A resident company is taxed on its worldwide income. Non-resident companies operating in Pakistan through a branch are taxed on their Pakistan-source income attributable to the branch at rates applicable to a company.
The revised federal corporate tax rates on taxable income (for tax year 2022, 2023, and onwards) are as follows:
| Company type | Tax rate (%) | ||
| 2022 | 2023 | 2024 and onwards | |
| Banking company | 35 | 39 | 39 |
| Public company* other than a banking company | 29 | 29 | 29 |
| Any other company | 29 | 29 | 29 |
| Small company (see the Tax credits and incentives section for more information) | 21 | 20 | 20 |
* The term ‘public company’ implies a company listed on any stock exchange in Pakistan or one in which not less than 50% of the shares are held by the federal government or a public trust.
Super tax
In addition to above, super tax is imposed at the following rates for tax year 2022 and onwards:
| Income (PKR) | Super tax rate (%) | |
| Over | Not over | |
| 150 million | 200 million | 1 |
| 200 million | 250 million | 2 |
| 250 million | 300 million | 3 |
| 300 million | 4 | |
For banking companies, super tax is payable at a rate of 4% irrespective of the above income slabs for tax year 2022.
Note that the vires of super tax levy has been challenged by several taxpayers on constitutional grounds. The matter is under litigation before the Higher Courts.
Enhanced super tax
Further, where income exceeds PKR 300 million, an enhanced super tax rate of 10% (instead of 4%) shall be applicable for a single year in the case of the following sectors:
| Sectors | Tax year |
| Banking | 2023 |
| Airlines, automobiles, beverages, cement, chemicals, cigarettes, tobacco, fertilisers, iron and steel, LNG terminals, oil marketing, oil refinery, petroleum, gas exploration and production, pharmaceuticals, sugar, and textiles | 2022 |
Taxation of a women enterprise
A ‘women enterprise’ is astart-up established on or after 1 July 2021 by women. A company whose 100% shareholding is held or owned by women shall be subject to tax at a reduced rate of 25% on its profit and gains derived from business chargeable to tax under the heading 'income from business'. However, the benefit of this clause will not be available to a business that is formed by the transfer, reconstitution, reconstruction, or splitting up of an existing business.
Taxation of small and medium enterprises (SMEs) engaged in the manufacturing sector
An SME is defined as a person who is engaged in manufacturing and whose business turnover in a tax year does not exceed PKR 250 million. In the case that annual business turnover exceeds PKR 250 million, it shall cease to be an SME for such tax year and onwards.
An SME is required to register with the Federal Board of Revenue (FBR) on the IRIS web portal or the Small and Medium Enterprises Development Authority (SMEDA) on its SME registration portal. A company covered by the definition of anSME will not qualify as a ‘small company’.
For the purpose of taxation, SMEs are classified into the following two categories, and tax on taxable income is required to be computed at the rates given below:
- Category 1: 7.5% of the taxable income, where annual business turnover does not exceed PKR 100 million.
- Category 2: 15% of the taxable income, where annual business turnover exceeds PKR 100 million but does not exceed PKR 250 million.
SMEs can also opt to be taxed under the final tax regime (FTR). The said option is required to be exercised at the time of return filing, and the same will be irrevocable for three tax years. The SMEs who opt to be taxed under theFTR shall not be subject to tax audit under sections 177 and 214C. The category-wise rate of tax under theFTR is given below:
- Category 1: 0.25% of the gross turnover, where annual business turnover does not exceed PKR 100 million.
- Category 2: 0.5% of the gross turnover, where annual business turnover exceeds PKR 100 million but does not exceed PKR 250 million.
Minimum tax on turnover shall not apply toSMEs.
Simplified tax regime for retailers and specified service providers
For retailers (except those defined as Tier-1) and specified service providers, a ‘final tax’ has been levied on the basis of the gross amount billed for commercial electricity connections at the following rates:
| Gross amount of monthly bills | Tax (PKR) |
| Where amount does not exceed PKR 30,000 | 3,000 |
| Where amount exceeds PKR 30,000 but does not exceed PKR 50,000 | 5,000 |
| Where amount exceeds PKR 50,000 but does not exceed PKR 100,000 | 10,000 |
| Retailers and service providers specified through general order | 200,000 |
The aforesaid tax shall be collected by the electricity companies through monthly bills in addition to any withholding tax prescribed. However, in case sales tax is collected from such retailers through electricity bills under the federal sales tax law the sales tax will constitute discharge of tax liability.
