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Tax rates in Pakistan

Tax Rates

Consumption Taxes

Nature of the Tax
Sales Tax
Tax Rate
17% for goods and for telecommunication services under the federal law.
For services, 16% for Islamabad and Punjab, 15% for KPK and Balochistan and 13% for Sindh
Reduced Tax Rate
The sales tax reduced rates for goods are: 1%, 1.5%, 2%, 5%, 6%, 7%, 8%, 10%, 12%.
The sales tax reduced rates for services are: 0%, 2%, 3%, 5%, 8%, 10%, 15%, 17% and 19.5%.

Zero-rated items include: export of goods, supplies and repair and maintenance of certain ships and aircraft, supplies to diplomatic missions and diplomats, supplies of raw materials, components, and goods for export processing zones, supplies of locally manufactured plant and machinery to export processing zones and supplies of certain specified machinery to the exploration and production sector, supplies to exporters.
Exempt items include: live animals and live poultry, live plants, vegetables, pulses, edible fruits (excluding imported fruits), certain spices, sugar cane, edible oils, etc., milk preparations, newsprints, newspapers, journals, periodicals, and books, agricultural produce not subjected to any process.

Due to COVID-19 pandemic, the federal government has temporarily exempted sales tax on import and further supply of oxygen gas, oxygen cylinders, cryogenic tanks and specified medical and testing equipment, such as real-time PCR systems, biosafety cabinets, vortex machines.

Click here for further information.

Other Consumption Taxes
A Federal Excise Duty (FED) is levied on goods manufactured or imported into Pakistan at varying rates. The sales tax on services, which replaces federal excise duties for services, is levied at rates ranging from 13% to 16%.
 
Find out more about Taxes and Accounting in Pakistan on GlobalTrade.net, the Directory for International Trade Service Providers.
 

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Corporate Taxes

Company Tax
29%
Tax Rate For Foreign Companies
A resident entity is taxed on its worldwide income, while non-resident entities operating in Pakistan through a branch are taxed on their Pakistan-source income attributable to the branch, at the same rates applicable to local companies. Branches can claim a deduction for head office expenses, whereas certain amounts paid to the head office or associates of the head office, such as interest, royalties, and technical service fees, are not deductible. However, a 15% tax is levied on the transfer of after-tax profits by a branch to the head office (companies engaged in the oil and gas exploration and production business are exempt).
A company is deemed resident in Pakistan if it is incorporated or formed by or under Pakistani law, or if the control and management of its affairs is situated wholly in Pakistan in that year.

Capital Gains Taxation
Capital gains are generally taxed at the standard rate of corporation tax. Capital gains on the sale of fixed assets held for more than one year are reduced by 25% for the calculation of the tax base (i.e. 75% of capital gains are taxed at 30%). Gains on the sale of listed securities acquired on or after 1 July 2013 are subject to a 15% tax; whereas capital gains on the sale of listed securities acquired before that date are exempt from tax.
Main Allowable Deductions and Tax Credits
Depreciation of property, plant and equipment is tax-deductible at rates ranging from 10% to 100%. The cost of intangible assets (intellectual property, among others) bringing in profit for more than one year is deductible over their useful life (up to ten years). The deduction of goodwill follows these same rules.
Start-up fees can be deducted over a period of five years.
Interest charges and bad debt are generally deductible. Donations to public schools and health centres, universities and non-governmental organisations are eligible for a tax credit of up to 20% of taxable income.
Fines that are not paid for breach of the law are deductible.
Scientific research expenditures incurred in Pakistan for the purpose of generating taxable income are fully deductible.
Trading losses (except those resulting from speculative business) may be offset against taxable income earned in the same year. Operating losses may be carried forward and set off against the profits of the succeeding six years of the same business (eight years for losses incurred by a resident company engaged in the hotel business in Pakistan relating to a tax year commencing on or after the first day of July 2020). The carryback of losses is not permitted.
Other Corporate Taxes
Capital duty is imposed on capital contributions (variable depending on the amount of capital). A property tax is levied at the provincial level, while property transfer is not subject to tax.
Social security contributions payable by the employer amount to 6% of salary (calculated on wages capped at PKR 600 per day or PKR 15,000 per month).
Stamp duties are levied on the issue and disposal of shares at a rate of 0.5% and 1.5% of the face value of the shares, respectively (with a minimum contribution of PKR 1).
Other Domestic Resources
Federal Board of Revenue (FBR)
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Country Comparison For Corporate Taxation

  Pakistan South Asia United States Germany
Number of Payments of Taxes per Year 34.0 26.7 10.6 9.0
Time Taken For Administrative Formalities (Hours) 283.0 273.5 175.0 218.0
Total Share of Taxes (% of Profit) 33.9 43.9 36.6 48.8

Source: Doing Business, Latest available data.

