Banking tax rate reduced to 42% as FBR confirms corporate income tax rates effective from July 1, 2026
ISLAMABAD: The Federal Board of Revenue (FBR) has notified the corporate income tax rates applicable for Tax Year 2027, effective from July 1, 2026, following the release of the updated Income Tax Ordinance, 2001, incorporating amendments made up to June 30, 2026.
For banking companies, however, Tax Year 2027 commenced on January 1, 2026, in accordance with the provisions of the Income Tax Ordinance.
The updated law prescribes separate income tax rates for banking companies, small companies and other corporate entities.
Corporate tax rates for Tax Year 2027
The applicable corporate income tax rates are as follows:
| Type of Company | Tax Rate |
| Banking companies | 42% |
| Small companies | 20% |
| Any other company | 29% |
The FBR said these rates will be used to determine the corporate income tax liability of companies for the relevant tax year under the amended provisions of the Income Tax Ordinance, 2001.
Banking sector tax rate reduced
The updated law continues the phased reduction in the corporate income tax rate applicable to banking companies.
The tax rates for banks over the past three tax years are:
| Tax Year | Tax Rate |
| 2025 | 44% |
| 2026 | 43% |
| 2027 and onwards | 42% |
The reduction to 42% for Tax Year 2027 represents a one-percentage-point decrease from the 43% rate applicable in Tax Year 2026, in line with the phased tax policy introduced under the Finance Act.
Concession for small companies
Small companies will continue to benefit from a concessional corporate income tax rate of 20%, aimed at supporting smaller businesses and encouraging investment and growth.
Meanwhile, all other corporate entities will remain subject to a 29% corporate income tax rate for Tax Year 2027.
Effective for Tax Year 2027
The notified rates form part of the updated Income Tax Ordinance, 2001, as amended through the Finance Act, 2026, and will govern the computation of corporate income tax liabilities for the relevant tax year.
The FBR has advised corporate taxpayers to apply the revised tax rates when estimating advance tax liabilities, preparing financial statements and filing income tax returns for Tax Year 2027.