Taxation of a permanent establishment (PE)
The following principles shall apply in computing taxable income of a PE:
- It is a distinct and separate entity dealing independently with the non-resident of which it is a PE.
- In addition to business expenditure, executive and administrative expenditure, whether incurred in Pakistan or elsewhere, will be allowed as deductions.
- Head office expenditure, including rent, salaries, travelling, and any other expenditure that may be prescribed, shall be allowed as a deduction in proportion to the turnover of the PE in the same proportion as the non-resident’s total head office expenditure bears to its worldwide turnover.
- Royalties, compensation for services (including management services), and interest on loans (except in banking business) payable or receivable to or from a PE’s head office shall be considered in computing taxable income of the PE.
- No deduction will be allowed for any interest paid on loans acquired by a non-resident to finance the operations of a PE (or for the insurance premium in respect of such loans).
- Income from sale of goods (in the same state), rendering of services, and execution of contracts derived by a PE of a non-resident person is subject to ‘minimum tax’ of the gross consideration. Further, in line with the regime applicable for resident service providers, a reduced tax/WHT rate of 3% is also applicable with respect to certain specified services rendered by a PE of a non-resident person. The services are as follows:
- Transport services.
- Freight forwarding services.
- Air cargo services.
- Courier services.
- Manpower outsourcing services.
- Hotel services.
- Security guard services.
- Software development services.
- IT services and IT enabled services.
- Tracking services.
- Advertising services (other than by print or electronic media).
- Share registrar services.
- Car rental services.
- Building maintenance services.
- Engineering services.
- Services rendered by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited.
- Inspection, certification, testing, and training services.
- Oil field services.
Minimum tax on turnover is also applicable at a rate of 1.25% on PE of a non-resident. In certain cases/sectors, such turnover tax is payable at rates of less than 1.25% (ranging from 0.25% to 0.75% of turnover). For detail, refer to Minimum tax on turnover below.
Taxation of certain contracts executed by non-resident persons
Income derived by non-resident persons/their affiliates from turnkey contracts that are part of an overall arrangement for supply of goods, installation, construction, assembly, commission, guarantee, and supervisory activities, including offshore supply of goods (i.e. cohesive business operation), constitutes Pakistan-source income.
‘Cohesive business operations’, includes:
- an overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees, or supervisory activities, and all or principal activities are undertaken or performed either by the person or the associates of the person, and
- supply of goods includes the goods imported in the name of the associate or any other person, whether or not the title to the goods passes outside Pakistan.
In case of payment against transactions that constitutes part of an overall arrangement of a cohesive business operation, the Commissioner (on application made by the payer) may allow the person to make payment after deduction of tax equal to 20% of tax chargeable on such payment, which is normally 7%. Consequently, the effective rate of withholding in the instant case shall be 1.4%. This rate is 1% in case of offshore supply contract for an independent power producer (IPP) located in Azad Jammu and Kashmir, subject to certain conditions.
Minimum tax on turnover
Where the tax payable by a company is less than 1.25% of the turnover, the company is required to pay a minimum tax equivalent to 1.25% of the turnover. In certain cases/sectors, such turnover tax is payable at rates less than 1.25% (ranging from 0.25% to 0.75 % of turnover).
Tax paid in excess of normal tax liability in the instant case can be carried forward for adjustment against tax liability of a subsequent tax year during the next three tax years.
Transaction-based minimum taxes
Certain WHTsapplicable on payments made to residents and non-residents are considered as minimum tax while determining their corporate tax liability on a net income basis. These transactions, interalia,includesale of goods(unless by a company being a manufacturer of such goods or by a company listed on a Pakistani stock exchange), rendering of services, and execution of contracts (unless payment received by a company listed on a Pakistani stock exchange).
Advance income tax paid at the import stage is minimum tax in case of commercial importers, while it is an adjustable tax on import of raw material by industrial undertakings, with few exceptions.
Alternate Corporate Tax (ACT)
Under the ACT, the minimum tax liability of a company is the higher of 17% of accounting income or the corporate tax liability determined under the Ordinance, including minimum tax on turnover. This concept is applicable for all companies except insurance companies, companies engaged in exploration and production of petroleum, banking companies, and companies enjoying a reduced rate of tax.
Exempt incomes, capital gain on disposal of specified listed securities, income entitled to 100% tax credit on account of equity investment, and income of non-profit organisations, trusts, and welfare institutions are not subject to levy of ACT.
