Pakistan

Major developments in the tax laws through Finance Act, 2024 relating to the corporate sector are summarised as follows:

• Exporters of goods are brought into the normal tax regime, whereby the withholding tax (WHT) collected is to be treated as minimum tax. An additional advance tax at the rate of 1% of export proceeds is also introduced and is adjustable (please see the Taxes on corporate income section for details).

• Capital gains relating to immovable properties are to be taxed without regard to the holding period for acquisitions on 1 July 2024 and onwards (please see the Income determination section for details).
• The concept of holding period is abolished for capital gains relating to securities acquired on or after 1 July 2024, with separate rates prescribed for filers and non-filers (please see the Income determination section for details).
• The facility of an exemption certificate for WHT is withdrawn, and, henceforth, the Commissioner will only be able to issue a certificate for a lower rate of tax in certain cases.
• 25% of sales promotion and advertising expense are to be disallowed in case of royalty arrangement with an associated entity on account of certain intangibles (please see the Group taxation section for details).
• The rate of tax on dividends and capital gains from mutual funds and real estate investment trusts (REITs) are enhanced (please see the Income determination section for details).
• Provisions relating to advance tax collection from distributors, wholesalers, and retailers, which were previously applicable on specified sectors, have now been extended to all business sectors.
• The two-tier appeal system has been revamped by way of introducing pecuniary jurisdictions for the Commissioner Inland Revenue (Appeals) and the Appellate Tribunal Inland Revenue.
• A concept of ‘significant economic presence’ of a non-resident has been introduced by defining the term of a ‘business connection in Pakistan’. Non-residents covered under a double tax treaty (DTT) shall not be affected with this development (please see the Corporate residence section for details).
• A special tax regime has been introduced for builders and developers (please see the Tax on corporate income section for details).