Islamabad, July 4, 2025 – In a major development aimed at industry revival, the Prime Minister’s Committees on Industrial Policy have proposed a significant reduction in the corporate tax rate to 26%.
(more…)Tag: corporate tax rate
-
FBR Implements Stricter Limits on Entertainment Expenditures for Corporate Tax Calculation
Karachi, November 25, 2023 – The Federal Board of Revenue (FBR) has enforced new restrictions on the deduction of entertainment expenditures when computing corporate taxes for the tax year 2024.
(more…) -
High tax may erode banks’ earnings up to 20%
KARACHI: The proposed corporate tax rate for banks may erode earnings of the sector by up to 20 per cent on annual basis.
The government presented federal budget on June 10, 2022 and proposed enhancement in tax rates for banking companies.
READ MORE: Pakistan slaps 45% corporate tax on banks
The government announced various taxation measures on the banking sector in the Budget 2022/2023. This includes i) increase in corporate tax to 45 per cent against existing 35 per cent, ii) imposition of poverty alleviation tax of 2 per cent and iii) hike in tax rate in case of adverse Asset to Deposit Ratio (ADR).
New rates would be applicable from Jul 1, 2022 subject to the approval of National Assembly.
READ MORE: Tax rates for business individuals, AOPs during TY2023
Analysts at KTrade expect this development to erode the KTrade’s banking sector earnings by 15 per cent – 20 per cent cumulatively, on an annual basis. Consequently, they have revised down target prices by 15 per cent.
1) Corporate tax enhanced to 45 per cent: The government proposed to increase the taxation to 45 per cent from 2023 onwards in order to meet the direct tax collection target of Rs2.6 trillion for 2022-2023. The analysts expect this to erode banking sector’s earnings by an average of 10.5 per cent on an annual basis.
READ MORE: Pakistan reintroduces advance tax on foreign payments
Type of Tax 2022 2023 and onwards Corporate Tax 35 per cent 45 per cent Super Tax 4 per cent 0 per cent Poverty Alleviation Tax 2 per cent 2 per cent 2) Adverse tax measures on low ADR: Banks would face higher taxation if the ADR threshold falls below 50 per cent. As a reminder, average ADR of banking sector improved to 48.5 per cent in Mar22 as opposed to 45.2 per cent in the same period last year. New rates as per the Finance Bill are as follows:
READ MORE: Exchange companies to withhold tax on payment to MTOs
Gross Advances to Deposits Ratio Existing Rate of Tax Proposed Rate of Tax Upto 40 per cent 40.0 per cent 55.0 per cent 40 per cent – 50 per cent 37.5 per cent 49.0 per cent Exceeding 50 per cent 35.0 per cent 45.0 per cent Within Ktrade universe, the analysts highlight BAFL, MEBL and HBL to remain immune because of exceeding the threshold ADR with ADR standing at 60 per cent, 54 per cent, and 50 per cent respectively.
Meanwhile, UBL, MCB and ABL with ADR of 45 per cent would face the negative consequences of higher taxation of 49 per cent.
This would result in further earnings attrition to the tune of 7 per cent for the said companies.
-
Pakistan slaps 45% corporate tax on banks
ISLAMABAD: Pakistan has slapped corporate income tax at 45 per cent on banks, which is raised from 35 per cent.
The country presented its federal budget on June 10, 2022 and introduced tax measures for boosting revenue collection.
READ MORE: Tax rates for business individuals, AOPs during TY2023
Through Finance Bill, 2022 the tax rate for banking companies have been proposed to increase to 45 per cent from existing 35 per cent.
In this regard, the bill proposed amendment to Division II, Part I of First Schedule of the Income Tax Ordinance, 2001.
Proposed Rates of Tax for Companies
READ MORE: Pakistan reintroduces advance tax on foreign payments
The rate of tax imposed on the taxable income of a company shall be as set out in the following Table, namely:-
Type of Company Rate of Tax Small company 20% Banking company 45% Any other company 29% Following are the existing rates of tax for corporate entities for tax year 2022:
(i) The rate of tax imposed on the taxable income of a company for the tax year 2007 and onward shall be 35%:
Provided that the rate of tax imposed on the taxable income of a company other than a banking company, shall be 34% for the tax year 20145:
READ MORE: Exchange companies to withhold tax on payment to MTOs
Provided further that the rate of tax imposed on the taxable income of a company, other than a banking company, shall be 33% for the tax year 2015:
“Provided further that the rate of tax imposed on taxable income of a company, other than banking company shall be 32% for the tax year 2016, 31% for tax year 2017, 30% for tax year 2018 and 29% for tax year 2019 and onwards.
