Corporate income tax in Pakistan: what a company actually pays
Corporate tax in Pakistan is not one rate. It is a rate plus two override mechanisms plus a distribution layer, and a company that budgets only for the headline percentage will be wrong in most years. This guide sets out the whole stack.
The rate tiers
| Company type | Rate on taxable income | Basis |
|---|---|---|
| Standard company | 29% | Default for companies not meeting a concessionary definition |
| Small company | 20% | Defined under section 2(59A) with structural criteria |
| SME in manufacturing, Category 1 | 7.5% | Turnover up to Rs 100 million |
| SME in manufacturing, Category 2 | 15% | Turnover up to Rs 250 million |
| Banking company | Higher, with its own regime | Effective burden including super tax is materially above the standard rate |
Small company and SME status are different tests with different criteria — see small company treatment. Meeting one does not imply the other, and losing status mid-way through a growth phase is a planning event worth anticipating.
The three layers above the rate
1. Minimum tax on turnover — section 113
Where the regular tax computation produces less than 1.25% of gross turnover, the minimum tax applies instead. It bites hardest on low-margin distribution and trading businesses, and it applies to loss-makers. Excess paid over regular tax can generally be carried forward for up to three years. See minimum tax on turnover.
2. Super tax — section 4C
An additional charge on high-earning persons. The Finance Act 2026 substantially narrowed it: super tax was abolished for persons other than banks, oil and gas exploration companies and persons selling fertilizers where income does not exceed Rs 500 million. A new exemption also applies where export proceeds realised for the tax year represent more than 80% of the person income. See super tax.
3. Distribution
Profit taxed in the company is taxed again when it reaches shareholders as a dividend. This is why a comparison between the 29% corporate rate and a 45% individual marginal rate is misleading on its own — the relevant comparison is the total on money that actually reaches the owner, which depends on how much you distribute versus retain.
We handle the computation, the minimum-tax comparison, statutory accounts and the annual filings together.
Avail our corporate tax servicesGetting from accounting profit to taxable income
The gap between the two is where corporate returns are won or lost:
- Depreciation. Tax depreciation and initial allowance follow the statutory rates and rules, not your accounting policy. The two schedules diverge from year one and the difference has to be tracked.
- Inadmissible expenses. Certain payments are disallowed outright or restricted — including expenses lacking proper documentation, and payments where required withholding was not deducted and deposited.
- Provisions and accruals. Many are not deductible until incurred or paid, so the accounting charge and the tax deduction fall in different years.
- Carried-forward losses, subject to the set-off and carry-forward rules applicable to the head of income.
- Withholding suffered, claimed as a credit where adjustable and matched to certificates and FBR records.
Special regimes worth knowing about
- Builders and developers are taxed under a special regime based on taxable profits from specified activities — construction and sale of buildings, and development and sale of plots, each at their own percentage of gross receipts.
- Export of services falls under a final tax regime where withholding on remittance of export proceeds discharges the liability, with an option to be taxed under the normal regime instead. For PSEB-registered IT and IT-enabled services exporters the rate is 0.25%, extended to 30 June 2029 — see IT export tax.
- Certain sectors operate under final or minimum tax regimes that displace the normal computation entirely.
The recurring obligations
- Annual return by 31 December for a 30 June year end, with financial statements — now required in machine-readable format.
- Quarterly advance tax instalments, where they apply. Missing these produces default surcharge on underpaid instalments, and it is one of the most common avoidable corporate costs because owners think about tax annually.
- Monthly sales tax returns if registered federally or provincially.
- Withholding deposits, statements and certificates as a withholding agent.
- Payroll under section 149 for employees — section 149.
- SECP annual return and event-driven filings, plus audited accounts where required — SECP annual return.
Poor documentation — missing audited statements, unmatched credits, no reconciliation between sales tax and income tax turnover — is among the most common reasons a corporate audit notice is issued. Bookkeeping that survives a review covers the records side.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
- Income Tax Basics (FBR)
- Finance Act 2026 (FBR)
- Federal Budget 2026-27 salient features (FBR)
- File an Income Tax Return (FBR)
Questions people also ask
Is 29 percent the total a company pays?
No, and treating it as the total is the most common corporate tax planning error in Pakistan. It is the rate on taxable income. On top of it can sit minimum tax on turnover, super tax where the income threshold is met, and a further layer when profit is distributed to shareholders. Run the integrated calculation rather than working from a single headline figure.
My company made a loss. Do we still owe tax?
Very possibly. Minimum tax under section 113 applies where the regular tax computation falls below 1.25% of gross turnover, and it operates regardless of whether you made a profit. A loss-making company with substantial turnover can therefore have a real liability, and the excess can generally be carried forward for up to three years against future tax.
What is the difference between a small company and an SME?
They are separate definitions with separate rates. A small company is defined under section 2(59A) with structural criteria including paid-up capital, employee numbers and turnover, and pays 20%. SME treatment applies to manufacturing concerns by turnover band, at 7.5% up to Rs 100 million and 15% up to Rs 250 million. A business can meet one definition and not the other, so check both.
Do we have to file if the company never traded?
Yes. A company files for every tax year from incorporation, whether or not it traded, made a profit or had a bank transaction. Dormant companies still file, and the accumulated position becomes harder and more expensive to fix each year it is left. SECP filings continue in parallel.
When is our return due?
A company with a 30 June year end files by 31 December. Companies with a different year end have their own dates determined by that year end. Note also that late filing by a company now carries a section 182A restoration surcharge of Rs 100,000 to regain Active Taxpayer List status, in addition to any penalty.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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