Taxation Accounting Handling in Pakistan as Withholding Tax Agent

Dear readers, I have decide to write tutorial for you about how taxation are done in Pakistan. The tutorial consists of four portions, First tax chart & tax ratios in Pakistan, scenarios in this tutorial will be cover, pricing from a supplier’s products including sale tax and finally the accounts handling of purchase & taxation as withholding tax Agent.

Let start

Tax Chart & Tax Ratios in Pakistan:

Below I have selected few heads for tax charts, with mentioning its nature and tax ratio.

Tax Chart	Nature	Tax (in percent)
Sale tax	Payment of Goods	16.00%
Income Tax	Payment of Goods	3.50%
Income Tax	Services	6.00%
Income Tax	Brokerage and Commission (Advertising Agent)	5.00%
Income Tax	Print Media and News Papers	Exemption

Scenarios:

Lets assume Company ABC purchases goods from Supplier S. Supplier S may be registered or unregistered. Below are two scenarios

Scenario	Description
a	If Supplier S is registered then Sale Tax 16% is narrated, in such a way that 20% will paid by Withholding Agent (Company ABC) and rest of 80% will be paid by registered Supplier S to Govt Treasury.
b	If Supplier S is unregistered then Sale Tax 16% is narrated, in such a way that 100% will paid by Withholding Agent to Govt Treasury.

Pricing from a Supplier’s Products Including Sale Tax and Income Tax:

Situation a			Situation b
Registered Supplier S Pricing			Unregistered Supplier S Pricing
Product P Gross Price including With Profit margin	191.88		Product P Gross Price including With Profit margin	191.88
Income Tax @ 3.5	8.12		Income Tax @ 3.5	8.12
Product P Selling Price including income tax	200		Product P Selling Price including income tax	200
Sale Tax @ 16%	32		Sale Tax @ 16%	32
Product P Selling Price including Sale tax	232		Product P Selling Price including income tax	232
Supplier S Sale Tax Amount to submitRules for Sale Tax:Supplier S have to submit this 32 Rupees (Sale Tax @ 16%). But According to Rule for Registered Supplier, Supplier S only submit 80% of 32 to Govt Treasury and Rest of 20% of 32 will be submitted by Company ABC (Withholding Agent) to Govt Treasury on behave of Supplier S.	25.6		Supplier S Sale Tax Amount to submitRules for Sale Tax:Supplier S have to submit this 32 Rupees (Sale Tax @ 16%). But According to Rule for Unregistered Supplier, 100% of 32 will be submitted by Company ABC (Withholding Agent) to Govt Treasury on behave of Supplier S.	0

Accounts Handling of Purchase & Taxation as Withholding Tax Agent:

Suppose company ABC is the registered withholding tax agent. Company ABC purchasing a product P from Supplier S. Here in this example we will discuss how company ABC maintains its accounting transaction when Supplier S is registered and unregistered.

Lets start

Supplier S is Registered				Supplier S is Unregistered
Description	Dr	Cr		Description	Dr	Cr
Purchase Entry				Purchase Entry
Product P (Purchase or Expense )	232			Product P (Purchase or Expense )	232
Account Payable		217.48		Account Payable		191.88
Sale tax Payable 20% of GST (GST @ 16%)		6.4		Sale tax Payable @16%		32
Income Tax Payable @ 3.5		8.12		Income Tax Payable @ 3.5		8.12
Payment Entry				Payment Entry
Account Payable	217.48			Account Payable	191.88
Bank/Cash		217.48		Bank/Cash		191.88
Withholding Tax Return				Withholding Tax Return
Sale Tax Payable With Holding Sales Tax deducted From Supplier S	6.4			Sale Tax Payable With Holding Sales Tax deducted From Supplier S	32
Income Tax Payable With Holding Income Tax deducted From Supplier	8.12			Income Tax Payable With Holding Income Tax deducted From Supplier	8.12
Bank/Cash		14.52		Bank/Cash		40.12

In coming new post I will show how this small example will be implemented in OpenERP.

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