The government of Pakistan has undertaken a strategic initiative to gradually reduce corporate income tax rates, aiming to bring them down to 25% by the tax year 2023 and onwards.
This significant development has been outlined in the updated Income Tax Ordinance, 2001, released by the Federal Board of Revenue (FBR). The revised rates are part of the First Schedule, Part I, Division II, which elucidates the corporate tax rates applicable to companies.
Rates of Tax for Companies
(i) Historical Overview:
- The rate of tax imposed on the taxable income of a company for the tax year 2007 and onward was initially set at 35%.
- In subsequent years, adjustments were made through various provisions:
- For the tax year 2014, the rate for companies (other than banking companies) was reduced to 34%.
- In 2015, it further decreased to 33% for non-banking companies.
- The downward trajectory continued with rates reaching 32% for the tax year 2016, 31% for 2017, and 30% for 2018 and thereafter.
(ii) Future Projections:
- The revised rates for the upcoming years are outlined in the following table:
| Tax Year | Rate of Tax |
| 2019 | 29% |
| 2020 | 28% |
| 2021 | 27% |
| 2022 | 26% |
| 2023 onwards | 25% |
(iii) Special Consideration for Small Companies:
- For small companies, as defined in section 2 of the Income Tax Ordinance, 2001, a special tax rate of 25% was initially applicable.
- However, for tax year 2019 and onwards, a modified rate schedule was introduced, with the following rates:
| Tax Year | Rate of Tax |
| 2019 | 24% |
| 2020 | 23% |
| 2021 | 22% |
| 2022 | 21% |
| 2023 onwards | 20% |
This strategic move to gradually reduce corporate income tax rates aligns with the government’s broader economic objectives. The revised rates are designed to create a more business-friendly environment, encourage investment, and stimulate economic growth. The step-by-step reduction over the years aims to provide a smoother transition for businesses while ensuring a sustainable revenue stream for the government.
The government’s commitment to a competitive and favorable tax regime is evident in these adjustments. The phased approach allows businesses to plan and adapt to the changing tax landscape, fostering long-term economic stability and competitiveness. It is anticipated that these measures will contribute positively to Pakistan’s economic development by attracting investments and promoting entrepreneurship.
