How to Legally Start a Small Business from Home in Pakistan (Licensing + Tax Tips)

Learning and Resources
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To legally start a small business from home in Pakistan, it’s essential to understand the licensing requirements and tax obligations to ensure compliance with the law.

Licensing Requirements

  1. Business Registration:
  • Register your business with the relevant local authority. The process and requirements may vary depending on the province and the nature of your business.
  1. National Tax Number (NTN):
  • Obtain an NTN from the Federal Board of Revenue (FBR). This is mandatory for filing income tax returns, as per Income Tax Ordinance, 2001, Section 73.
  1. Sales Tax Registration (if applicable):
  • If your business involves the sale of taxable goods, register for sales tax with the FBR.
  1. Professional Tax:
  • Depending on the nature of your business, you may be required to pay professional tax.
  • According to the MOL Pakistan Oil and Gas Company v. The Islamabad Capital Territory Administration, 2022 CLD 492, branch offices of foreign companies operating in Pakistan are not subject to the professional tax regime outlined for companies registered under the Companies Act, 2017. However, this may not be the case for locally owned small businesses.
  • In NEW CHAUDHRY FIBER through Sale Proprietor versus EXCISE AND TAXATION DEPARTMENT through Director and others, PLD2015Lahore369, the court held that local councils cannot impose professional or trade taxes without proper legislative authority from the Provincial Assembly.
  1. Specific Licenses and Permits:
  • Certain businesses may require specific licenses or permits depending on their nature.
    • For example, food businesses need a food license from the relevant food authority.
  • In Muhammad Bilal Shahid Versus Government of the Punjab and others, 2022 YLR 2102, the court clarified that operating an oil depot without a license requires adherence to the Pakistan Oil Rules, 2016, and may lead to prosecution if conducted without necessary permits.

Tax Tips

  1. Income Tax:
  • File your income tax returns annually. The applicable tax rates depend on your income bracket, as per Income Tax Ordinance, 2001.
  1. Sales Tax:
  • If registered for sales tax, file monthly sales tax returns and pay the tax due, as per The State through Collector of Sales Tax versus Muhammad Ashfaq Ahmed and others, 2006 PTD 286, which emphasizes adherence to legal procedures and statutory timelines in tax-related proceedings.
  1. Record Keeping:
  • Maintain proper books of accounts. This includes records of income, expenses, sales, and purchases.

Conclusion

Starting a small business from home in Pakistan involves several legal and tax-related steps. Obaining necessary licenses such as business registration with local authoritiy, NTN, sales tax registrations, payment of professional tax, and other permits based on nature of business is mandatory, as emphasized in Muhammad Bilal Shahid Versus Government of the Punjab and others, 2022 YLR 2102. Filing income tax, sales tax returns and keeping records, as mentioned in The State through Collector of Sales Tax versus Muhammad Ashfaq Ahmed and others, 2006 PTD 286, will keep you compliant to existing regulations to avoid legal problems. The Constitution of the Islamic Republic of Pakistan, Article 18, protects a citizen’s right to conduct lawful trade or business, provided that all qualifications prescribed by law are met.