Pakistan Corporate Tax 2025-26: 29 Percent Standard, 20 Percent Small Company, and SME Tax Rates Guide

Pakistan's corporate tax framework for Tax Year 2026 (1 July 2025 to 30 June 2026) operates on a tiered rate structure that distinguishes between SMEs (Small and Medium Enterprises in manufacturing), small companies meeting specific structural criteria, and standard companies. The framework is designed to support smaller businesses with reduced tax burdens while maintaining the standard 29 percent rate on larger corporate operations. For Pakistani company directors, founders, and finance teams, understanding which category applies to the company is the foundation of accurate tax planning and compliance.

This guide presents the verified rate tiers, the substantive criteria for each category, the minimum tax under section 113 that operates as a floor on most companies' tax liability, and the strategic considerations for Pakistani companies operating near category transition thresholds. The framework operates alongside the section 113 minimum tax regime and the broader Pakistani tax filing cycle.

The 29 Percent Standard Corporate Tax Rate

Pakistani companies that do not qualify for any reduced-rate category face the standard corporate tax rate of 29 percent on taxable income. The rate applies to companies in the services sector, trading companies, large manufacturers exceeding the SME thresholds, and most other Pakistani companies. The 29 percent is calculated on taxable income (accounting profit adjusted for tax purposes through addbacks of non-deductible expenses, capital allowances replacing accounting depreciation, and other adjustments).

Banking companies and certain insurance companies face higher specific rates under separate provisions of the First Schedule. Public companies in specific sectors (oil, gas, exploration) have their own rate structures under petroleum profits provisions. Pakistani companies in these specific sectors should consult sector-specific provisions rather than relying on the general 29 percent figure.

The 20 Percent Small Company Rate

Section 2(59A) of the Income Tax Ordinance 2001 defines small company as a company that: was registered on or after 1 July 2005; has paid-up capital plus undistributed reserves not exceeding PKR 50 million; has annual turnover not exceeding PKR 250 million; is not formed by the splitting up or reconstruction of an existing business; and is not a subsidiary of another company in which the holding company has substantial control. Pakistani companies meeting all five criteria face corporate tax at 20 percent rather than 29 percent.

The small company classification is reviewed annually because the criteria (particularly turnover and reserves) can change year to year. Pakistani companies near the threshold should track the relevant figures throughout the year because exceeding any single criterion at year-end disqualifies the company from small company treatment for that tax year. The 9-percentage-point differential between standard and small company rates is material; on PKR 50 million of taxable income, the differential is PKR 4.5 million per year.

The SME Manufacturing Categories

The SME framework introduced in recent years provides materially lower rates for Pakistani manufacturers within specified turnover bands. Category 1 SMEs are manufacturing companies with annual turnover up to PKR 100 million; the rate is 7.5 percent on taxable income. Category 2 SMEs are manufacturing companies with turnover above PKR 100 million but not exceeding PKR 250 million; the rate is 15 percent. Above PKR 250 million turnover, the SME framework no longer applies and the company moves to standard or small company treatment.

The SME framework is restricted to manufacturing companies; trading, services, and financial companies are not eligible regardless of turnover. The definition of manufacturing follows the Pakistani regulatory framework and includes transformation of raw materials into finished or intermediate products through industrial processes. Pakistani SMEs should ensure their activities clearly fall within manufacturing because misclassification can produce reassessment with retroactive tax adjustments.

Section 113 Minimum Tax Interaction

Section 113 of the Income Tax Ordinance 2001 imposes a minimum tax of 1.25 percent of turnover where the regular corporate tax is less than this minimum. The framework prevents companies with low or negative taxable income (because of high deductions, losses, or tax credits) from paying minimal tax. For Pakistani SMEs and small companies, the section 113 minimum tax floor often determines the actual tax liability rather than the headline rate.

An SME with PKR 200 million turnover and PKR 5 million taxable income would calculate Category 2 tax at 15 percent of PKR 5 million equals PKR 750,000. The section 113 minimum tax at 1.25 percent of PKR 200 million is PKR 2,500,000. The company pays the higher figure (PKR 2,500,000), which is the section 113 minimum. Pakistani SMEs near the minimum tax threshold often find their effective tax burden is determined by section 113 rather than the headline SME rate.

Strategic Planning for Pakistani Companies

Strategic planning for Pakistani companies operating near category transition points is consequential. Companies approaching the PKR 100 million Category 1 SME threshold face a step-up from 7.5 to 15 percent on the marginal income; planning the year-end position around the threshold can defer the rate increase. Companies approaching the PKR 250 million Category 2 SME threshold face a step-up from 15 to 29 percent (or 20 percent if small company criteria still apply); the differential is materially larger.

Strategic levers include: timing of revenue recognition to defer Pakistani turnover into the next tax year where the current year is at a transition; structuring legitimate group arrangements to optimise the small company and SME criteria; investing in qualifying tax-deductible expenditures that reduce taxable income; and maintaining clean documentary support for the qualifying criteria. Pakistani company directors should engage tax counsel familiar with the Pakistani SME and small company framework alongside the broader filing and ATL framework.

Tax Credits and Allowances Reducing Corporate Tax

Pakistani companies can reduce corporate tax through specific tax credits including: investment tax credit for industrial undertakings under section 65B; tax credit for charitable donations under section 61; tax credit for employment generation in less developed areas under specific provisions; tax credit for IT exports under section 65F (subject to specific qualifying conditions); and other narrower credits. Each credit has its own qualifying criteria, calculation methodology, and documentary requirements.

Pakistani companies maximising the integrated tax position should evaluate all applicable credits annually. Some credits (charitable donations) require specific procedural steps (donation to FBR-approved organisations); others (industrial undertaking investments) require capital-equipment documentation. The tax credits operate alongside the section 113 minimum tax floor: where credits reduce regular tax below the minimum tax level, the minimum tax determines the actual liability.

Super Tax for High-Income Companies

Pakistan introduced super tax in recent budgets on high-income companies. The super tax operates as an additional levy on companies above specified income thresholds, with rates that have varied between 1 and 10 percent depending on the income band. Pakistani companies with substantial profits should incorporate super tax into the integrated calculation alongside corporate tax and minimum tax.

The super tax is calculated on income (not turnover, distinguishing it from the section 113 minimum tax). Pakistani companies whose income reaches the super tax thresholds should plan for the cumulative tax cost. The integrated picture across regular corporate tax, super tax (where applicable), section 113 minimum tax, and ACT produces the actual cumulative tax burden; Pakistani companies should run the integrated calculation rather than focusing on any single component.

A Word on How This Work Should Be Handled

The route described above is governed by specific regulations and procedural rules that produce predictable outcomes when handled correctly. The figures, deadlines, and procedural steps in this guide are accurate as at 29 April 2026 and should be re-verified against the relevant official source before any application decision is made. Where any element of the framework changes between now and the application date, the changes will affect outcomes; static guides are useful but not a substitute for current verification.

LexForm prepares each application as legal work, not as a form-filling exercise. Where the route is genuinely a strong fit, careful preparation produces a clean grant on first application. Where the route is not the right fit, the same careful preparation surfaces that fact early. The first step is a short eligibility review against the applicant's specific facts; no fee for the initial assessment.