How Salaried Employees can file Income Tax in Pakistan

As the date is coming near to file tax returns, everyone is hiring consultants to help them in the entire process. This year some will be new to filing tax returns and for some, it is going to be another year to be a good taxpayer. Consultants are charging from PKR 3000 to PKR 15000 per annum to help you make wealth reconciliation statements, register for NTN (National Tax Number) and then finally enrolling you on e-registration on FBR (Federal Board of Revenue) database. This year has been all about taxes. 14% tax on internet, tax on education sector and tax on import. This feature details some common issues and facts about Income Tax Return Filing.

The government has reserved Rs 3200 billion for tax collection. However, only 1 percent people file a tax return. With over 200 centers set up to facilitate taxpayers by FBR, we still lack behind in tax collections.

FBR has made it mandatory for all salaried employees (government and private) having taxable income to file their income tax returns from the tax year 2015. This move has been taken in order to increase the number of tax returns. A number of tax experts condemned this move. A major reason is that a large number of salaried employees lie under the slab of PKR 400,000 – PKR 500,000, which could also create cases where even a peon of a corporate entity might have to file for income tax return for 2015. And now as per the laws of taxation, providing a wealth statement along with tax return filing will now be a compulsion for all salaried employees. As per FBR, they are expanding the tax net towards those who are currently non-filers.

Don’t want to be all techie here, but if you are noticing seemingly random amount deduction in your bank accounts, then it’s about time you need to file your income tax returns ASAP. (This is because Finance Act took effect from July 1st and banks silently started implementing it). About 0.3% (reduced from 0.6%) tax is implemented on bank transactions as advance tax. This tax is applicable on non-filers.

As per FBR’s Press Release on August 15′ 2015, the salary holders can submit their tax form till August 31 whereas deadline of September 30 has been decided for companies. Being a salaried employee, this would be my first time. We recently had a workshop on tax return filing at work, I won’t lie but I got confused half way around. Maybe that is the reason everyone is hiring an expert for the job.
So what I learned from the workshop is now compiled into a few simple steps – about how you file your income tax returns.

Income tax rate

Income tax is payable on an amount of PKR 400,000 and above per annum, if less than that whether you are a salaried or a non-salaried person then it isn’t applicable to you. As per Finance Bill 2015-2016, tax rates and taxpayers slabs have been revised. Click here to calculate your tax rates. (Updated for the year 2015-2016)

How to prepare your wealth reconciliation statement?

If you fall under the slab PKR 400,000 and above salary per annum, then you are required to file your income tax return through e.fbr or what they now call IRIS (online software/system for e-filing). IRIS has its own deficiencies (like it can only run on IE6 or above versions and not via Chrome, Firefox or other web browsers) highlighted by tax experts last year. With tax return filing, you will also have to submit your wealth reconciliation statement. What is a wealth statement (you may ask if this is your first time)? All your assets, liabilities in one form; also you will be required to provide details of your personal expenses and family dependents. Click here for updated wealth statement forms.

If you want to reconcile your last year’s wealth with this year’s wealth statement, there is a basic technique for it.

See below (this example is to give you an idea, be careful when you work on these calculations)

Wealth (last year): PKR 150
Wealth (current year): PKR 200
Increase/Decrease in wealth: PKR 50 (call it ‘X’)

Income Sources:
Salary income: PKR 50
Rental Income (if any): PKR 90
Business Income (if any): PKR 20
Foreign remittance (if any): PKR 10
Total Sources of Income: PKR 170 (call it ‘Y’)

Now deduct the following:
Personal expenses: PKR 50
Other(s) e.g. marriage of sister/son: PKR 50
Random Taxes Paid: PKR 20
Total amount of expenses: PKR 120 (Call it ‘Z’)
Income Sources (Y) – Expenditures (Z) = PKR 50

Note: X and difference of (Y-Z) should always be equal

NTN Registration/e-registration

When you think about it, the process isn’t as difficult as it may seem; especially when FBR has made everything available online. No more waiting for your turn in the long queues. Click here to register for NTN, go for ‘Individual’ if you are a salaried employee. You will be prompted if you already have an NTN from your previous job, in case you are not sure about it just type in your CNIC number.

E-Enrollment at FBR

Now the final step is e-enrollment at FBR for username and password. Once you have all your statements ready, documents at hand and NTN registered along with your CNIC. Here is how the final thing works out:

Click on this link, and verify your NTN number through your CNIC. Once done, a screen will appear to ask your PTCL number, mobile number, and email address. Click ‘Verify’ and ‘Submit. There you go, folks! FBR will send you the username, password and pin code details within a couple of days.

5 Must-have items handy at all times

• Salary Certificate
• CNIC (Original and Photocopy)
• Email ID (If possible, make a new one dedicated to Income Tax Returns/FBR only)
• Bank Certificate (A written verification that you are an account holder at the respective bank – where your salaries are transferred)
• Mobile No. (Keep all your mobile bills documented if you are a PostPaid user)

NTN and wealth statement process can take up to 1-2 weeks, but e-enrollment at FBR will take a couple of days. So better hurry up if you still don’t have your NTN number with you.

Downloadable Individual Tax Return Forms

Please share your views. Would you like to know the difference between filers and non-filers? If you have updated information/facts, don’t hesitate to share.

Sources: FBR, DAWN