Eligible manufacturing companies can claim a tax credit linked to registered employees, subject to conditions under Section 64B.
ISLAMABAD, September 17, 2026: The Federal Board of Revenue (FBR) has retained the employment generation tax credit available to eligible manufacturers for Tax Year 2027 under the Income Tax Ordinance, 2001.
The FBR has issued the Income Tax Ordinance, 2001, updated up to June 30, 2026, which sets out the eligibility requirements and calculation mechanism for the employment generation tax credit under Section 64B.
Under the provision, a company established to set up and operate a new manufacturing unit may qualify for a tax credit for 10 years, provided the new unit was established within the period specified under the law and all prescribed conditions are met.
Tax credit linked to number of employees
The tax credit for a tax year is calculated at 2 per cent of tax payable for every 50 employees registered with the Employees’ Old-Age Benefits Institution (EOBI) or the Employees’ Social Security Institutions of the provincial governments during the relevant tax year.
However, the total tax credit cannot exceed 10 per cent of the tax payable.
The provision therefore links the value of the incentive directly to the number of qualifying employees employed by the manufacturing company.
Conditions for claiming employment tax credit
Section 64B sets out several conditions that a company must fulfil to qualify for the tax credit.
The company must have been incorporated and the manufacturing unit established between July 1, 2015 and June 30, 2018, both dates inclusive.
The company must employ more than 50 employees during a tax year, with the employees registered with EOBI and the Employees’ Social Security Institutions of the provincial governments.
The manufacturing unit must be managed by a company formed specifically for the purpose of establishing and operating the unit. The company must also be registered under the Companies Act, 2017, with its registered office in Pakistan.
The manufacturing unit must not have been established through the splitting up, reconstruction or reconstitution of an existing undertaking.
In addition, the unit must not have been established through the transfer of machinery or plant from an undertaking that was already established in Pakistan before July 1, 2015.
Tax credit can be recovered if conditions are breached
The law empowers the Commissioner Inland Revenue to reassess a tax credit if documents or other information subsequently establish that any prescribed condition was not fulfilled.
Where this occurs, the tax credit originally allowed is treated as having been wrongly granted. The Commissioner may recompute the taxpayer’s tax liability for the relevant tax year, with the applicable provisions of the Income Tax Ordinance, 2001, applying accordingly.
Companies claiming the incentive therefore remain subject to the eligibility requirements throughout the relevant period.
When is a manufacturing unit considered established?
Section 64B specifies that a manufacturing unit is considered to have been established on the date it becomes ready to commence production.
This includes a unit that is ready to begin either trial production or commercial production.
The provision continues to provide a tax incentive for qualifying manufacturers based on employment generation. However, companies must meet the prescribed incorporation and establishment dates, employee registration requirements, corporate structure conditions and maximum tax-credit limit to benefit from the provision.