Tax on value of capital assets in Pakistan
A resident person owning immovable property in Pakistan will be taxed on deemed income for tax year 2022 and onwards. Such deemed income shall be computed as 5% of the fair market value of the immovable property. The rate of tax on such income is prescribed as 20%. This translates into an effective tax at 1% of fair market value of immovable property.
Certain exclusions have been provided for immovable properties for the purpose of this tax, which includes:
- One immovable property owned by the resident person.
- Self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year.
- Self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse (defined in a specified manner) and land annexed thereto.
- Immovable property allotted to (i) a shaheed or dependants of a shaheed belonging to Pakistan Armed Forces; (ii) a person or dependants of the person who dies while in the service of Pakistan armed forces or Federal or provincial government; (iii) a war wounded person while in service of Pakistan armed forces or Federal or provincial government; or (iv) an ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority.
- Any immovable property from which income is already chargeable to income tax.
- Immovable property in the first tax year of acquisition where advance tax on purchase has been paid.
- Where the fair market value of the immovable property does not exceed PKR 25 million.
- Immovable property owned by a provincial government or a local government.
- Immovable property owned by a local authority, a development authority, or builders and developers for land development and construction, subject to the condition that such persons are registered with Directorate General of Designated Non-Financial Business and Professions.
FAQs
What is the income tax for corporate in Pakistan? ›
| Company type | Tax rate (%) | |
|---|---|---|
| 2022 | 2024 and onwards | |
| Public company* other than a banking company | 29 | 29 |
| Any other company | 29 | 29 |
| Small company (see the Tax credits and incentives section for more information) | 21 | 20 |
The taxes are paid on a company's taxable income, which includes revenue minus cost of goods sold (COGS), general and administrative (G&A) expenses, selling and marketing, research and development, depreciation, and other operating costs.
What is taxed on corporate income? ›The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
Is corporate tax based on income? ›Corporate income tax is based on net taxable income as defined under federal or state law. Generally, taxable income for a corporation is gross income (business and possibly non-business receipts less cost of goods sold) less allowable tax deductions.
How much income is taxable in Pakistan? ›...
Super tax on high earning persons.
| Income (PKR) | Super tax rate (%) | |
|---|---|---|
| Over | Not over | |
| 150 million | 200 million | 1 |
| 200 million | 250 million | 2 |
| 250 million | 300 million | 3 |
Who pays the corporate income tax? Businesses that are entities separate from their owners pay corporate income tax. The company pays a 21% rate on taxable corporate income to the federal government, plus any state corporate income taxes, depending on the state where the company operates.
Do corporations pay double taxes? ›The company pays the taxes on its annual profits first. Then, after the company pays its dividends to shareholders, shareholders pay a second tax.
How do corporations avoid taxes? ›How do profitable corporations get away with paying no U.S. income tax? Their most lucrative (and perfectly legal) tax avoidance strategies include accelerated depreciation, the offshoring of profits, generous deductions for appreciated employee stock options, and tax credits.
Do businesses pay taxes on gross or net income? ›No matter how you operate your small business, the Internal Revenue Service will require you to fill out forms that will be used to calculate the income tax the company owes. The tax is figured on the net earnings of the business, or net income, which is equal to the gross business income less IRS allowable deductions.
Who bears corporate income tax? ›The burden is shared among stockholders and, unintuitively, among a broader group of workers and investors. Shareholders bear some of the corporate income tax burden, but they aren't the only ones. Over time, others bear some of the burden because of a chain reaction that begins with the shareholders.
What is the corporate tax rate for 2023? ›
What is Corporate Tax Rate in United States? Corporate Tax Rate in United States remained unchanged at 21 % in 2023. The maximum rate was 52.8 % and minimum was 1 %. Data published Yearly by Internal Revenue Service.
Which states do not have a corporate income tax? ›South Dakota and Wyoming are the only states that levy neither a corporate income nor gross receipts tax.
What is the corporate tax rate in Pakistan 2023? ›Corporate Tax Rate in Pakistan remained unchanged at 29 % in 2023. The maximum rate was 43 % and minimum was 29 %. Data published Yearly by Federal Board of Revenue.
Who are exempted from tax in Pakistan? ›Income derived by an enterprise set up in 'special economic zones' is exempt from tax for a period of ten years, starting from commencement of commercial operations/production, subject to certain conditions. These 'special economic zones' have been established in different territories of the country.
