The standard corporate tax rate is 30% for the 2018 tax year (31% for the 2017 tax year). For banking companies, a 35% tax rate applies and for small companies meeting certain conditions the rate is 25%.

A reduced rate of 20% is applicable to income derived from investments in new industrial, construction or housing projects with at least 50% foreign direct investment. Alternate Corporate Tax does not apply for companies subject to this reduced rate.

For tax year 2015 and 2016, a super tax at 4% is levied on banking companies and 3% on other companies having taxable income exceeding PKR 500 million.

Alternative Minimum Tax

A minimum tax at the rate of 1.25% of turnover (increased from 1% from the 2018 tax year) is applicable where the tax payable by the company is less than 1% of turnover, except where the company is in loss position before charging depreciation and inadmissible expenses. The minimum tax rate for companies providing services in specified 12 corporate service sectors is 8% of the turnover.

Minimum tax can be carried forward for up to 5 years.

Alternate Corporate Tax

An alternate corporate tax (ACT) of 17% is applicable on the accounting income of companies continuously declaring very low income or losses. The tax payable is the higher of corporate tax or ACT , although ACT can be carried forward for up to 10 years to alleviate the burden on companies with genuine low income or losses.

Capital Gains

The capital gains tax rate on securities is 15% if held for up to one year, 12.5% if held for up to two years, and 7.5% for securities held more than two years up to four years. Effective from the 2018 tax year, a flat 15% rate is applicable for capital gains arising on sale of listed shares acquired on or after 1 July 2016, irrespective of holding period. Gains on securities held for more than four years are exempt.

However, an increased rate of 20% applies to non-filers (i.e. persons (natural and legal) whose name does not appear on the Active Taxpayers List (ATL) or who not hold a valid taxpayer card).

Real Estate Capital Gains

Effective 31 July 2016, capital gains from the sale of real estate is based on the period of holding and is taxed as follows:

Held for less than one year - 10%;
Held for one year or more but less than two - 7.5%;
Held for two years or more but less than three - 5%;
Held for more than three years - exempt

For property acquired before 1 July 2016 and held less than three years, the rate of tax is 5%. Property purchases exceeding PKR 4 million in value is subject to withholding tax. The Federal Board of Revenue is responsible for establishing and publishing property valuation tables.

Dividend

Dividend income is subject to tax at the rate of 15% (increased from 12.5% effective from 1 July 2017) which is collected by way of withholding. In case of recipients who are non-filers, the rate of tax is 20%.

The withholding tax is regarded as a final tax and there is no further liability in the hands of the recipient company. However, non-filers can claim a refund of 5% of the taxes withheld upon filing of an income tax return.

A reduced rate of 10% is applicable to dividends received from mutual funds. For the 2018 tax year, dividend amounts received from mutual funds in excess of PKR 2.5 million are subject to withholding tax at 12.5%.

Undistributed reserves of companies in excess of 100% of paid-up capital, are taxed at 7.5% (reduced from 10% effective from 1 July 2017). The tax is levied on accounting profit before tax if the company fails to distribute at least 40% of its after-tax profits in the form of cash or bonus shares within 6 months from the end of the tax year. However, this tax is not applicable in cases where a restriction on the distribution of dividends has been imposed on a company on account of an agreement with the Government of Pakistan.

Transactions by Unregistered Taxpayers

Effective 1 July 2015, the scope of increased withholding tax for non-compliant taxpayers/ non-filers was expanded, to provide for a 0.6% advance tax on banking instruments and other transfers of funds through banks for taxpayers that have not filed tax returns.

Royalty Income

Effective 1 July 2015, a 10% final withholding tax is applicable for the renting of machinery and for the use of, or right to use, commercial, scientific, or industrial equipment for residents.

Tonnage Tax Regime

Income of residents from ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft purchased or bare-boat is assessed to tax under a tonnage tax regime. For ships registered in and flying the Pakistani flag, the tax is determined as USD 1 per gross registered tonnage. For ships not registered in Pakistan and hired on any charter other than bare-boat charter, the tax is determined as USD 0.15 per ton of gross registered tonnage per chartered voyage, subject to a maximum annual amount of USD 1 per ton of gross registered tonnage. In both cases, the equivalent PKR amount is determined by converting the USD amount as per exchange on 1 December of the year.

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