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Pakistan's Tax Web

Pakistan today has a mind-boggling taxation system that defies comprehension of the average citizens and experts alike. In 1990, Karachi Chamber of Commerce and Industry had established that the industry was subjected to 50 direct and indirect taxes but the statement of Senator Ilyas Bilour, President PFCCI at the Businessmen Conference in Islamabad on March 25, 1997 that 37 govt deprtments and agnencies were collecting taxes gives a meaure of the proliferation of taxes that has taken place in Pakistan.

It was not in the province of this book to catalogue the taxes being collected by the federal, provincial and local governments but I have identified 70 major taxes to which consumers and producers are subjected. In addition there are host of specific taxes like a Research and Development Levy, Drug Manufacturing Licence Fee and Drug Registration Fee. It can be said safely that there are at least 100 taxes in vogue in Pakistan.

It is not the proliferation of taxes that is mind-boggling. It is the exemptions to these taxes for the privileged, their duplication and triplication for the common man, the method of their collection and making refunds, utilization of specific-purpose taxes that is mind-boggling. There is an education cess levied by the federal govt, another education cess is collected by provincial govts. The Central Excise Duty (CED) is being collected on the telephone bills by Pakistan Telecommunication Corporation but Baluchistan govt introduced a duty on telephone calls in the 1996-97 budget. Federal govt has levied a Tobacco cess but in the 1997-98 budget the provincial govt of NWFP levied a Rs one per Kilo Tobacco Cess. Civil Aviation Authority collects an airport tax. There is a Workers Participation Fund and another Workers Welfare Fund.

There are federal taxes like Ushr being collected by the provincial govts, provincial taxes like motor vehicle tax being collected by the federal govt. Local taxes like the property tax is being collected by the provincial govt and reimbursed to municipal corporation and committees.

An appeal by the leading hotels and restaurants of Lahore in the national newspapers after the 1997-98 budget exemplifies the multiplication of taxes in Pakistan.

"In the recent Punjab provincial budget, an additional tax of 10% has been levied on the posh restaurants and international hotels of the province. This is in addition to 12.5% Central Excise Duty and 5% provincial tax levied on July 1, 1996. Cumulatively, these taxes add up to about 30% which, by any national and international standards is extremely high", the appeal said.
The Stamp Act provides for stamp duty on 55 different categories of documents at a prescribed rate. Some of the documents specified are affidavits, agreements, allotment orders, attestations, bank guarentees, custom bonds, debentures, import documents, insurance policy, lease, partnership, power of attorney, security bonds, share transfer certificates, cheques, bank drafts and pay orders.

It is this proliferation of taxes and tax collectors which create an ideal situation for pilferage's. This proliferation and pilferage of taxes has pitched the people and govt in Pakistan, at two opposite horns of an economic dilemma. While the people are groaning under the heavy burden of taxation, the govt leaders bemoan that the people do not pay taxes. They are both right because the taxes paid by the people do not reach the govt coffers. They end up lining the pockets of the contractors and collectors.

Following are major taxes levied by the federal and provincial governments.

    Income Tax

    Super Tax

    Wealth Tax

    Gift tax

    Turnover Tax

    Corporate Asset Tax

    Corporate Income Tax (A)

    Import Duties

    Import Surcharge

    Export Duties

    Iqra Surcharge

    Income Tax on imports

    Import Licence Fee

    Import Registration Fee

    Export Registration Fee

    Central Excise Duty

    Sales Tax on Manufactured goods

    Capital Value Tax

    Export development Surcharge

    Development Surcharge on Petroleum

    Gas Development Surcharge

    General Sales Tax

    Federal Education Cess

    Workers Participation Fund

    Workers Welfare Fund

    Estate Duty



    Oilseeds Development Cess on Companies

    Tobacco Cess

    Cotton Cess

    Development Surcharge on Electricity

    Textile Technology Cess

    Airport Tax

    Cargo throughout @ 2% charges freight charges and an additional three 3% for immediate clearance at Quaid-e-Azam Airport, according to an advertisement in daily, Business Recorder, February 12, 1998.

    Capital Gain Tax

  1. Professional Tax
  2. Property Tax
  3. Vehicle Tax
  4. Stamp Duty
  5. Entertainment Tax
  6. Betterment Tax
  7. Social Security Contribution
  8. Explosive Licence Fee
  9. Provincial Education Cess
  10. Capital Gain Tax
  11. Punjab Airport Tax
  12. Provincial Excise Duty
  13. Karachi Dock Labor Board Cess
  14. Cess on Hotels
  15. Cotton Fees
  16. Paddy Development Cess
  17. Provincial Excise Duty
  18. Land Revenue Tax
  19. Employee Old Age Benefit Contribution
  20. Trade Tax on Jewelers, Garment shops imposed by Baluchistan govt in 1997-98 budget
Like development, corruption bubbles up and trickles down and Pakistan excels in corruption both at the top and the bottom. While corruption at the top has been frequently highlighted, particularly by the sacking of three successive govts during 1990-96, very little is known about the corruption in municipal bodies which are the lowest wrung of govt administration and exemplify the rot at the grass-root in Pakistan.