READ MORE: Salaried persons denied adjustments against deduction
(iii) where the taxpayer is a small company as defined in section 2, tax shall be payable at the rate of 25%:
Provided that for tax year 2019 and onwards tax rates shall be as set out in the following Table, namely:—
Tax year Rate of Tax 2019 24% 2020 23% 2021 22% 2022 21% 2023 and onwards 20%” -
Corporate income tax rates in Pakistan for 2021-2022
The Federal Board of Revenue (FBR) has recently released the updated income tax rates applicable to companies for the tax year 2022.
(more…) -
Tax rate disparity discourages corporatization: PSX
KARACHI: Inequality in tax rates for corporate and non-corporate businesses has discouraging corporatization in the country, Pakistan Stock Exchange (PSX) noted in its proposals for budget 2021/2022.
The stock exchange pointed out that corporate business profits are taxed twice: once at company level at 29 percent and on dividend distribution at 15 percent.
As compare to 44 percent of total tax in case of companies, unincorporated businesses are being taxed from 0 percent to 35 percent in slabs.
This inequity in taxation is discouraging corporatization and documentation as unincorporated businesses are subject to substantially lower taxes.
Absence of clarity in tax laws is causing issues of taxation of Limited Liability Partnerships (LLP5) as companies whereas LLPs are essentially AoPs with perpetual life.
Therefore, the PSX recommended that inequality of taxation of businesses shall gradually be removed by reducing corporate tax rate/increasing tax rates for AoPs [First Schedule Part 1, Division I, II, hA & Ill]. Rationale
It said that equality of tax regime will promote corporatization culture leading towards documentation and will therefore generate more tax revenue.
Adding clarity with respect to status of LLP will encourage more businesses particularly in services sector to opt for this perpetual business structure. It will also help in increasing tax revenue from these segments.
-
Corporate, super tax rates should be aligned for banks
KARACHI: Federal Board of Revenue (FBR) has been proposed to bring down the corporate tax rate for banks at par with other corporate sector and also treatment of super tax for banking companies aligned with other taxpayers.
The banks are paying 35 percent income tax whereas the corporate tax rate for other sectors is 29 percent. Likewise, super tax at four percent is applicable on banks.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its budget proposals for 2020/2021 submitted to the FBR, highlighted that the banking sector tax rates are not aligned with the general corporate tax rates.
Furthermore, through Finance Supplementary (Second Amendment) Bill 2019, Super Tax at 4 percent is made applicable on banks from tax year 2018 to tax year 2021.
The OICCI recommended that corporate tax rates for the banking sector should be aligned with other sectors.
Meanwhile, super tax relief, as granted to other industries, should be given to banking sector as well.
The OICCI also highlighted tax deduction on profit on debt under section 151 of Income Tax Ordinance, 2001.
Through Circular No.1/2-STB/2019 dated 26th July 2019, FBR has clarified that withholding tax under section 151 shall be deducted on the basis of cumulative profit paid in a tax year.
The circular is in contradiction with the Act, which requires that withholding tax shall be deducted on payment basis.
The circular should be withdrawn, to avoid litigation between banks and department.
There should be a uniform withholding tax rate of 15 percent for all payments of profit on debt.
The OICCI pointed out Section 165 and 165A of Income Tax Ordinance 2001related to submission of statements and information by the banks.
The Clause (81A) of Part IV to the Second Schedule was inserted vide the Finance (Second Amendment) Act 2019 to exclude the reporting requirements under section 165 of Income Tax Ordinance, 2001 with respect to withholding tax under section 151 (Profit on Debt) and 231A (Cash Withdrawal) since both the withholding sections are required to be reported under section 165A.
The clause was abolished vide Finance Act 2019, resulting in duplication of reporting i.e. withholding tax under section 151 and 231A has to be reported, with a threshold, under section 165A on monthly basis and again under section 165 on bi-annual basis, but without any threshold i.e., withholding tax of even Re 1 has to be reported under section 165A.
Therefore, the OICCI recommended that Clause (81A) of Part IV to the Second Schedule should be restored to avoid duplication of reporting and handling of voluminous data for immaterial withholding tax transactions, which is not clear.
