Tax at a glance

This chapter states the position as of May 2026, before the federal budget for the 2026–27 fiscal year. Rates change annually with the Finance Act; verify every figure against the current law before acting on it.

Who collects what

Pakistan splits taxing power between the federation and the provinces. The Federal Board of Revenue (FBR) administers income tax under the Income Tax Ordinance, 2001, sales tax on goods under the Sales Tax Act, 1990, customs duties under the Customs Act, 1969, and federal excise duty. The four provinces tax services through their own authorities — the Sindh Revenue Board, Punjab Revenue Authority, Khyber Pakhtunkhwa Revenue Authority, and Balochistan Revenue Authority — and also levy stamp duty, property taxes, and professional tax. Islamabad Capital Territory has its own services tax administered federally.

The practical consequence: a service business operating nationally deals with up to five sales tax authorities, each with its own registration, returns, and audit practice. Allocation of a single transaction between jurisdictions (origin versus destination of the service) has produced double-taxation disputes between the authorities themselves [current state of inter-provincial coordination — TO BE VERIFIED BY REVIEWING LAWYER].

Corporate income tax

The headline corporate rate is 29 per cent for companies generally, and has been for several years [rate for tax year 2026 — TO BE VERIFIED BY REVIEWING LAWYER]. Banking companies pay a higher rate. Small companies, as defined in the Ordinance, pay a reduced rate.

Three overlays matter as much as the headline rate.

Super tax. Section 4C imposes an additional graduated levy on higher incomes, reaching 10 per cent at the top slab [current slabs and rates — TO BE VERIFIED BY REVIEWING LAWYER]. For profitable companies this makes the effective federal rate materially higher than 29 per cent. Its constitutionality has been litigated; assume it applies while the challenges run [status of pending litigation — TO BE VERIFIED BY REVIEWING LAWYER].

Minimum tax on turnover. Section 113 imposes a minimum tax on turnover — historically 1.25 per cent as the general rate, with lower rates for specified sectors — payable when normal tax liability falls below it [current rates — TO BE VERIFIED BY REVIEWING LAWYER]. Loss-making and thin-margin businesses pay tax on revenue regardless of profit. Model this before committing to a low-margin entry strategy.

Withholding as collection. Pakistan collects a large share of income tax through withholding at source. Payments for goods, services, and contracts between businesses attract withholding; the payer deducts and deposits, and the payee claims credit. Rates differ by payment type and by whether the payee appears on the Active Taxpayers List (ATL). Absence from the ATL roughly doubles the applicable rate. Keeping registrations and filings current is therefore a cash-flow matter, not just a compliance matter.

Dividends are taxed by withholding, generally at 15 per cent for ATL recipients, subject to treaty relief [current rates — TO BE VERIFIED BY REVIEWING LAWYER]. Pakistan has a wide treaty network — more than sixty conventions — and treaty relief on dividends, interest, royalties, and fees for technical services is routinely available, though the FBR may require an exemption or reduced-rate certificate before the payer applies the treaty rate [current procedure under section 152 — TO BE VERIFIED BY REVIEWING LAWYER].

Cross-border points

A non-resident is taxed on Pakistan-source income. Payments to non-residents for royalties, fees for technical services, and contracts attract withholding under section 152 at rates the treaties often reduce. A foreign company with a permanent establishment in Pakistan is taxed on the PE's profits on a net basis; a branch also pays tax on remittance of after-tax profits treated as a dividend equivalent [current branch profits treatment — TO BE VERIFIED BY REVIEWING LAWYER].

Transfer pricing rules follow the arm's length principle, with contemporaneous documentation requirements and country-by-country reporting for large groups. The FBR's transfer pricing audit activity has grown; intercompany pricing for management fees and royalties is a recurring audit theme.

Sales tax

Sales tax on goods is federal. The standard rate is 18 per cent [current rate — TO BE VERIFIED BY REVIEWING LAWYER], with higher and lower rates, exemptions, and a retail regime scattered through schedules that change every budget. Registered businesses charge output tax, claim input tax, and file monthly returns. Input tax recovery is document-driven and the FBR's systems match invoices electronically; suppliers who fail to file can block a buyer's input claims.

Sales tax on services is provincial. Standard rates have ranged between 13 and 16 per cent depending on the province [current rates by province — TO BE VERIFIED BY REVIEWING LAWYER]. Registration is required in each province where taxable services are rendered. Withholding rules also apply to services procured from unregistered persons.

Customs duties apply on imports under the Customs Act, 1969, alongside sales tax and advance income tax collected at the import stage. Effective import-stage cost is the sum of several levies, not the tariff line alone.

Employment and payroll

Employers withhold income tax from salaries monthly under section 149 against annual slab rates. Employers also contribute to the Employees' Old-Age Benefits Institution and to provincial employees' social security institutions for covered employees (see Chapter 4 for figures). There is no general federal payroll tax beyond these.

The compliance calendar

The tax year runs to 30 June. Companies file income tax returns by 31 December following the tax year end, or 30 September for companies with year ends between July and December [current deadlines — TO BE VERIFIED BY REVIEWING LAWYER]. Advance tax is paid quarterly under section 147 based on estimated liability. Monthly obligations include withholding statements, sales tax returns (federal and provincial), and payroll deposits. Budget day falls in June; Finance Act changes generally take effect on 1 July, and rate assumptions should be revisited every year at that point.

Disputes

Tax assessments are appealable. The forum structure was reorganised in 2024, allocating first appeals between the Commissioner (Appeals) and the Appellate Tribunal Inland Revenue by reference to the amount involved, with references to the High Court on questions of law [current pecuniary thresholds and forum allocation — TO BE VERIFIED BY REVIEWING LAWYER]. Recovery of disputed demands pending appeal is a recurring battleground; the courts have repeatedly restrained coercive recovery where appeals are undecided, and interim protection is often the first practical step in a tax dispute.

What this means in practice

Budget for the effective rate, not the headline rate: 29 per cent plus super tax, tested against minimum turnover tax. Stay on the Active Taxpayers List and keep every registration current, because the withholding system punishes lapses immediately. Register for provincial services tax wherever you actually perform services. And treat June as tax season: every Finance Act moves rates, and last year's model is wrong by July.