Pakistan Corporate Tax Guide 2026

Overview — Corporate Taxation in Pakistan

Corporate income tax in Pakistan is governed by the Income Tax Ordinance 2001 and administered by the FBR. Companies resident in Pakistan are taxed on worldwide income. Non-resident companies are taxed only on Pakistan-source income. A company is resident if it is incorporated or managed and controlled in Pakistan. The standard corporate tax rate is 29% for tax year 2026, with a reduced rate of 25% for companies listed on the Pakistan Stock Exchange (PSX).

Corporate Tax Rates

• Standard rate: 29% of taxable income
• Publicly listed companies: 25% of taxable income
• Small companies (SMEs): 20% on first PKR 8 million, 29% thereafter (conditions apply)
• Super tax: 2–10% additional for companies with income exceeding PKR 50 million
• Banking companies: 39% (standard rate plus additional levy)

Pakistan's corporate tax rate of 29% is the highest in South Asia, above India's 25% (plus surcharge) and Bangladesh's 25–30% range. The government has been gradually reducing the rate from 35% in 2015 but remains above regional averages.

Super Tax for Companies

Under section 4C of the Income Tax Ordinance, companies with income exceeding PKR 50 million are subject to super tax at progressive rates of 2–10% on total income. The super tax is in addition to the standard CIT and is not creditable. This levy has been extended multiple times and is now considered a permanent feature of the tax system. Banking companies face a higher super tax rate.

Minimum Tax on Turnover (MTT)

Pakistan imposes a minimum tax on turnover at 1.5% of gross turnover for most companies if the standard tax liability is lower. This ensures that companies pay a minimum amount of tax regardless of profitability. The MTT is adjustable against future tax liabilities in subsequent years. Certain sectors (oil marketing, pharmaceuticals, etc.) have sector-specific minimum tax rates.

Alternative Corporate Tax (ACT)

Companies with tax depreciation exceeding book depreciation may be subject to the Alternative Corporate Tax (ACT) of 17% of accounting income. This is designed to prevent companies from reducing tax liability through aggressive depreciation claims. ACT paid can be carried forward and adjusted against future tax liabilities. Banking companies and certain sectors are exempt from ACT.

Withholding Tax (WHT) Regime

Pakistan operates an extensive withholding tax system, where tax is deducted at source on payments such as dividends (15%), interest (15–25%), contracts (3–7.5%), and imports (1–12%). WHT collected is adjustable against the company's final tax liability. The system acts as a key tax collection mechanism and compliance tool.

FAQs

How is the super tax calculated for companies?

For companies with income above PKR 50 million, the super tax rate ranges from 2% to 10% depending on the industry and income level. Banking companies face a flat 4% super tax. The super tax is levied on total income and is not deductible for normal tax purposes.

What qualifies as a small company for the reduced rate?

A small company is defined as one with total assets and annual turnover not exceeding PKR 100 million and at least 40% of its income derived from manufacturing. Such companies pay 20% on the first PKR 8 million of taxable income.

Are capital gains of companies taxed at corporate rates?

Yes, capital gains of companies are included in taxable income and taxed at the corporate rate. However, gains on shares held for more than one year may qualify for a reduced effective rate through indexation or deduction.

Disclaimer

This guide provides general information about Pakistan corporate income tax for tax year 2026. Rates and rules are subject to change through the Finance Act. Always consult with a qualified tax advisor in Pakistan for advice specific to your situation. InvestmentKit does not provide tax advice.