Reduced tax rate takes effect from January 1, 2026, while tax rates for small companies and other corporate entities remain unchanged.

ISLAMABAD: Pakistan has reduced the corporate tax rate for banks to 42 percent for the tax year corresponding to FY2026-27, effective from January 1, 2026, according to sources within the Federal Board of Revenue (FBR).

The revised rate represents a one percentage point reduction from the 43 percent corporate tax rate applicable in the previous year.

Banks in Pakistan follow a calendar-year financial cycle, with their financial year commencing on January 1 and ending on December 31.

The reduction forms part of the government’s corporate tax framework for FY2026-27.

Corporate tax rates remain unchanged for other companies

Under the prevailing tax structure, the corporate tax rate for small companies will remain at 20 percent, while all other companies will continue to be taxed at 29 percent during FY2026-27.

The revised rate applies exclusively to banking companies, which have historically been subject to higher corporate taxation than other sectors.

Industry expects stronger profitability

Tax and financial experts believe the reduction in the corporate tax rate will strengthen the financial position of banks by improving after-tax profitability and supporting capital accumulation.

They noted that higher retained earnings could enhance banks’ balance sheets, improve lending capacity and strengthen their resilience against economic shocks.

However, experts also pointed out that Pakistan’s corporate tax rate for banks remains comparatively high by regional standards.

They argued that a gradual reduction in corporate tax rates across the corporate sector could improve Pakistan’s competitiveness, encourage greater corporatisation of businesses and attract higher levels of domestic and foreign investment.

Economists added that a more competitive corporate tax regime, combined with broader tax reforms and policy stability, would help create a more favourable investment climate while supporting long-term economic growth.