Pakistan

Corporate - Significant developments

Last reviewed - 17 January 2023

Recent developments in the law relating to corporate sector are summarised as follows:

 

  • Super tax is levied on taxpayers having income in excess of PKR 150 million, ranging from 1% to 4%. Enhance super tax rate of 10% is applicable for one year in case of certain specified sectors having income in excess of PKR 300 Million. For details, please refer to ‘Taxes of corporate income’ section below.

 

  • Standard rate of tax in case of a banking company is enhanced from 35% to 39%.

 

  • Penalty for non-filing / late filing of income tax return is enhanced to higher of 0.1% of tax payable for each day of default or PKR 1,000 per day, with maximum penalty of 200% of the tax payable and minimum penalty of PKR 50,000.

 

  • The time period allowed to carry forward unadjusted minimum tax on turnover is reduced from 5 years to 3 years.

 

  • 100% tax credit regime available on export of software, IT services and IT enabled services has been withdrawn and a withholding tax of 0.25% on the export proceeds of IT sector has been introduced.

 

  • Withholding tax rate on payment of fee for offshore digital services provided by non-resident is increased from 5% to 10%.

 

  • Non-residents having no permanent establishment in Pakistan, deriving income from Pakistan in form of fees for money transfer operations, card network services, payment gateway services, inter-bank financial telecommunication services shall not be taxable at a rate of 10%.

 

  • Reduced rate of Capital gain tax on disposal of listed securities, based on holding period introduced for securities purchased post July 1, 2022.

 

  • Tax on value of capital assets in Pakistan is introduced at a rate of 1%, applicable on fair market value of certain immovable properties of resident persons situated in Pakistan. For details, please refer to ‘Taxes of corporate income’ section below.

 

  • Capital gains tax provisions relating to immovable properties situated in Pakistan revamped aiming to collect tax on sale of open plots held for a period of less than six years. Advance tax rate for buyer and seller of immovable property is enhanced from 1% to 2% (the rates are further enhanced in case company is an inactive taxpayer). Further, advance tax on sale of immoveable property is to be collected irrespective of the holding period (earlier it was not collected where property was sold after four years).

 

  • Every company will now be required to electronically submit details of beneficial owners and any change in their particulars. Specific rules are expected to be promulgated in this regard. A penalty of PKR 1 million will be levied for each default.

 

  • Rate of tax on indenting commission, remitted in foreign currency through banking channels has been reduced from 5% to 1%.

 

  • To claim an expense as admissible deduction, companies were earlier required to switch from traditional banking instruments to digital means to settle payments under a single head of account exceeding PKR 250,000 (PKR 20,000 for salary payment) with certain exceptions. The implementation of this requirement is deferred till further notification.

 

  • Condition to obtain CNIC under the federal sales tax law in Pakistan, when making taxable supplies to unregistered persons is no longer applicable, except in case of supplies to unregistered distributor.

 

  • Exemption from sales tax in Islamabad Capital Territory is introduced on locally rendered IT and IT enabled services.

 

  • Through Finance Act, 2021, listed companies were excluded from the restriction to claim input tax to the extent of 90% of its output tax. The condition is again imposed in the federal sales tax law through Finance Act, 2022 (effective from July 1, 2022).