What is the 30% income tax in Pakistan? ›Currently, the 30% tax rate is collected from those who earn Rs4. 1 million a month – the ultra-rich class. For people earning over Rs1 million a month, the IMF has proposed 35% income tax but it will hardly affect 6,000 individuals. The total tax from these people is estimated at around Rs45 billion, said the sources.
Is corporate tax the same as income tax? ›Corporate tax is an expense of a business (cash outflow) levied by the government that represents a country's main source of income, whereas personal income tax is a type of tax governmentally imposed on an individual's income, such as wages and salaries.
Is income tax calculated on gross income? ›Taxable income starts with gross income, then certain allowable deductions are subtracted to arrive at the amount of income you're actually taxed on. Tax brackets and marginal tax rates are based on taxable income, not gross income.
What is the formula for tax in Excel? ›Sometimes, you may get the price exclusive of tax. In this condition, you can easily calculate the sales tax by multiplying the price and tax rate. Select the cell you will place the calculated result, enter the formula =B1*B2 (B1 is the price exclusive of tax, and B2 is the tax rate), and press the Enter key.
How do you calculate annual income? ›To calculate an annual salary, multiply the gross pay (before tax deductions) by the number of pay periods per year. For example, if an employee earns $1,500 per week, the individual's annual income would be 1,500 x 52 = $78,000.
What corporation is not taxed twice? ›Its income, losses, and other tax items pass through to the shareholders, who pay personal income taxes on their share of the corporation's profits. A principal advantage of S corporation taxation is that income distributed to shareholders is not taxed twice.
Why are the profits of a corporation taxed twice? ›
First, the tax on corporate profits is seen as justified because businesses organized as corporations are separate legal entities. Second, levying individual taxes on dividends is seen as necessary to keep wealthy shareholders from paying no income taxes on their gains.
How do corporations avoid double taxation? ›Two business structures are often preferred for small businesses since they avoid this double taxation burden. These are an LLC and S Corporation. With these business structures, the company is taxed more like a Sole Proprietorship or a Partnership than as a separate entity, like the C Corporation.
What is the best corporate structure to avoid taxes? ›An S corporation, sometimes called an S corp, is a special type of corporation that's designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates.
How many Americans pay no income tax? ›An estimated 72.5 million households -- or 40% of total households -- will pay no federal income taxes for tax year 2022, according to an analysis from the Tax Policy Center.
What are the two main tax disadvantages of corporations? ›- Corporations are subject to double taxation. ...
- You'll also have to pay self-employment taxes if you're an employee of the company.
- Paid dividends cannot be deducted from taxable income.
- Forming an S-Corp can prevent some of these tax issues, but not all corporations are eligible.
Residents earning $200,000 face a tax rate of 5.99%, whether filing singly or jointly. The total tax burden of state and federal taxes is $49,353 or 24.68%.
How do small businesses avoid paying taxes? ›- Pay for health insurance.
- Save for retirement.
- Claim the qualified business income deduction.
- Using your car for business purposes.
- Depreciation expense.
- Home office deduction.
- Financing costs for the business.
- A draw is a direct payment from the business to yourself.
- A salary goes through the payroll process and taxes are withheld.
- A combination method means you take part of your income as salary and part of it as a draw or distribution.
Corporations in the United States pay federal corporate income taxes levied at a 21 percent rate.
Does the US have corporate tax? ›Business Taxes
The United States taxes the profits of US resident C-corporations (named after the relevant subchapter of the Internal Revenue Code) at 21 percent.
Is corporate income tax bad? ›
Lower investment and economic growth, thus reducing wages and living standards over time: “the economic literature shows that corporate income taxes are one of the most harmful tax types for economic growth, as capital investment is sensitive to corporate taxation.” (Translation: companies invest less in places with ...
What country has highest corporate tax rate? ›- The highest corporate tax rate in the world belongs to the United Arab Emirates (UAE), with a 2021 tax rate of up to 55%. ...
- The global average corporate tax rate is 23.64%.
Corporate Tax Rate in the United States averaged 32.18 percent from 1909 until 2023, reaching an all time high of 52.80 percent in 1968 and a record low of 1.00 percent in 1910.
What is the US income tax for 2023? ›For the 2023 tax year, there are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%, the same as in tax year 2022. Tax returns for the 2023 calendar year are due in April 2024 or October 2024 with an extension.