The Presidential Orders for the dismissals of the federal govts in 1990, 1993 and 1996 had refered to corruption in various govt bodies and " authorities" as a ground for dismassal. The word " authorities" was used to refer to corruption in the development authorities like Capital Development Authority, Lahore Development Authority and Karachi Development Authority.

Pakistan has at least 16 development authorities and each one requires volumes like the exploits of Casanova to touch upon their corruption and rot. The 7-hour ordeal that Prime Minister Nawaz Sharif underwent on March 11, 1997 in the Faisalabad Development Authority, viewed by millions of people over Pakistan Television gave only a birds-eye view of the tip of iceberg of corruption in these authorities.

In addition to the 16 development authorities, Pakistan has two metropolitan corporations, 12 big municipal corporations, 24 cantonment boards, 6 Water and Sewerage Authorities and more than a hundred municipal committees. All these local govt units have their own sources of income and budgets amounting to Rs 25 billion per annum nearly.

The tales of corruption that the govt and opposition has been telling the nation for last two decades including the ripping-off the biggest development authorities like CDA,LDA, KDA and PDA. However , the plunder of smaller development authorities like the Rawalpindi Development Authority, Gujranwala Development Authority and Faisalabad Development Authority has largely remained untold.

At a press conference in Islamabad, on the eve of February 3, 1997 elections, Imran Khan, chief of Tehrik-e-Insaf released a list of 2,631 plots that were alloted by Nawaz Sharif during 1985-90, in violation of his powers and rules. A document distributed at the press conference estimated that " the cost of this large scale robbery by the leader of PML who presents himself as an honest leader to the nation comes to Rs 5 billion"

In 1990 and 1996 when Benazir Bhutto was dismissed, she was charged with allotment of CDA plots to favorites while her chief ministers were accused of similar malpractices in Karachi Development Authority and Peshawar Development Authority. It was alleged that she had caused a loss of Rs 1,310 million to CDA simply by alloting big size plots to educational institutions of her choice.

The foundation of corruption in the local bodies is the system of awarding contracts for revenue collection and other municipal functions to private contractors and over the years, the contractors, colluding officials and politicians have hammered out a mutually beneficial, pool system under which they are ripping off the common men but only a fraction of the amount reaches the govt coffers. The common men and businessmen from all over Pakistan have complained against over charging by octroi contractors who are invariably political heavyweights or their henchmen. It was in response to this hue and cry that Punjab govt put up advertisements in newspapers in the third week of March, 1998 asking the people to ring up two telephone numbers in Lahore if they have complaints of overcharging by octroi contractors.

The contractors and those who award the contracts have a simple way of cheating, both the govt and the common men. The bids are invited on the basis of unrealistic low rates with the result that contract is awarded for a nominal amount. However, once the contract is awarded the contractor is given a free hand to overcharge and the bulk of the amount charged as octroi and other municipal taxes end up lining the pockets of the bureaucrats and contractors.

The daily Business Recorder, Karachi has regularly carried complaints by the business community against overcharging of municipal taxes by the contractors. According to a report in December 9, 1997 issue, the export of Molasses by the sugar mills in up country came to a standstill because the octroi contractors in Sindh were charging several times the due amount. Quoting the exporters of Molasses by sugar mills , the report said " Rawangi Mahsool (Export Tax)" on Molasses was fixed at Rs 15 per truck but the contractors were charging at Rs 75 per ton. In addition the exporters had to pay Rs 25 per ton at Karachi and KMC octroi of Rs 2 per ton. Thus total levies came to Rs 117 per ton which was more than 10% of the value of exports.

On June 25, 1996 when the Supreme Court restored the Local Bodies in Punjab, the first official work, some of the restored chairmen performed on rushing to their offices was cancelling octroi contracts and stop payment on the so-called development projects. They knew that their chairmanship was not worth a penny if the contractors awarded by their predecessors were to stay.

The municipal corporations and cantonment boards have up to 30 sources of income but the major head of income include the following.

  1. Octroi consisting of import and export tax
  2. Property tax levied at 3-4 percent if the value of transaction
  3. Licence fee from vendors and shop keepers
  4. Auction of bs-stops and stands for other vehicles
  5. Auction of vegetable markets and slaughter houses
  6. Water Tax
  7. Fee for advertisement boards
  8. Fee for approval of constraction maps
The local bodies also raise small revenue from auctions for public latrines, disposal of trash and sewer water which is used as fertilizer but the income from sewer water has ceased because farmers have stopped using it as fertilizer because of plastic bags getting mixed into it.

Gross Tax anomalies

Table of Contents

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