% of gross invoice amount. Gross Invoice amount means invoice amount inclusive of Sales Tax.

Purchase of Goods from Non-company (Individual & AOP)

  • For purchase of “Goods” from “Non-company” exceeding Rs.75,000/- if Income tax status is Active deduct 5% of Gross invoice amount and if status is Inactive deduct 9%.Gross Invoice amount means invoice amount inclusive of Sales Tax.

Purchase of Services from Company

  • For purchase of “Services” from “Company” exceeding Rs.30,000/- if Income tax status is Active deduct 8% of Gross invoice amount and if status is Inactive deduct 5%. Gross Invoice amount means invoice amount inclusive of Sales Tax.

Purchase of Services from Non-Company (Individual & AOP)

  • For purchase of “Services” from “Non-Company” exceeding Rs.30,000/-if Income tax status is Active deduct 10% of Gross invoice amount and if status is Inactive deduct 5%. Gross Invoice amount means invoice amount inclusive of Sales Tax.

WITHHOLDING AGENTS (Sales Tax)

According to Sales Tax Special Procedure (Withholding) Rules,2007, following persons are hereby specified as withholding agents for the purpose of deduction and deposit of sales tax;

  • federal and provincial government departments;
  • autonomous bodies;
  • public sector organizations;
  • companies as defined in the Income Tax Ordinance, 2001, which is registered for sales tax, federal excise duty or income tax;
  • recipients of service of advertisement, who are registered for sales tax ; and
  • Persons registered as exporters.

For the purpose of Sales tax withholding follow the below mentioned procedure:

Checking Sales Tax status

  1. Go to ” e.fbr.gov.pk “.
  2. Now click on ” Active Taxpayer List ( Sales Tax ) ” tab appearing at 4th number on  left side panel.
  3. Select relevant parameter in ” Key Tab ” e.g. if you have NTN then select NTN,if you have CNIC then select CNIC etc.
  4. Write complete NTN with dash and last digit or in case of CNIC write CNIC # without dashes then write Captcha and click on ” verify button “.
  5. If status comes out as ” Taxpayer is Active ” it means that the person is registered for Sales Tax and Active taxpayer for Sales Tax and no need to withhold Sales Tax from him.(Reference.SRO.586(I)/2017 )
  6. If status comes out as ” Taxpayer not registered for Sales Tax ” it means that the person is not registered for Sales Tax and you have to deduct 1% of Total Invoice amount from him.
  7. If status comes out as ” Taxpayer is Non-active for Sales Tax ” it means that the person is registered for Sales Tax but he is not paying any Sales tax to Government, you have to deduct Sales Tax at applicable rate from him.

Muhammad Basir Dawer