The tax year
Pakistan's tax year for salaried individuals runs from 1 July to 30 June. Salary tax is therefore worked out and settled across that period, not by calendar year.
Slabs and rates change
Income tax on salary is progressive: higher slices of income are taxed at higher rates. The slabs and rates are set in the Finance Act and have been revised in recent budgets, so a figure remembered from last year may be wrong. This article does not quote them for that reason. Always take the current slabs from the Federal Board of Revenue or the Finance Act.
What the employer does
Employers deduct salary tax from pay each month under the Income Tax Ordinance, 2001, deposit it, and give the employee a certificate of the tax deducted. A common method is to estimate the tax for the whole year and spread it across the months, adjusting as pay changes. That is why a mid-year raise or bonus changes the monthly deduction for the rest of the year.
Exemptions and profiles
Some employees have different treatment, for example certain exemptions or a different tax profile. These should be recorded against the employee so that the calculation is consistent and explainable.
Good practice
- Keep slabs as dated data so past months can be explained
- Show the tax calculation on the payslip trail
- Reconcile tax withheld with what you deposit
- Issue year-end certificates on time