Home > Financial Accounting, Taxation Management > Taxation Accounting Handling in Pakistan as Withholding Tax Agent

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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