Pakistan’s food processing industry is a rapidly growing segment of the economy, contributing significantly to agricultural value addition, employment, and exports. From packaged snacks and dairy products to processed meat and beverages, food processing companies operate across various product lines and supply chains. As with any formal business sector, these companies are subject to comprehensive tax regulations under both federal and provincial laws. Understanding the tax framework applicable to food processing companies is essential for ensuring compliance, optimizing tax planning, and sustaining profitability. This guide outlines the key tax obligations faced by food processing companies in Pakistan, covering income tax, sales tax, withholding tax, exemptions, and compliance requirements under the latest 2025 tax regime.
Overview of the Food Processing Industry in Pakistan
The food processing sector in Pakistan encompasses a wide range of activities including packaging, preservation, labeling, canning, freezing, and value addition of agricultural commodities. Major subsectors include dairy processing, fruit and vegetable canning, flour milling, meat processing, beverages, frozen foods, confectionery, and bakery items. The sector contributes to food security, reduces post-harvest losses, and promotes rural industrialization. Most food processing companies operate as private limited companies or public listed companies, which brings them under the purview of the Federal Board of Revenue (FBR) and relevant provincial tax authorities.
Income Tax Obligations
Registration with FBR
All food processing companies must be registered with the Federal Board of Revenue (FBR) and obtain a National Tax Number (NTN). This registration is mandatory for income tax return filing, tax deduction and collection, and issuance of tax invoices.
Corporate Tax Rate
As of tax year 2025, resident companies, including food processing entities, are taxed at the standard corporate income tax rate of 29% under the Income Tax Ordinance, 2001. The tax is levied on taxable income after deduction of allowable business expenses, depreciation, and other adjustments.
Minimum Tax on Turnover
Under Section 113 of the Income Tax Ordinance, companies with low profitability or tax losses are subject to minimum tax on turnover. This ensures that companies pay a minimum tax even in the absence of taxable income.
-
Minimum tax rate for food processing companies: 1.25% of annual turnover
-
Exemptions may apply to companies enjoying tax credits or operating in SEZs
Advance Tax Payments
Companies are required to pay advance tax on a quarterly basis under Section 147 of the Income Tax Ordinance. This helps the government collect revenue in a timely manner and reduces the year-end tax burden.
Tax Credits and Deductions
Food processing companies can benefit from several tax credits and deductions, including:
-
Investment in plant and machinery under Section 65B (credit of 10%)
-
Employment generation under Section 64B
-
Charitable donations under Section 61
-
Exports of processed food items may qualify for reduced tax or tax credit
Sales Tax on Food Products
General Sales Tax Framework
Sales tax in Pakistan is governed by the Sales Tax Act, 1990 and applicable provincial sales tax laws for services. For goods, including most food products, the tax is administered by FBR. Some provinces, however, tax value-added services in food processing (e.g., catering, storage).
Standard Sales Tax Rate
As of 2025, the standard sales tax rate is 18%. However, food products are treated differently under the tax regime, based on their classification and nature.
Zero-Rated and Exempt Food Products
Certain basic food items are either zero-rated or exempt from sales tax, depending on their processing level and packaging:
-
Zero-Rated (0%): Typically applies to exports and some specific categories (e.g., powdered milk exports)
-
Exempt Items: Includes unprocessed milk, flour, fresh fruits, and vegetables
Taxable Processed Food Products
Processed or packaged food items such as juices, carbonated drinks, frozen foods, instant meals, snacks, bakery items, and canned goods are generally taxable at 18%. Food companies are required to:
-
Register for Sales Tax Registration Number (STRN)
-
Collect sales tax from distributors/retailers
-
Issue computerized sales tax invoices
-
File monthly sales tax returns
-
Deposit collected sales tax to the government treasury
Value Chain Adjustments and Input Tax
Registered companies can claim input tax adjustments for tax paid on raw materials, packaging, utilities, and services used in processing. This reduces the net tax liability. However, input tax cannot be claimed on:
-
Items used for personal consumption
-
Fixed assets (if not allowed under rules)
-
Invoices not matching with FBR’s Faster/IRIS system
Withholding Tax Obligations
Payments to Suppliers and Contractors
Food processing companies, particularly those with large procurement budgets, are required to deduct withholding tax when making payments to suppliers and service providers. Applicable sections include:
-
Section 153: Payments to manufacturers, contractors, and service providers (rates vary between 4% and 10%)
-
Section 149: Salaries to employees (based on tax slab)
-
Section 233: Payments to distributors and dealers
Withholding agents must deposit the tax by the 7th of the following month and file monthly withholding statements via FBR’s portal.
