Incentives and Tax Credits for Corporate Tax Payers

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Incentives and Tax Credits for Corporate Tax Payers

Tax credits have been made available for business taxpayers for employing newly graduated individuals, employment generation, making investments in freshly established undertakings and enrollment on stock exchange.

Tax Exemptions

Gains and profits that are derived from a project related to electric power which is set in the country, Pakistan, are excluded from tax.

Gains and profits that are generated by a business from shipping overseas, IT services, computer software and IT empowered services are excused from the payment of tax till 2025, 30th June.

Gains and profits generated from refineries that have been set up between 1st of July 2018 to 30th of June 2023, are being exempted from the payment of tax for twenty years. However, this is only applicable when certain conditions are met.

If certain conditions are fulfilled, a decrease in tax has been implemented on low price housing schemes by a percentage fifty percent.

Tax on gains, profits and income of low budget housing scheme projects will be reduced by ninety percent. This applies on projects that have been sanctioned by Naya Pakistan Housing and Development Authority (NAPHDA) and for projects under the Ehsaas Programme. Furthermore, for banking corporations, the taxable revenue rising from extra developments to NAPHDA for housing schemes of a low cost will be taxed on the amount of ten percent.

Income that is derived from an enterprise which is arranged in the ‘special economic zone’ is given exemption from tax payment for 10 years. This time period starts from the beginning of commercial production, which is subject to some conditions. The ‘special economic zones’ are established in different parts of the country.

Gains and profits that are obtained through liquefied natural gas center owners and operators are not liable to pay tax for a timeframe of 5 years. This period starts from the day of manufacturing.

Small Companies

The activities and operations of small corporations are given support by reducing their income tax percentage to 23% (refer to the corporate income tax guide for more information).

A small corporation is defined as one that:

  • Has capital which is paid-up along with undistributed reserves that do not exceed PKR fifty mn.
  • Is registered under the Ordinance 1984, after or on 1st of July 2005.
  • Has 250 employees only within a year.
  • Is not created after splitting up and reorganizing a business that already exists.

Charitable Contributions Credit

Corporations are permitted a tax credit equivalent on their taxes by twenty percent in accordance with the donations to:

  • Any educational establishment, relief fund or hospital that is being operated in Pakistan by the provincial government, local government or federal government.
  • Any organization that is non-profitable.
  • Any university or board of education that is operated under or by the provincial or federal law.

Corporations are allowed to deduction against income tax if the contributions are made to specific approved organizations.

Foreign Tax Credit

When a resident tax provider gains foreign-source revenue, on which excise is paid within 2 years, the resident is allowed tax credit equal of a lower of:

  1. The Pakistan tax due in regard of the revenue.
  2. The foreign revenue tax paid.

However, foreign tax paid by the tax payer is not refundable.