Last modified: 26/12/2024 05:51

Corporate taxation

	Rate
Corporate income tax rate	29%
Branch tax rate	29%
Capital gains tax rate	0% to 15% based on holding period

1. Corporate tax rate for small company is 20%.
2. Tax payable by a company is higher of Corporate Tax, Alternate Corporate Tax (17% of Accounting profit) and Minimim Tax (1.25% of Turnover)
3. Super tax is payable by company having income of more than Rs 150 million.

Residence: A company is resident in Pakistan if it is incorporated in Pakistan or its effective management and control resides wholly in Pakistan

Basis: A resident company is taxed on worldwide income. A non-resident company is taxed on its Pakistan source income.

Taxable income: The taxable income of the company for a tax year is computed by the total income (net profit before tax) as disclosed in the accounts for the year and thereafter adjustment is made for admissible / inadmissible expenses of the company for the year.

Significant local taxes on income: Worker Profit participation fund is payable at 5% of income. Worker Welfare Fund is payable at 2% of income.

Alternative minimum tax: 1.25% of Turnover or 17% of Accounting Profit whichever is higher.

Taxation of dividends: 15% if the company paying the dividend is a profitable company. 25% if the company paying the dividend is a company exempt from tax.

Capital gains: Capital gains on sale of private company shares form part of taxable income of the company chargeable at corporate tax. Capital gains on sale of listed company shares and immovable property is taxable from 0% to 15% based on holding period.

Losses: Business loss and capital loss can be carried forward for six years and be set off against their respective income.

Foreign tax relief: Foreign-source income is included in taxable income, but relief is granted for tax deducted against such foreign income in foreign jurisdiction. However, such foreign credit is not refundable.

Participation exemption: There is no participation exemption. Exemption is only available to non-resident person based on Double Tax Treaty.

Holding-company regime: Holding company may apply to be taxed as a single unit based on its consolidated accounts. (Group Taxation)

Tax-based incentives: Profit and gains derived from businesses set up in the Gawadar Free Zone Area is exempt from tax for a period of twenty-three years with effect from the first day of July, 2016. Income derived by a zone enterprise as defined in the Special Economic Zones Act, 2012 (XX of 2012) is exempt from tax for a period of ten years. Income derived by a zone enterprise as defined in the Special Technology Zones Act, 2021 (XVII of 2021) is exempt from tax for a period of ten years. Agriculture Income is exempt from tax.

Group relief/fiscal unity: Holding company may apply to be taxed as a single unit based on its consolidated accounts. (Group Taxation). Holding company may transfer its business losses to its subsidiary and vice versa (Group Relief)

Small company/alternative tax regimes: Corporate tax rate for Small company is 20%.

Corporate taxation: compliance

Tax year: July to June. Company do have an option to adopt any other 12 months period (special tax year)

Consolidated returns: Yes. If the company has opted for Group Taxation.

Filing and payment: Returns are due by maximum Dec 31 after the end of tax year. Payment may be made at the time of return however, payment is usually required to be made in advance on quarterly basis.

Penalties: Higher of 0.1% of tax payable or Rs 1000 for each day of default.

Rulings: Advance Rulings may be obtained from the tax authorities on various tax matters by non-resident company.

Taxation of individuals

	Rate
	Federal Income Tax
Where taxable income does not exceed Rs.600,000/-	0%
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000	15% of the amount exceeding Rs. 600,000
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,600,000	Rs. 90,000 + 20% of the amount exceeding Rs.1,200,000
Where taxable income exceeds Rs.1,600,000 but does not exceed Rs. 3,200,000	Rs.170,000 + 30% of the amount exceeding Rs.1,600,000
Where taxable income exceeds Rs.3,200,000 but does not exceed Rs. 5,600,000	Rs. 650,000 + 40% of the amount exceeding Rs.3,200,000
Where taxable income exceeds Rs.5,600,000	Rs. 1,610,000 + 45% of the amount exceeding Rs.5,600,000.

1. Above slab is applciable for business Individual. Separate slab similar to above is applicable for salaried individual
2. xxxxxxxx

Residence: Individual is a tax resident if he is in Pakistan for more than 180 days. Pakistani citizen not present in any other country for more than 180 day or is not a tax resident of any other country.

Basis: Resident individuals are taxed on their worldwide income. Non-residents are taxed on Pakistan source income only.

Taxable income: All income derived from business, capital gains, employment, Rent is taxable.

Capital gains: Capital gains on sale of private company shares form part of taxable income of the Individual chargeable to tax. Capital gains on sale of listed company shares and immovable property is taxable from 0% to 15% based on holding period.

