If you run a business under your own name — a shop, a freelance practice, a small consultancy — without incorporating anything, you're a sole proprietor in FBR's eyes, and your business income has to be reported on your personal return every year. Here's what that involves.
Who Counts as a Sole Proprietor
Anyone running a business individually rather than through a company or partnership falls into this category: shop owners, traders, doctors with their own clinic, solo lawyers, architects, consultants, contractors, and freelancers all included. Because there's no separate legal entity, your business income and personal income are combined and taxed together.
What You're Required to Do
- Register an NTN with FBR as an individual with business income
- File an annual return by 30 September declaring gross revenue, expenses, and net profit
- Submit a wealth statement covering both personal and business assets
- Register for sales tax if annual turnover crosses Rs. 10 million
- Deduct and deposit withholding tax if you pay suppliers, contractors, or service providers above the applicable threshold
- Pay quarterly advance tax if last year's liability exceeded Rs. 100,000
If you're running a business without an NTN, don't assume you're off FBR's radar — utility bills, rent agreements, and bank account activity are all data points FBR can use to identify unregistered businesses and issue notices. Registering and filing proactively is far less painful than responding to a notice later.
Tax Rates and Deductible Expenses
Sole proprietors pay tax on net profit at the same progressive individual slab rates as salaried people — nothing up to Rs. 600,000, then rising in steps up to 35%. Legitimate business expenses reduce that net profit figure: rent, staff salaries (with WHT properly deducted), utilities, vehicle running costs tied to the business, depreciation on business assets, and professional fees are all allowable. Personal expenses obviously don't qualify.
Do You Need Formal Accounts?
Not necessarily formal audited accounts, but you should keep basic records — revenue logs, expense receipts, bank statements. A simple spreadsheet is fine for a small operation; larger businesses benefit from proper bookkeeping since FBR can request records if it issues a query.