Advance Tax Calculator Pakistan is a prepaid tax liability that businesses must pay before the end of the fiscal year. It is calculated based on estimated income and is paid in installments as per the guidelines of the Federal Board of Revenue (FBR). The primary purpose of advance tax is to ensure a steady revenue stream for the government while preventing taxpayers from facing a heavy tax burden at the end of the year.
This article provides a detailed guide on how businesses in Pakistan can calculate and pay advance tax accurately.
1. Understanding Advance Tax in Pakistan
Advance tax is applicable under Section 147 of the Income Tax Ordinance, 2001, and is generally required for:
Companies and businesses with taxable income
Individuals and Association of Persons (AOPs) meeting income thresholds
Businesses involved in imports, exports, contracts, and property dealings
Who is Required to Pay Advance Tax?
According to the FBR’s tax regulations, the following businesses must pay advance tax:
Companies with an estimated annual income tax liability of PKR 200,000 or more
Salaried individuals and AOPs with taxable income exceeding PKR 1,000,000
Businesses engaged in commercial activities such as manufacturers, service providers, and retailers
2. Formula for Calculating Advance Tax
The advance tax amount is determined based on the previous year's tax liability or the current year’s estimated income.
since businesses must pay tax in quarterly installments.
Advance Tax Based on Estimated Income
If a business expects a higher or lower income than the previous year, the tax must be adjusted accordingly.
Advance Tax= (Expected Annual Tax Liability)×(100 Installment Percentage)
3. Payment Schedule for Advance Tax
Advance tax payments must be made quarterly, with deadlines set by the FBR. The schedule is as follows:
Installment No. | Due Date |
First Quarter | 25th September |
Second Quarter | 25th December |
Third Quarter | 25th March |
Fourth Quarter | 15th June |
Failure to pay within the due date results in penalties and additional interest.
4. Special Cases for Advance Tax Calculation
A. Advance Tax for Companies
Public and private limited companies must pay 100% of their estimated tax liability in quarterly installments.
The tax rate varies depending on business activity or Tax Calculator Lahore, ranging from 15% to 35%.
B. Advance Tax for AOPs and Sole Proprietors
Advance tax is applicable if the expected taxable income exceeds PKR 1,000,000.
The tax rate depends on income brackets, ranging from 5% to 35%.
C. Advance Tax on Imports, Exports, and Contracts
Some businesses pay advance tax at the source, meaning it is deducted at the time of the transaction:
Importers: 5.5% tax deducted at import stage
Exporters: 1% withholding tax deducted on revenue
Contractors: 7.5% tax deducted on contract payments
These withheld taxes are considered advance tax payments and are adjusted against the final tax liability.
5. How to Pay Advance Tax in Pakistan
Businesses can pay advance tax through:
Online Payment: Using FBR’s IRIS system for electronic tax filing.
Bank Payment: Depositing tax via designated banks using challan forms.
Withholding Tax Deduction: If a business has already paid advance tax at source, it can adjust the amount during final tax filing.
6. Benefits of Paying Advance Tax
Avoids Penalties: Late tax payments result in interest and fines.
Improves Cash Flow Management: Businesses can plan finances better by spreading tax payments throughout the year.
Ensures Compliance: Avoids legal issues and ensures smooth tax filing.
Reduces Tax Liability: Overpaid advance tax can be adjusted or refunded.
7. Conclusion
Calculating and paying advance tax correctly is crucial for businesses in Pakistan to remain compliant with FBR regulations. By estimating tax liability accurately and paying quarterly installments on time, businesses can avoid penalties, ensure smooth financial planning, and maintain a positive tax record.
Using Hamza & Hamza Law Associates’s online tax calculator, consulting tax professionals, and keeping updated with policy changes can help businesses accurately calculate and efficiently manage advance tax payments.
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