Islamabad, November 26, 2025 – Thinking about investing in Pakistan’s industrial sector? There’s a powerful reason many companies find it appealing: generous tax credits that significantly reduce the cost of expansion and modernization.
The Federal Board of Revenue (FBR) has reaffirmed that these tax incentives remain available for Tax Year 2026, as updated in the Income Tax Ordinance, 2001.
At the heart of these benefits lies Section 65B, which outlines Pakistan’s tax credit system designed to encourage industrial investment, technological upgrades, and job creation.
What Makes This Tax Credit So Attractive?
Under Section 65B, companies investing in plant and machinery for extension, expansion, balancing, modernization, or replacement (BMR) can claim substantial tax relief. This incentive directly supports industries seeking to upgrade and remain competitive.
Here’s what investors can benefit from:
1. 10% Tax Credit on Industrial Investment
Companies that invest in qualifying plant and machinery between July 1, 2010, and June 30, 2019, can claim a 10% tax credit against their payable tax—including minimum and final taxes.
For Tax Year 2019, the credit rate was adjusted to 5%.
2. Special 20% Tax Credit for Eligible Companies
A unique incentive applies to companies established before July 1, 2011, that made new-equity-based investments between July 1, 2011 and June 30, 2016 for BMR projects.
These companies are eligible for a 20% tax credit, offering a major boost for enterprises expanding their industrial capacity.
3. Carry-Forward Option for Unused Tax Credit
If a company’s tax payable is lower than the credit amount:
• Credits under subsection (1) may be carried forward for up to two years.
• Credits under subsection (4) may be carried forward for up to five years.
This ensures companies can fully utilize the benefit even if immediate tax payable is low.
Who Qualifies for This Incentive?
To claim the tax credit, a company must:
• Own an industrial undertaking set up in Pakistan.
• Purchase and install qualifying plant or machinery within the approved timeline.
• Invest through 100% new equity (for the 20% credit category).
• Ensure the investment is not linked to reconstruction, splitting, or transfer of old machinery.
The term “new equity” carries the same meaning as defined under Section 65E(7).
Important Compliance Reminder
If the Inland Revenue Commissioner later discovers that any legal condition was not fulfilled, the tax credit will be treated as wrongly granted. In such cases, the authority may recompute tax liability for the relevant year.
Why This Matters
Pakistan’s tax credit structure is crafted to fuel industrial growth, attract investment, and encourage technological modernization. For businesses eyeing expansion, these incentives significantly lower the effective cost of capital—making Pakistan an appealing investment destination.
Disclaimer: The information in this article is for general informational purposes only and is based on publicly available updates from the Federal Board of Revenue (FBR). Tax laws may change, and individual circumstances vary. Readers should consult a qualified tax professional or refer to official FBR notifications for accurate guidance.