Withholding on Purchase of Raw Materials
If the food company procures agricultural produce (e.g., wheat, sugarcane, milk) from unregistered persons, withholding may not apply. However, purchases from registered suppliers require compliance with input tax matching.
Provincial Sales Tax on Services
Processing, Packaging, and Logistics Services
While sales tax on goods is under federal jurisdiction, certain value-added services used by food processing companies—such as warehousing, cold storage, branding, marketing, and catering—are subject to provincial sales tax on services.
Each province has its own authority:
-
Punjab Revenue Authority (PRA)
-
Sindh Revenue Board (SRB)
-
Khyber Pakhtunkhwa Revenue Authority (KPRA)
-
Balochistan Revenue Authority (BRA)
These authorities levy 13% to 16% tax on taxable services. Food companies must ensure:
-
Vendor registration with relevant authority
-
Sales tax invoice compliance
-
Withholding of sales tax on unregistered service providers
Customs Duties and Import Taxes
Raw Material and Machinery Imports
Food processing companies importing raw materials (flavorings, preservatives, processing chemicals) or machinery may be subject to:
-
Customs Duty: Typically 5% to 20%
-
Additional Customs Duty (ACD)
-
Sales Tax on Imports: 18%
-
Withholding Income Tax on Imports (Section 148): 5.5% to 8% depending on category
Tariff Concessions
Importers may benefit from reduced duties under Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) with countries like China and Malaysia. Import under temporary importation schemes (for re-exports) may also provide relief.
Export of Processed Foods and Tax Implications
Export Incentives and Exemptions
Food processing companies engaged in exports may enjoy zero-rating or tax refunds under FBR’s Faster Refund System. To qualify:
-
The exporter must be a registered taxpayer
-
Exports must be documented and verified through WEBOC or Pakistan Customs
-
Foreign remittance must be received through proper banking channels
Income Tax on Exporters
Under Section 154, exports are subject to final tax of 1% on export proceeds (unless opted for normal regime). This reduces the complexity of tax filings for exporters.
Filing Obligations and Compliance
Annual Income Tax Return
Companies must file an income tax return annually, along with audited financial statements (if required under the Companies Act). Deadlines:
-
Companies with June year-end: File by December 31
-
Other companies: Within six months of year-end
Sales Tax Return
Monthly sales tax returns must be filed by the 18th of each month. Penalties apply for late or incorrect filings.
Withholding Tax Statements
Monthly and annual withholding statements (e.g., Form 64A and 64) are filed via FBR’s IRIS portal. Reconciliation with bank payments and vendor ledgers is important.
Penalties for Non-Compliance
-
Late Income Tax Return: Rs. 2,500/day (up to Rs. 50,000)
-
Non-filing of Sales Tax Return: Rs. 5,000 minimum/month
-
Incorrect Withholding: Recovery + penalty up to 100% of tax
-
Under-reporting of turnover: Penalties and additional assessments
Record-Keeping and Audit Requirements
Food companies must maintain complete accounting and tax records for at least six years, including:
-
Sales and purchase ledgers
-
Stock records
-
Utility bills and contracts
-
Payroll and withholding registers
-
Proof of tax deposit
Non-maintenance can lead to disallowance of expenses or input claims during tax audits.
Tax Planning Strategies
-
Separate company NTN for each plant or division to manage turnover-based tax obligations
-
Utilize tax credits on investment in machinery and employment generation
-
Monitor exemptions and changes under annual Finance Act
-
Engage in advance ruling for classification disputes on new products
-
Use ERP/accounting software integrated with FBR’s POS and tax invoice system
Conclusion
Taxation for food processing companies in Pakistan is multi-faceted, involving federal and provincial regulations on income, sales, and services. As the industry continues to grow, so do the tax obligations and compliance challenges. From registration and invoicing to filing returns and availing tax credits, companies must adopt proactive tax planning and accurate recordkeeping. Understanding the tax structure—corporate tax, minimum tax, sales tax on processed foods, withholding on purchases, and export benefits—can significantly improve compliance and profitability. For best results, companies should work closely with tax professionals, keep up with regulatory changes, and invest in digital systems to streamline tax operations.
