Project Learning Outcomes

1. Understanding Tax Basics: Gain a fundamental understanding of the tax system, including
different types of taxes (income, sales, etc.).

2. Filing Requirements: Learn the criteria for who needs to file taxes and the necessary
documentation required.

3. Tax Forms: Become familiar with basic tax forms such as the 1040, W-2, and 1099, and
understand their purposes.

4. Deductions and Credits: Identify common tax deductions and credits that teenagers can
claim to reduce taxable income.

5. Income Sources: Understand various sources of income and their tax implications, including
wages, tips, and investment income.

6. Record-Keeping: Appreciate the importance of maintaining accurate financial records for tax
purposes.

7. Filing Process: Learn step-by-step how to prepare and file a tax return, either manually or
using tax software.

8. Financial Responsibility: Understand the broader implications of taxes in financial planning

and personal responsibility.

Project Research

Basics of the Pakistan Tax System

Pakistan’s tax system is administered by the Federal Board of Revenue (FBR). The system
primarily consists of direct taxes, such as income tax, and indirect taxes, such as sales tax and
customs duties. For teenagers, the most relevant tax is income tax, which is levied on the
income earned by individuals.
1. Tax Year: The tax year in Pakistan runs from July 1st to June 30th of the following year.
2. Tax Residency: An individual is considered a tax resident if they are present in Pakistan
for 183 days or more during a tax year.

Income Tax:
Income Tax: Income tax is progressive, meaning that tax rates increase with higher income
levels. There are different slabs for salaried and non-salaried individuals.

Filing Requirements:

1. Threshold: As of the latest regulations, individuals earning below a certain threshold are
exempt from filing taxes. For example, salaried individuals with an annual income of
PKR 600,000 or less are not required to file a tax return.
2. Tax Identification Number (TIN): To file taxes, individuals must obtain a National Tax
Number (NTN) from the FBR.

Income Types Relevant to Teenagers:

 1. Part-Time Jobs: Many teenagers may work part-time in retail, food service, tutoring, or
other similar sectors. Income from such jobs is subject to income tax if it exceeds the
exempt threshold.
2. Freelance Work: Freelancing, including online work such as content writing, graphic
design, and software development, is increasingly popular among teenagers. This
income must be declared if it crosses the taxable limit.
3. Investment Income: Teenagers might earn money through investments, such as
dividends from stocks or interest from savings accounts. Investment income is also
taxable, though there might be some exemptions or lower rates for smaller amounts.

Deductions and Credits:

1. Standard Deduction: Unlike some countries, Pakistan does not have a “standard
deduction” per se. However, certain basic exemptions apply based on income levels.
2. Educational Expenses:
Scholarships: Scholarships for full-time education are exempt from tax.
Tuition Fee Credit: A tax credit is available for tuition fees paid for the
education of children, subject to certain conditions.
3. Investment-Related Deductions:
Zakat Deduction: Zakat paid under the Zakat and Ushr Ordinance can be
deducted from taxable income.
Charitable Donations: Donations to approved charitable institutions are
eligible for tax deductions.
4. Medical Expenses: In some cases, medical expenses may be deductible, especially for
the treatment of chronic diseases.
5. Savings and Pension Contributions: Contributions to approved pension funds and
certain savings schemes can be claimed as deductions.

Sales Tax:

Introduction

Understanding sales tax is essential for financial literacy, even for teenagers. Sales tax is a
common part of everyday purchases, and knowing how it works can help teenagers manage
their money better. This guide provides a basic overview of sales tax in Pakistan, its application,
and tips for teenagers.

What is Sales Tax?

Sales tax is a consumption tax imposed by the government on the sale of goods and services. It
is collected by retailers at the point of sale and passed on to the government. In Pakistan, the
Federal Board of Revenue (FBR) is responsible for administering sales tax.

Key Features of Sales Tax in Pakistan

1. Rate: The standard sales tax rate in Pakistan is 17%. However, some goods and
services may have different rates or exemptions.
2. Scope: Sales tax applies to most goods and services, including clothing, electronics,
and dining out. Essential items like certain food products and medicines may be exempt
or taxed at a lower rate.
3. Point of Sale: Sales tax is added to the price of goods and services at the point of sale,
meaning the consumer pays the tax when they make a purchase.

Sales Tax Calculation

- Price of Item: PKR 1,000

- Sales Tax Rate: 17%
- Sales Tax Amount: PKR 1,000 x 0.17 = PKR 170
- Total Cost: PKR 1,000 + PKR 170 = PKR 1,170

Common Scenarios for Teenagers

1. Shopping for Clothes and Accessories: When buying clothes, shoes, or accessories,
expect to pay the listed price plus 17% sales tax.
2. Eating Out: Dining at restaurants includes a 17% sales tax on the bill, which is added to
the total amount payable.
3. Buying Gadgets and Electronics: Purchasing electronics like mobile phones or laptops
will also incur a 17% sales tax.

Tips for Teenagers

1. Budgeting: Always factor in sales tax when planning a purchase to avoid surprises at
the checkout.
2. Saving Receipts: Keep receipts of purchases, especially for big-ticket items, to track
spending and understand how much tax you are paying.
3. Understanding Exemptions: Be aware of tax-exempt items to make informed
decisions. For example, basic food items might be exempt from sales tax.
4. Sales and Discounts: Look for sales and discounts to offset the cost of sales tax.
During sales, you can often find items at reduced prices, which can help balance out the
added tax.

Deductions in Sales Tax in Pakistan:

Sales tax in Pakistan primarily focuses on the collection of tax on goods and services sold within
the country. While there are specific situations where deductions or exemptions from sales tax
apply, these typically relate to business operations rather than individual consumers. However,
understanding these can provide valuable insights into the broader tax system. Here’s an
overview of key sales tax deductions, exemptions, and relief measures in Pakistan:

Key Sales Tax Deductions and Exemptions

1. Zero-Rated Supplies:

Exports: Goods and services exported outside Pakistan are typically zero-rated,
meaning they are taxed at 0%. This allows exporters to claim a refund of the sales
tax paid on inputs used in the production of export goods.
Certain Domestic Supplies: Specific goods and services within Pakistan can also
be zero-rated, such as supplies to diplomats, international organizations, and
some special economic zones.

2. Exempt Supplies:

Basic Food Items: Many essential food items, like wheat flour, milk, and vegetables,
are exempt from sales tax.
Educational and Health Services: Services related to education (e.g., tuition fees)
and healthcare (e.g., hospital services, medicines) often have sales tax
exemptions.
Agricultural Products: Unprocessed agricultural products are generally exempt from
sales tax.
Government Supplies: Supplies made to government departments and armed
forces may be exempt from sales tax under certain conditions.

3. Reduced Rates:

Special Sectors: Certain sectors may benefit from reduced sales tax rates. For
instance, the textile and leather industries sometimes receive concessional rates
to promote these sectors.

4. Input Tax Credit:

Businesses: Registered businesses can claim input tax credit, which allows them to
deduct the amount of sales tax paid on business inputs from the sales tax collected
on their outputs. This helps in avoiding double taxation and reducing the overall tax
burden on businesses.