Pakistan: Changes in the corporate tax rate structure

The federal government has recently introduced various changes in the corporate tax rate structure with the Finance Bill 2022. These changes have been implemented by Finance Act 2022 by way of amendments made in the Income Tax Ordinance, 2001 (the “Tax Ordinance”) effective 1 July 2022. Certain changes, as explained here, are also applicable for tax year 2022 (financial year ended on 30 June 2022), given the prevailing economic situation in the country.

The changes relating to the corporate tax rate structure for different categories of companies are as follows:

Small companies

Small company is a special status assigned to companies fulfilling conditions laid down under clause (59AB) of Section 2 of the Tax Ordinance. The tax rate for small companies has been reduced to 20% from 21%.

However, an additional tax, introduced as ‘super tax on high-earning persons’, is inter alia applicable to small companies ranging from 1% to 2% of ‘income’ as defined in the newly inserted Section 4C of the Tax Ordinance. The rates of super tax for tax year 2022 and onwards are as follows:

Banking companies

For banking companies, the tax rate has been increased from 35% to 39%. Super tax as per Section 4B of the Tax Ordinance is restricted up to tax year 2022 at the rate of 4%.

For tax year 2023, banking companies will be subject to newly introduced super tax on high-earning persons (Section 4C) whereas super tax as per Section 4B will no longer apply. Super tax on the income of banking companies will be 10% if the income for the year exceeds PKR 300 million for tax year 2023.

The new tax rates are summarised as follows:

Other companies

The existing corporate tax rate of 29% remains unchanged. However, super tax im­posed under Section 4C ranging from 1% to 10% of income is also applicable for tax year 2022 and onwards. The revised tax rates are tabulated below:

For tax year 2022, the rate of super tax under Section 4C is 10% instead of 4% for certain business sectors having income above PKR 300 million, i.e. airlines, automo­biles, beverages, cement, chemicals, cigarette and tobacco, fertiliser, iron and steel, LNG terminal, oil marketing, oil refining, petroleum and gas exploration and produc­tion, pharmaceuticals, sugar and textiles.

Read the WTS Global International Corporate Tax Newsletter here.