Public Limited Companies (PLCs) are one of the most common forms of business entities in Pakistan. They are required to pay taxes on their income, which is calculated based on the tax laws of the country. In this article, we will discuss the taxation of Public Limited Companies in Pakistan in detail, including definitions and examples.
Definition of Public Limited Company:
A Public Limited Company is a type of business entity in Pakistan that is incorporated under the Companies Act 2017. It is a separate legal entity that has the ability to raise funds from the public through the sale of its shares on the stock exchange. The minimum number of shareholders required to incorporate a Public Limited Company is seven, and there is no limit on the maximum number of shareholders.
Taxation of Public Limited Companies:
Public Limited Companies in Pakistan are subject to taxation on their income under the Income Tax Ordinance 2001. The tax rate for Public Limited Companies is 31% for tax year 2021, and it is applicable to their worldwide income. The tax year in Pakistan starts on July 1st and ends on June 30th of the following year.
Calculation of Taxable Income:
The taxable income of a Public Limited Company is calculated by subtracting allowable deductions from the gross income. Allowable deductions include expenses incurred for the purpose of generating income, such as salaries, rent, utilities, and depreciation. Non-deductible expenses include fines, penalties, and personal expenses of the directors.
Example:
Suppose a Public Limited Company has a gross income of Rs. 10,000,000 in tax year 2021. It incurred expenses of Rs. 4,000,000, including salaries, rent, utilities, and depreciation. The taxable income of the company will be calculated as follows:
Gross Income = Rs. 10,000,000
Less: Allowable Deductions = Rs. 4,000,000
Taxable Income = Rs. 6,000,000
Calculation of Tax Liability:
Once the taxable income of a Public Limited Company has been calculated, its tax liability is determined by applying the tax rate to the taxable income. In addition to income tax, Public Limited Companies are also required to pay other taxes, such as sales tax, federal excise duty, and customs duty, depending on the nature of their business.
Example:
Suppose the taxable income of the Public Limited Company in the above example is Rs. 6,000,000. Its tax liability for tax year 2021 will be calculated as follows:
Taxable Income = Rs. 6,000,000
Tax Rate = 31%
Income Tax Liability = Rs. 1,860,000
Advance Tax:
Public Limited Companies in Pakistan are required to pay advance tax on their expected income for the year. Advance tax is payable in four installments, and the amount of advance tax paid is adjusted against the final tax liability at the end of the year.
Example:
Suppose a Public Limited Company expects to have a taxable income of Rs. 10,000,000 in tax year 2022. Its advance tax liability for the year will be calculated as follows:
Expected Taxable Income = Rs. 10,000,000
Tax Rate = 31%
Advance Tax Rate = 1%
Advance Tax Liability = Rs. 31,000 x 4 = Rs. 124,000
Conclusion:
In conclusion, Public Limited Companies in Pakistan are subject to taxation on their income under the Income Tax Ordinance 2001. The tax rate for Public Limited Companies is 31% for tax year 2021, and it is applicable to their worldwide income. The taxable income of a Public Limited Company is calculated by subtracting allowable deductions from the gross income, and its tax liability is determined by applying the tax rate to the taxable income. In addition to income tax, Public Limited Companies are also required to pay other taxes, such as sales tax, federal excise duty, and customs duty, depending on the nature of their business.
It is important for Public Limited Companies to comply with all the tax laws and regulations in Pakistan to avoid any penalties or legal issues. They should maintain accurate records of their income and expenses and file their tax returns on time. Public Limited Companies should also seek the advice of tax professionals to ensure that they are meeting all their tax obligations and taking advantage of any tax incentives or deductions that are available to them.
Overall, the taxation of Public Limited Companies in Pakistan is an important aspect of their financial management and plays a significant role in the overall economy of the country. By paying their taxes on time and in full, Public Limited Companies can contribute to the development of the country and build trust with their stakeholders.
