On 30 July 2019, the Federal Board of Revenue (FBR) has issued a Circular No. 9 of 2019. The Circular contains important changes to the Income Taxation Act 2001 through the Finance Act 2019, which was published in the Official Journal on 30 June 2019. The main changes in corporate tax includes:

Corporate Tax rate for small companies

The scheduled reduction of the corporate tax rate is replaced, with the rate set at 29% for the 2019 tax year and subsequent years, although the scheduled rate reduction for ‘small companies’ is maintained as follows: 2019 tax year – 24%; 2020 tax year – 23%; 2021 tax year – 22%; 2022 tax year – 21%; 2023 and subsequent tax years – 20%.

Bank Taxation

Banking Company shall continue to be taxed at the rate of 35%, but an additional rate of 37.5% is introduced on taxable income from Federal Government Securities from the 2020 tax year. In addition, the rules for the super tax liability are amended so that brought forward depreciation, brought forward amortization, and brought forward business losses are excluded in computing income of a banking company for the purpose of imposition of super tax (brought in line with other taxpayers).

Dividend Tax

The tax rates of dividend tax are set as follows:

  • 7.5% in the case of dividends paid by Independent Power Purchasers where such dividend is a pass-through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be reimbursed by Central Power Purchasing Agency (CPPA-G) or its predecessor or successor entity;
  • 25% in the case of a person receiving dividends from a company where no tax is payable by such company, due to an exemption of income or carry forward of business losses; and
  • 15% in the case of mutual funds and other cases.

Other Changes

  • the extra initial depreciation allowance of 15% for buildings is withdrawn;
  • a 15% withholding tax is introduced on royalty payments to resident persons; and
  • the rate of withholding on profit on debt is increased from 10% to 15%, although the rate remains 10% in cases where the yield or profit paid does not exceed PKR 500,000 in a tax year (17.5% rate for non-filers is removed).

The measures of the Finance Act 2019 have generally entered into force on 1 July 2019, unless otherwise specified.