Pakistan

Major developments in the tax laws through Finance Act, 2023 relating to the corporate sector are summarised as follows:

• Progressive tax rates for super tax on high earning persons, ranging from 1% to 10%, are introduced (please see the Taxes on corporate income section for details). Further, super tax shall now be accounted for while computing quarterly advance tax liability.

• Quarterly advance income tax shall be applicable on a project-to-project basis on persons deriving income from business by way of (i) construction and disposal of residential, commercial, and other building and (ii) development and sale of residential, commercial, and other plots.
• Re-introduction of 10% final tax (income tax) on bonus shares issued by companies.
• A new concept of ‘additional tax on income, profits, and gains’ with a capped rate of 50% introduced for extraordinary incomes of companies (in specified sectors) arising from economic factors to be determined by the federal government for preceding three years.
• Enhancement of withholding tax (WHT) rates by 1% for suppliers, service providers, and contractors. For revised rates applicable in case of payment to a permanent establishment (PE) of a non-resident, please see Taxation of a permanent establishment (PE) in the Taxes on corporate income section.

• Enhancement of rate of income tax collected at import stage for commercial importer from 5.5% to 6%.
• Definition of associates for income tax purposes expanded to include transactions with persons resident in zero-taxed jurisdictions (please see Permanent establishment (PE) in the Corporate residence section for details).
• Definition of PE for income tax purposes expanded to include concept of virtual presence (please see Permanent establishment (PE) in the Corporate residence section for details).
• The rate of income tax on capital gain arising on sale of securities acquired before 1 July 2013 reduced from 12.5% to 0%.
• Salary payments are an admissible deduction while computing income from business if salary of a person is made through banking channel, unless it does not exceed 25,000 Pakistani rupees (PKR). Such threshold is now enhanced to PKR 32,000.
• Production, transmission, and distribution of electricity to be excluded from the purview of federal sales tax and corresponding inclusion in Islamabad sales tax on services in accordance with the decision of National Tax Council.
• The scope of federal excise duty (FED) applicable in Islamabad Capital Territory on services is proposed to be enhanced by adding royalty and fee for technical services.
• Subject to certain exclusions, the rate of further tax (sales tax) applicable on supply of taxable goods to persons who have not obtained registration or are not an active taxpayer is increased from 3% to 4%.