Law concerning taxation of income in Pakistan is stated in the Income Tax Ordinance, 2001 (the Ordinance) and the rules framed thereunder viz. Income Tax Rules, 2002 (the Rules). The Ordinance is a Central statute and is, therefore, applicable to the whole of Pakistan .Under section 4 of the Ordinance income tax is imposed for each tax year at specified rates on every person who has taxable income for the year. The tax payable is calculated by applying the rate(s) of tax to the taxable income of the taxpayer for the year and from that amount is deducted any tax credits allowed to the taxpayer for that year.

The following tax credits are allowed under Chapter 3 Part 10 of the Ordinance:
Charitable donations, investment in shares, retirement annuity scheme and profit on debt.

Tax Year in Pakistan
Tax year is a period of twelve months ending on 30th June and shall be denoted by the calendar year in which the said date falls.

Taxable Income in Pakistan
It is the total income of a person for a tax year reduced by the total of any deductible allowances, under the Ordinance, for the year. A person is entitled to a deductible allowance for the amount of any Zakat paid by the person in a tax year under the Zakat & Ushr Ordinance, 1980.

Total Income
It is the sum of a person's income under each of the heads of income for the year.

Heads of Income in Pakistan
Under the Ordinance income is classified into the following five heads:
Salary, Income from property, Income from business, Capital gains and Income from other sources.

The income of a person under a head of income shall be the total of the amount derived by the person in a tax year that are chargeable to tax under the head as reduced by the total deductions allowed under the ordinance to the person under that head.

Capital Value Tax (CVT) in Pakistan
CVT is payable by individuals, firms and companies which acquire an asset by purchase or a right to use for more than 20 years. It is also payable on import of motor vehicles.

Workers Welfare Fund (WWF) in Pakistan
WWF is levied at 2% of a company's income exceeding Rs.200,000.

Corporate Asset Tax (CAT) in Pakistan
Levied through section 12 of the Finance Act, 1991 it is one time levy payable by a company on the value of fixed assets held by the company on the "specified date".