Tax Incentives & Credits  for Investors in Pakistan

Investing in Pakistan’s economic landscape offers lucrative opportunities, and the government has introduced a range of tax incentives to attract investors. In this comprehensive guide, we will delve into various tax incentives designed to foster economic growth, encourage investment, and stimulate employment generation.

Generating Employment- Unlocking Growth through Employment Generation

 One of the most attractive incentives for investors is the tax credit designed to promote employment. Companies that register 50 or more employees with the Employees Social Security Institutions of Provincial Governments during the tax year can claim a tax credit equal to 2% of their tax liability. This incentive is available to new manufacturing units established between July 1, 2015, and June 30, 2019. The maximum credit is capped at 10% of the tax payable, with the possibility of extending this benefit for 10 years based on new employment levels each year.

Tax Credit for Greenfield Industrial Undertaking-Investing in Innovation and Progress

 Investors engaging in Greenfield industrial undertakings, incorporated between June 30, 2019, and June 30, 2024, can benefit from a generous tax credit. This credit amounts to 25% of the investment made in plant and machinery for manufacturing or substantial process changes to goods or shipbuilding. To qualify, the Greenfield project must not involve splitting, reconstitution of an existing undertaking, or machinery transfer from a pre-existing Pakistani enterprise.

Tax Credit for Other Industrial Undertaking-Pioneering Sustainable Energy Solutions

 In a bid to boost sustainable energy initiatives, investors in industrial undertakings set up by June 30, 2023, can claim a 25% tax credit on investments in plant and machinery dedicated to generating energy from sources like solar and wind. This credit is applicable for five years from the date of undertaking setup.

Tax Credit for Point of Sale Machine- Seamless Tax Compliance for Corporates

Companies integrating with the Federal Board of Revenue (FBR) for real-time sales reporting and installing the requisite systems can claim a tax credit equivalent to the lower of the machine’s cost or PKR 150,000 per machine.

Minimum Tax Regime-Supporting Key Industries

Certain industries enjoy reduced minimum tax rates, fostering growth and competitiveness. These include poultry breeders (0.75%), oil refineries, oil marketing companies, and motorcycle dealers (0.5%), and distributors of pharmaceutical products, petroleum agents/distributors, fast-moving consumer goods, cigarettes, rice and flour mills, sugar, cement, and edible oil (0.25%).

Start-Ups-Empowering Tech-Driven Ventures

Start-ups are a cornerstone of Pakistan’s economic future. Tax incentives for start-ups are aimed at fostering innovation. A 100% tax credit is granted for the tax year in which a start-up is certified by the Pakistan Software Export Board (PSEB) and the following two tax years. Start-ups are also exempt from withholding tax provisions (as per Clause 43F of Part III of the Second Schedule to the ITO), promoting their growth and development.

Online Marketplace-Facilitating Digital Commerce

Online marketplaces play a pivotal role in modern commerce. These entities benefit from a minimum tax rate of 0.25% on their turnover, promoting the growth of the digital economy.

Tax Reduction for Women Entrepreneurs Empowering Women-Led Enterprises

Women-led enterprises benefit from a 25% reduction in tax payable on profits and gains derived from business under the “income from business” category.

Advance Tax at Import Stage-Facilitating Trade through Reduced Taxes

Advance tax rates have been adjusted to promote various sectors, including micro and small enterprises, low-cost housing, and farm credit, with exemptions from super tax.

Tax Concessions for Builders and Developers – Streamlining Real Estate Development

Companies incorporated on or before December 31, 2020, that exclusively engage in building and development enjoy tax rate benefits, dividend income exemptions, and minimal withholding tax. Additionally, certain immunities are granted for capital investments in new construction projects.

Incentives for Non-Resident Pakistanis-Attracting Foreign Investment

The Roshan Digital Accounts (RDA) initiative by the State Bank of Pakistan offers tax incentives for non-resident Pakistanis, including exemptions from withholding tax on interest income and simplified tax return procedures.

Incentives for Resident Individuals on Naya Pakistan Certificates-Encouraging Local Investment

Resident citizens of Pakistan who invest in Naya Pakistan Certificates and government securities through foreign assets enjoy a reduced tax withholding rate of 10%, providing an attractive avenue for local investment.

Conclusion

Investors in Pakistan can benefit from a range of tax incentives designed to promote economic growth, innovation, and employment generation. Understanding and leveraging these incentives is key to maximizing returns on investment in this dynamic and promising market.