Karachi, October 8, 2023 – Pakistan has implemented a minimum tax requirement for companies that frequently declare losses in their financial statements, effective for Tax Year 2024.
This move aims to discourage tax avoidance practices and ensure that companies contribute to the country’s tax revenues.
Sources within the Federal Board of Revenue (FBR) have revealed that this nominal tax has been introduced as a measure against companies, including some state-owned enterprises (SOEs), that consistently report losses. These losses have allowed them to avoid paying income tax, taking advantage of existing tax laws.
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Section 113 of the Income Tax Ordinance, 2001 provides detailed information about the minimum tax requirement. This section is applicable to various entities, including resident companies, permanent establishments of non-resident companies, individuals, or associations of persons with a turnover of one hundred million rupees or more. It covers several scenarios, including losses for the year, setting off losses from previous years, tax exemptions, the application of credits or rebates, and claiming allowances or deductions.
The minimum tax rates outlined in Section 113 are as follows:
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1. 0.75 percent tax rate for:
• Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited (applies when annual turnover exceeds one billion rupees).
• Pakistani International Airlines Corporation.
• Poultry industry, including poultry breeding, broiler production, egg production, and poultry feed production.
2. 0.5 percent tax rate for:
• Oil refineries.
• Motorcycle dealers registered under the Sales Tax Act, 1990.
• Oil marketing companies.
3. 0.25 percent tax rate for:
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• Distributors of pharmaceutical products, fast-moving consumer goods, and cigarettes.
• Petroleum agents and distributors registered under the Sales Tax Act, 1990.
• Rice mills and dealers.
• Tier-1 retailers of fast-moving consumer goods integrated with the Board or its computerized system for real-time reporting of sales and receipts.
• Persons involved in the sale and purchase of used vehicles.
• Flour mills.
• Persons engaged in e-commerce, including running an online marketplace.
4. 1.25 percent tax rate in all other cases.
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This initiative is designed to ensure that companies make a fair contribution to Pakistan’s tax revenues, even if they have reported losses in the past. It aims to create a more equitable tax system and discourage practices where entities exploit tax laws to reduce their tax liability. The introduction of these minimum tax rates aligns with Pakistan’s ongoing efforts to strengthen its tax collection mechanisms and promote financial transparency.
