Tax credits are available to corporate taxpayers for employment generation, employing fresh graduates, enlistment on a stock exchange, and making of investments in newly established undertakings.
A tax credit is also available, up to 30 June 2019, for extensions, expansion, balancing, modernisation, and replacements carried out in existing undertakings, with rate of tax credit for tax year 2019 being 5% of the amount of eligible investment. The carryforward of unabsorbed tax credit relating to prior years shall continue to apply after 30 June 2019.
Profits and gains derived from an electric power generation project set up in Pakistan are exempt from tax.
Profits and gains derived by a company from the export of computer software, information technology (IT) services, or IT-enabled services are exempt from tax up until 30 June 2025.
Profits and gains derived by refineries, which are setup between 1 July 2018 and 30 June 2023, have been granted exemption from tax for a period of 20 years, upon fulfilment of certain conditions.
Low-cost housing projects have been incentivised by allowing a reduction in tax liability (arising on profits and gains) by 50%, subject to fulfilment of certain conditions.
Profits and gains from new manufacturing units set up in Khyber Pakhtunkhwa and Baluchistan are exempt from tax for five years if set up between 1 July 2015 and 30 June 2018.
Profits and gains from electricity transmission projects are exempt from tax for ten years if set up between 1 July 2015 and 30 June 2018.
Income derived by an enterprise set up in ‘special economic zones’ is exempt from tax for a period of ten years, starting from commencement of commercial operations/production, subject to certain conditions. These ‘special economic zones’ have been established in different territories of the country.
Profits and gains derived by liquefied natural gas terminal operators and terminal owners are exempt from tax for a period of five years beginning from the date of commercial production.
Activities of small companies are encouraged with a reduced income tax rate of 23% (see the Taxes on corporate income section).
A small company has been defined to mean a company that:
- is registered on or after 1 July 2005 under the Companies Ordinance, 1984
- has a paid-up capital plus undistributed reserves not exceeding PKR 50 million
- has employees not exceeding 250 at any time during the year
- has an annual turnover not exceeding PKR 250 million, and
- is not formed by splitting up or the reconstitution of business already in existence.
Charitable donations credit
Companies are allowed a tax credit equivalent to 20% of their taxable income in respect of donations to:
- any board of education or university in Pakistan, established by or under federal or provincial law
- any educational institution, hospital, or relief fund established or run in Pakistan by federal government, provincial government, or local government, and
- any non-profit organisation.
Companies are also allowed a straight deduction against taxable income (up to 20% of taxable income) in case of donations made to certain approved institutions.
Foreign tax credit
Where a resident taxpayer derives foreign-source income on which foreign income tax is paid within two years from the year in which it is derived, the taxpayer is allowed a tax credit equal to the lower of (i) the foreign income tax paid or (ii) the Pakistan tax payable in respect of that income. However, foreign tax paid is not refundable.