What state in the US has the lowest taxes? ›In 2020, the average American contributed 8.9% percent of their income in state taxes. Alaska had the lowest average overall tax burden – measured as total individual taxes paid divided by total personal income – at 5.4%, followed by Tennessee (6.3%), New Hampshire (6.4%), Wyoming (6.6%) and Florida (6.7%).
Which state has the lowest corporate tax in USA? ›Alaska and Pennsylvania levy top statutory corporate tax rates of 9.40 percent and 8.99 percent, respectively. Conversely, North Carolina's flat rate of 2.5 percent is the lowest in the country, followed by rates in Missouri and Oklahoma (both at 4 percent) and North Dakota (4.31 percent).
Does the US have a low corporate tax rate? ›The current federal statutory tax rate on corporate income is 21 percent — this does not include the average of corporate taxes imposed at the state and local levels. However, the U.S. tax code has many preferences that affect the rate actually paid by corporations.
What is professional tax in Pakistan? ›This tax is levied under the Sindh Finance Act, 1964. The basis of this tax is to bring various categories of persons engaged in different trade, callings and professions.
What is the tax rate in Pakistan 2023? ›The Federal Government of Pakistan (the Pakistani Government) has increased the general Sales Tax rate to 18% effective 14 February 2023. A 25% higher rate of Sales Tax applies to a wide range of goods imported and supplied in Pakistan and for some locally manufactured vehicles effective 8 March 2023.
How many types of taxes are there in Pakistan? ›In addition to Corporate Tax, there are other applicable income taxes including Super Tax, Minimum Tax, and Tax on Undistributed reserves. Generally, manufacturing business is taxable at Corporate Tax rate whereas trading business and commercial imports business is taxable as "minimum tax".
How to pay professional tax in Pakistan? ›
- ETO Professional Tax will issue a Payment Challan (PFT-2) on 32-A accordingly.
- Deposit Professional Tax in any branch of NBP/SBP in Punjab.
- Provide a copy of Paid Challan to ETO Professional Tax.
If you earn your living from employment or are self-employed, you are liable to pay professional tax. How much is the professional tax in Punjab? Ans. The minimum professional tax in Punjab is Rs 175 per month for individuals drawing a monthly salary or wage of Rs 7501 to Rs 10,000 per month.
What is the deemed income? ›Income which is considered to be available for use by an individual regardless of actual receipt.
Does Pakistan have tax treaty with USA? ›(1) A United States enterprise shall not be subject to Pakistan tax in respect of its industrial or commercial profits unless it is engaged in trade or business in Pakistan through a permanent establishment situated therein.
Who gives the most tax in Pakistan? ›Among the highest tax payers were Prime Minister Imran Khan, who paid Rs9. 8 million, Pakistan Muslim League-Nawaz (PML-N) President Shehbaz Sharif Rs8. 2m, former president Asif Ali Zardari Rs2. 2m and PPP chairperson Bilawal Bhutto Rs5.
What is Pakistan withholding tax? ›The applicable WHT rate on such payments ranges from 5% to 20%, subject to any relief available under the DTT. The tax withheld is deemed to be the final tax liability of the non- resident.
Is there any tax on cash withdrawal in Pakistan? ›The tax shall be deducted at the time the cash is withdrawn. The withholding tax on cash withdrawal was introduced in the year 2005 by inserting Section 231A to the Income Tax Ordinance, 2001. Under this section, the banks are required to collect 0.6 per cent of cash withdrawn above Rs50,000 per day.
What is the salary in Pakistan 2023? ›A person working in Pakistan will typically earn around 983,100 PKR per year, and this can range from the lowest average salary of about 247,800 PKR to the highest average salary of 4,380,400 PKR. These are average salaries for a person in Pakistan and include benefits such as housing and transport.
What is minimum tax in Pakistan? ›The government of Pakistan has finalized tax slabs for salaried individuals for the fiscal year 2022-23 and has set a minimum income tax rate of 2.5% for those earning up to Rs. 100,000 per month and a maximum of 35% for individuals earning a monthly salary over Rs. 1 million.
What is capital gain tax in Pakistan? ›...
Capital gain on securities.
| Holding period | Tax (%) |
|---|---|
| From three years to four years | 7.5 |
| From four years to five years | 5.0 |
| From five years to six years | 2.5 |
| More than six years | 0 |
What is the capital value tax in Pakistan? ›
Ever since 2002, Pakistan has not had a wealth tax. Economic experts believe that the wealth tax was abolished because of strong resistance from big real estate owners, including military personnel.