Written by Faisal Shahnawaz in Taxation Benchmark framework distinguishes core features of Pakistan’s income tax system from tax expenditures and preferential concessions. ISLAMABAD: The Federal Board of Revenue (FBR) has outlined Pakistan’s benchmark income tax framework under the Income Tax Ordinance, 2001, setting out the fundamental principles used to assess the country’s tax system. The framework defines the unit of taxation, tax base, benchmark tax rates, constitutional exemptions and other structural features that form the basis for measuring tax expenditures. According to the FBR, the benchmark framework distinguishes the normal components of Pakistan’s income tax system from policy-driven tax expenditures, such as exemptions, concessions and preferential tax treatments. Unit of Taxation The FBR stated that the unit of taxation is the “person”, as defined under Section 2(42) of the Income Tax Ordinance, 2001. The definition covers: • Individuals • Companies • Associations of Persons (AOPs) Each person is assessed separately on their taxable income in accordance with the provisions of the Ordinance. Tax Year and Basis of Taxation According to the Board, Pakistan’s tax year runs from July 1 to June 30. Income is taxed on an accrual basis, meaning it becomes taxable when it is earned rather than when payment is received. Tax Base Under Section 9 of the Income Tax Ordinance, taxable income comprises earnings from all recognised sources, including: • Salary • Property • Business • Capital gains • Other sources The FBR further clarified that: • Resident taxpayers are liable to tax on their worldwide income. • Non-resident taxpayers are taxed only on income derived from sources within Pakistan. Benchmark Income Tax Rates The benchmark tax rates are the statutory rates prescribed in Schedule I of the Income Tax Ordinance, 2001. According to the FBR, the benchmark framework incorporates: • An average effective income tax rate of 24.5% for non-banking corporate entities. • An average effective income tax rate of 39% for banking companies. The Board noted that variations in tax rates contained within Schedule I are regarded as…