INCOME TAXES ON CORPORATIONS
1. Rates
The current tax rates applying to companies, resident or nonresident, on their profits from business are:
Banking companies 58%
Public companies other than banking companies 33%
Other companies 43%
The rates of tax applicable to companies have been gradually reduced over five years. Accordingly, the tax rates applicable from the assessment year 1998?9 and thereafter are as follows:
Public Company
Other Than a
Assessment Year Banking Company Banking Company Other Company
1998?9 55% 30% 35%
1999?000 and thereafter 50 30 35
For other companies, the reduced rate for the assessment year 1998?9 will only apply if the company allocates 2% of its net profits as a contribution to education, health, and pensions of, or gratuity payments to, their workers in order to pass on to them some of the benefits of the tax cuts.
For the purposes of applying the rate of tax and the rebates of super tax, a public company means:
q A company in which not less than 50% of the shares are held by the government;
q A company whose shares are the subject of dealings on a registered stock exchange in Pakistan at any time during the income year and remain listed on the stock exchange until the close of that year; or
q A trust formed by or under any law in force at the time. Minimum Tax on Companies and Registered Firms.
q A minimum tax equal to 0.5% of the declared turnover of every company, body corporate, trust, and registered firm resident in Pakistan is payable as income tax. The minimum tax is payable on the deemed income representing the total amount of declared turnover from all sources falling under the heading 搃ncome from businesses or professions,?which means the gross receipts of the company, body corporate, trust, or registered firm derived from:
?Goods sold;
?Services rendered, given, or supplied;
?Benefits rendered, given, or supplied;
?Contracts executed.
However, trade discounts shown on invoices or bills do not form part of the declared turnover.
q The minimum tax is payable by every company, body corporate, trust, and registered firm even if it is exempt because of a tax holiday or if it is not paying any tax under the Income Tax Ordinance, 1979, for any reason, including such accounting concessions as depreciation allowances and tax credits or offsetting losses. However, private sector power project and private transmission-line project companies are exempted from minimum tax on their receipts from the sale of electricity.
q The tax rates on income from dividends from a company formed and registered under the Companies Ordinance, 1984, are:
Dividends received by a public company 5%
Dividends received by a foreign-body corporate or a foreign
association declared to be a company 15%
Dividends received by a company on investments in
power generation and transmission-line projects 7.5%
In other cases (e.g., private limited companies) 20%
In recent years, a new concept of presumptive tax was introduced. This presumptive tax applies to all resident assessees that are subject to withholding tax on certain payments. The presumptive tax regime also applies to nonresident assessees but only in respect of payments made on account of execution of certain contracts. The salient feature of the presumptive tax regime is that the regular assessment proceeding has been dispensed with and the amount of tax deducted is considered the full and final discharge of tax liability.
2. Local Income Taxes
Taxation of agricultural income is determined by the provincial
governments on the produce index basis. Capital gains tax on the sale of immovable properties was repealed effective July 1, 1986.
3. Capital Gains Taxes
Capital gains arising on the transfer (sale, exchange, etc.) of
Modaraba Certificates (certificates iss
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