Alternatively, reporting requirement of section 165A for both these sections (151 and 231A) should be deleted to avoid double reporting.
-
Reducing corporate tax to 25 percent recommended
KARACHI: Federal Board of Revenue (FBR) has been urged to gradually reduce the corporate tax rate to 25 percent by tax year 2023.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2020/2021 recommended consolidation of all federal taxes in one lump sum.
The government previously announced a policy for gradual decrease in corporate tax rate to bring it down to 25 percent by Tax Year 2023. However in the 2019 Finance Act the rate was frozen at 29 percent.
The tax system has become cumbersome and inefficient due to a number of parallel taxes. In addition to direct corporate taxes, companies also pay other levies like the Workers Profit Participation Fund (WPPF) at 5 percent, Workers Welfare Fund (WWF) at 2 percent on their profits, thus the effective tax rate goes up significantly.
If other taxes like the provincial infrastructure taxes in Sindh and Punjab, stamp duty on Purchase Orders and contracts, together with many other local levies are added, overall tax burden goes up to about 40 percent of profits, which is a significant tax burden with consequential increase in cost of doing business.
The OICCI recommended to consolidate all federal taxes – Income Tax, and levies like WWF, WPPF in one lump sum so as to make the system more efficient and business friendly.
Further, continue the previously announced policy to annually revise the tax rate to eventually align with the average Regional Corporate rate of 25 percent by FY 2023.
-
High tax rates to discourage industrialization: KCCI
KARACHI: Raising the tax rate is not the right solution for enhancing revenue as it will discourage expansion and industrialization but the actual solution lies in broadening the tax net, Junaid Makda, President, Karachi Chamber of Commerce and Industry (KCCI) said in a statement on Saturday.
The broadening of the tax base will subsequently share the burden and bring down the tax rates that would surely encourage the business & industrial community to go for expansion, Junaid Makda said, adding that it would in turn result in maximum production, excellent sales, enhanced revenue collection, massive number of employment opportunities, poverty alleviation and long term economic prosperity.
Makda, while appreciating the good intent of Prime Minister Imran Khan to improve the revenue collection, was, however, skeptical as the Federal Board of Revenue (FBR), which is responsible to implement the policies for enhancing revenue from all over the country, has kept its revenue collection activities confined to Karachi only whereas the rest of Pakistan stands exempted from all these policies as perceived.
Junaid Makda said that FBR wants to achieve the revenue target by further squeezing the existing taxpayers of Karachi which was already contributing a mammoth sum of more than 70 percent revenue to the national exchequer whereas no such activity was visible in any other city or province of the country.
“We are not against the actions being taken to strictly deal with tax evaders from Karachi who must also be brought into the tax net along with tax evaders from other areas of the country but the loyal taxpayers should not be harassed and overburdened with exorbitant taxes,” he added while underscoring the need to strictly implement policies in every single nook and corner of the country.
He said that the cost of doing business was already too high due to import/ regulatory duties, upsurge in dollar rate and exorbitant taxes etc. while many industries were finding it hard to continue their activities and even those industries, which were somehow surviving, have no other option but to pass on the burden to consumers that has resulted in across-the-board inflation.
He stressed that the government will have to follow the supply side of economics where more revenue is generated through growth, wherein taxes are reduced along with consumer prices that would lead to quantum growth and appreciation in net revenue as well.
Increase in taxes reverses the growth and it would start declining, ultimately reduce the revenue already being achieved and above all high taxes are incentive for evasion, he added.
President KCCI requested the Prime Minister Imran Khan to issue directives for broadening the tax base and implementing the relevant policies all over the country in letter and spirit which would certainly yield positive results.
He reaffirmed that exorbitant tax rates along with cumbersome procedures and frequent issuance of anti-business and anti-taxpayers SROs/ notifications would result in closure of massive number of industrial units, significantly dent government’s revenue and render hundreds of thousands jobless.
“We understand that the country is in dire need of additional revenue but one should realize that revenue must come from new sources and even if it is taken from old sources, it needs to be rationalized and kept at the lowest level in order to attract thousands of individuals, who prefer to stay away from the tax net keeping in view the hardships being faced by loyal taxpayers”, Junaid Makda said, adding that heavy taxation has been imposed across the board and this additional burden has terribly affected the businesses and growth, which is already in a declining mode and may suffer more in the days to come.
-
Income Tax Ordinance 2001: Corporate tax rate to be reduced to 25pc
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.
(more…)