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Individual Taxes

Tax Rate

Personal tax rate. If more than 75% of an individual’s income is derived from employment Progressive rate from 0% to 20%.
PKR 0 - 600,000 0%
PKR 600,000 - 1,200,000 5% of the amount exceeding PKR 600,000
PKR 1,200,000 - 1,800,000 PKR 30,000 + 10% of the amount exceeding PKR 1,200,000
PKR 1,800,000 - 2,500,000 PKR 90,000 + 15% of the amount exceeding PKR 1,800,000
PKR 2,500,000 - 3,500,000 PKR 195,000 + 17.5% of the amount exceeding PKR 2,500,000
PKR 3,500,000 - 5,000,000 PKR 370,000 + 20% of the amount exceeding PKR 3,500,000
PKR 5,000,000 - 8,000,000 PKR 670,000 + 22.5% of the amount exceeding PKR 5,000,000
PKR 8,000,000 - 12,000,000 PKR 1,345,000 + 25% of the amount exceeding PKR 8,000,000
PKR 12,000,000 - 30,000,000 PKR 2,345,000 + 27.5% of the amount exceeding PKR 12,000,000
PKR 30,000,000 - 50,000,000 PKR 7,295,000 + 30% of the amount exceeding PKR 30,000,000
PKR 50,000,000 - 75,000,000 PKR 13,295,000 + 32.5% of the amount exceeding PKR 50,000,000
Over PKR 75,000,000 PKR 21,420,000 + 35% of the amount exceeding PKR 75,000,000
Tax rate for individuals other than salaried
PKR 0 - 400,000 0%
PKR 400,000 - 600,000 5% of the amount exceeding PKR 400,000
PKR 600,000 - 1,200,000 PKR 10,000 + 10% of the amount exceeding PKR 600,000
PKR 1,200,000 - 2,400,000 PKR 70,000 + 15% of the amount exceeding PKR 1,200,000
PKR 2,400,000 - 3,000,000 PKR 250,000 + 20% of the amount exceeding PKR 2,400,000
PKR 3,000,000 - 4,000,000 PKR 370,000 + 25% of the amount exceeding PKR 3,000,000
PKR 4,000,000 - 6,000,000 PKR 620,000 + 30% of the amount exceeding PKR 4,000,000
Above PKR 6,000,000 PKR 1,220,000 + 35% of the amount exceeding PKR 6,000,000
Allowable Deductions and Tax Credits
Reimbursement of expenses on medical treatment or hospitalisation or both received by an employee is tax-exempt. Furthermore, a medical allowance of up to 10% of basic salary is exempt if the facility of reimbursement of medical expenses is not available to the employee.
Individuals also are allowed deductions on account of interest paid on house loans, payment of insurance premium and tuition fees paid for their children.
A straight deduction is available for Zakat. Donations made to the Supreme Court of Pakistan are eligible for a straight deduction, while a rebate at the average rate of tax is allowed on donations made to any approved non-profit organisation on the lower of donation value or 30% of the taxable income.
Special Expatriate Tax Regime
Residents are taxed on their Pakistan and foreign-source income, while non-resident individuals are taxed only on Pakistan-source income.
A person is considered resident in Pakistan for income tax purposes if present in the country for a period or periods aggregating to 183 days or more in a tax year (1 July-30 June).
From July 1st, 2020, a withholding tax rate of 10% is applicable on payment of profit on debt to non-resident individuals on debt instruments issued by the Federal Government.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the list of the Double Taxation Agreements
Withholding Taxes
Dividends: 12.5% (non-resident corporations)/15% (residents; non-resident individuals), Interest: 15% (residents)/10% (non-residents), Royalties: 15% (residents)/10% (non-residents).
Bilateral Agreement
The United Kingdom and Pakistan are bound by a double taxation treaty.

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Sources of Fiscal Information

Tax Authorities
Overview of Pakistan's tax measures in response to Covid-19
Federal Board of Revenue (FBR)
Other Domestic Resources
Ministry of Finance

Find out more about Taxes and Accounting in Pakistan on GlobalTrade.net, the Directory for International Trade Service Providers.

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Latest Update: April 2022

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