Businesses can claim qualifying scientific research expenditure incurred in Pakistan, subject to conditions under Section 26 of the Income Tax Ordinance, 2001
ISLAMABAD: The Federal Board of Revenue (FBR) has outlined the tax benefit available to businesses for qualifying scientific research expenditure incurred in Pakistan during Tax Year 2027.
Under Section 26 of the Income Tax Ordinance, 2001, taxpayers may claim a deduction for eligible scientific research expenditure where the spending is incurred wholly and exclusively for the purpose of deriving income from a business chargeable to tax.
The FBR’s updated Income Tax Ordinance, 2001, incorporating amendments up to June 30, 2026, sets out the conditions governing the deduction and defines the types of research and expenditure that may qualify.
Who can claim the scientific research deduction?
A person may claim a deduction for scientific research expenditure where the research:
•is undertaken in Pakistan;
•is incurred during the relevant tax year;
•is wholly and exclusively related to deriving taxable business income; and
•is undertaken for the purpose of developing the person’s business.
The provision is designed to support business-related research and development activities carried out within Pakistan.
What qualifies as scientific research?
The FBR defines scientific research as any activity undertaken in Pakistan in the field of natural or applied science for the development of human knowledge.
The definition covers research activities intended to advance knowledge in scientific fields, provided that the expenditure and activity satisfy the requirements prescribed under the Income Tax Ordinance.
What expenditure qualifies for the tax deduction?
Scientific research expenditure covers spending incurred by a person on scientific research undertaken in Pakistan for the purpose of developing the person’s business.
The deduction may also cover a contribution made to a scientific research institution, where the institution undertakes research for the purposes of the taxpayer’s business.
This allows businesses to potentially claim tax relief for qualifying research carried out both directly by the business and through eligible research institutions.
Expenditure excluded from the deduction
Section 26 also identifies expenditure that does not qualify as scientific research expenditure.
The excluded expenses include amounts incurred on:
1. acquiring depreciable assets or intangible assets;
2. acquiring immovable property; and
3. activities undertaken to determine the existence, location, extent or quality of a natural deposit.
As a result, businesses cannot classify the purchase of depreciable assets, intangible assets or property as qualifying scientific research expenditure simply because those assets are used in research-related activities.
Similarly, expenditure incurred to establish the existence or characteristics of natural deposits is specifically excluded from the deduction.
What is a scientific research institution?
The law defines a scientific research institution as an institution certified by the FBR as conducting scientific research in Pakistan.
Businesses seeking a deduction for contributions made to such institutions should therefore ensure that the research organisation meets the FBR’s certification requirements.
Tax benefit for business research
The provision gives businesses an opportunity to reduce their taxable business income through a deduction for eligible scientific research expenditure, provided all conditions under Section 26 are satisfied.
The tax treatment is intended to encourage private-sector investment in research and development while promoting scientific knowledge and strengthening business capabilities in Pakistan.
For Tax Year 2027, businesses should maintain adequate documentation establishing the nature of the research, its connection with the business, the expenditure incurred and, where applicable, the certification status of the scientific research institution receiving a contribution.
Proper records can help taxpayers demonstrate that the expenditure meets the statutory requirements if the deduction is reviewed by the tax authorities.