Deductions and allowances: Expenses incurred against business income can be claimed as deductions.

Foreign tax relief: Foreign-source income of resident individual is included in taxable income, but relief is granted for tax deducted against such foreign income in foreign jurisdiction. However, such foreign credit is not refundable.

Taxation of individuals: compliance

Tax year: July to June

Filing and payment: The income tax of individuals is required to be filed by Sept 30. Payment may be made with the return, however, business individual is required to pay tax in advance on quarterly basis.

Penalties: Higher of 0.1% of tax payable or Rs 1000 for each day of default.

Rulings: Advance ruling can be obtained by non-resident individual.

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Contractual Receipts	7.5%	8%	8%	8%
Services	4% or 9%	4% or 11%	4% or 9%	4% or 11%
Supplies of imported goods	0%	0%	0%	0%
Supplies of Local goods	5%	5.5%	5%	5.5%
Import	1%, 2%, 5.5%	1%, 2%, 5.5%	1%, 2%, 5.5%	1%, 2%, 5.5%
Export	1%	1%	1%	1%
Local commission	10% or 12%	10% or 12%	10% or 12%	10% or 12%
Dividend	15% or 25%	15% or 25%	15% or 25%	15% or 25%
Interest	15%	15%	15%	15%
Royalty	15%	15%	15%	15%
Fee for technical services	15%	15%	15%	15%

1. The above rates gets doubled if the local reciepient is not a tax filer. 
2. Reduced rate as per Double tax treaty will be applicable for non-resident company and non-resident individuals

Branch remittance tax: Exempt based on Double Tax Treaty otherwise 15%

Anti-avoidance legislation

Transfer pricing: Proper regulation and documentation requirement exist for transfer pricing.

Interest restriction: Thin capitalization rules penalizes higher of foreign debt-to-foreign equity ratio in excess to 3 to 1 or profit on debt in excess of 15% of profit before depreciation & profit on debt.

Controlled foreign companies: Income of foreign controlled companies to be added to income of resident person.

Hybrid mismatches: No special rules

Disclosure requirements: CbC reporting for qualifying enterprises.

Exit taxes: No special exit taxes

General anti-avoidance rule: The Commissioner may (a) recharacterise a transaction or an element of a transaction that was entered into as part of a tax avoidance scheme (b) disregard a transaction that does not have substantial economic effect (c) recharacterise a transaction where the form of the transaction does not reflect the substance (d) disregard an entity or a corporate structure that does not have an economic or commercial substance or was created as part of the tax avoidance scheme (e) treat a place of business in Pakistan as a permanent establishment, if the said place fulfills the conditions of cohesive business operation

Digital services tax and Other significant anti-avoidance legislation: 10% on fee for offshore digital services.

Value-added tax/Goods and services tax

Type of tax: Value-added tax (VAT). Applies to supplies of most goods and services and to imports. There is a broad range of exempt supplies and zero-rated supplies (exempt but allowing for deduction of input tax).

Standard rate: 18% for federal and 15% & 16% for provinces

Reduced rates: 3% to 10%

Registration: Company and Individuals engaged in the business of supplying taxable goods and rendering taxable services is required to get registration.

Filing and payment: Monthly return is required to be filed by 18 of next month. Payment is to be made with the return.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Social Security Contribution	6%	0%
Employee Old Age Benefit Scheme	5%	1%
Workers welfare fund	2%	0%
Worker Profit Participation fund	5%	0%
Professional Tax	Rs 20K to 100K	Rs 2000

Self-employed

Professional Tax.

Other taxes

Capital duty: Capital value tax is payable on purchase of motor vehicle. It is also payable by resident Individual on his foreign asset.

Immovable property taxes: Below taxes are payable on buy, sell or transfer of immovable property. Town Tax: Rs 5,000 Stamp duty: 1% CVT: 1% Income Tax: 3% to 4%

Transfer tax: Taxes are payable on transfer of shares and immovable property. Taxes on immovable property are covered above. Taxes on shares are 1.5%.

Stamp duty: Stamp duty is payable at the time of executing various instruments and documents based on slab rate applicable for each. Stamp duty is also payable on issuance of shares at 0.5% and on transfer of shares at 1.5%.

Net wealth/worth tax: There are no such taxes

Inheritance/gift taxes: There are no such taxes

Other: Professional tax is payable by a company on its paid-up capital and Individual/AOP on its turnover. Branch is required to pay fixed tax of Rs 2,000.

Tax treaties

Pakistan has concluded over 68 full double taxation treaties on income and capital gains and has a small number of tax information-exchange agreements. It is also a signatory to the OECD Multilateral Instrument.