Taxation of Public Limited Companies in Pakistan

Public limited companies (PLCs) are corporate entities that can offer their shares to the general public and are governed under the Companies Act, 2017 in Pakistan. These companies play a vital role in the capital market and economy due to their larger operational scope, extensive shareholder base, and stricter compliance requirements. As separate legal entities, PLCs are subject to corporate income taxation under the Income Tax Ordinance, 2001. This article explains how public limited companies are taxed in Pakistan, including tax rates, exemptions, credits, deductions, compliance obligations, and filing procedures.

Legal and Regulatory Framework
The taxation of public limited companies is regulated by the following laws and authorities:

• Income Tax Ordinance, 2001

• Income Tax Rules, 2002

• Finance Acts issued annually

• Federal Board of Revenue (FBR)

• Securities and Exchange Commission of Pakistan (SECP)

• Sales Tax Act, 1990 and Federal Excise Act, 2005 for indirect tax matters

A PLC is treated as a separate taxable person, and its tax liability is computed independently from its shareholders or directors.

Types of Public Limited Companies
There are two kinds of public limited companies in Pakistan:

• Listed Companies – whose shares are listed on the Pakistan Stock Exchange (PSX)

• Unlisted Public Companies – not listed on PSX but with at least three directors and the ability to offer shares to the public

Both types are subject to corporate tax, but listed companies may enjoy additional tax benefits and credits under special provisions.

Corporate Income Tax Rates for Public Limited Companies
As per Finance Act 2024, applicable for Tax Year 2025:

1. General Corporate Tax Rate (Listed/Unlisted):

• 29% on taxable profits

2. Reduced Rate for Listed Companies (Section 65C):

• 20% tax credit allowed for the year of listing on the PSX

• Effective reduction in tax burden during the listing year

3. Minimum Tax on Turnover (Section 113):

• In case of declared loss or lower-than-minimum tax, a minimum tax of 1.25% on turnover is applicable

• Certain sectors enjoy reduced turnover tax rates through SROs

4. Super Tax (Section 4C):

• Applicable on high-income companies with income exceeding Rs. 300 million

• 1% to 10% super tax based on income slabs and industry classification (e.g., banking, oil & gas, textiles)

Tax Filing Requirements for Public Companies

1. Annual Income Tax Return:

• Due by December 31 (financial year ending June 30)

• Filed through FBR’s IRIS portal

• Must include:

  • Income Tax Return (IT-2 Form)

  • Audited financial statements

  • Tax computation and reconciliation

  • Directors’ report and Board resolutions (if required)

2. Advance Tax (Section 147):

• Public companies must pay advance tax quarterly

• 25% of estimated annual tax each quarter

• Due by September 15, December 15, March 15, and June 15

3. Withholding Statements:

• Monthly statements (Form 45) for all taxes withheld

• Filed by 15th of every month

Withholding Tax Obligations for PLCs
Public limited companies are designated withholding agents and must deduct taxes on various payments:

Non-filers are charged higher withholding tax rates as per applicable law. Failure to deduct or deposit tax leads to disallowance of expense and penalty.

Allowable Deductions and Business Expenses

Under Section 20 and related rules, the following expenses are deductible when computing taxable income:

• Salaries and employee benefits

• Directors’ remuneration (approved via board resolution)

• Rent, utilities, office expenses

• R&D expenses and certifications

• Depreciation under Third Schedule

• Financial costs and loan servicing

• Marketing, travel, and freight

• Legal and consultancy fees

• Provision for bad debts (based on FBR guidelines)

Non-Deductible Expenses (Section 21):

• Personal expenses of directors

• Entertainment beyond allowable limits

• Undocumented cash expenses over Rs. 50,000

• Salary paid to persons without NTN

• Unverified utility bills and travel

Tax Credits and Incentives for Public Companies

1. Tax Credit for Listing (Section 65C):

• 20% tax credit in the year of listing

• Applicable only once and must be availed in the same tax year

2. Investment in Plant & Machinery (Section 65B):

• 10% tax credit on investment in new plant and machinery

3. Employment Generation (Section 64B):

• Tax credit for hiring fresh graduates and apprentices

4. Donations (Section 61):

• Up to 10% of taxable income as tax credit for donations to approved charitable organizations

5. Green Tax Incentives:

• Companies investing in renewable energy, energy-efficient machinery, or climate-smart technology may receive custom and tax exemptions under special FBR SROs

Capital Gains Tax (CGT) for Public Companies
CGT is applicable on the disposal of capital assets such as:

• Listed shares

• Securities

• Real estate

• Business assets

CGT on Listed Securities (held for trading):

• 15% for filers

• 30% for non-filers

• Exempt if held for more than one year, subject to conditions

CGT on Real Estate:

• Based on fair market value

• Holding period-based rates apply

Sales Tax and Federal Excise Compliance

1. Sales Tax:

• 17% GST applicable on taxable goods and services

• Monthly filing of sales tax return (STR) via eFBR portal

• Companies must issue tax invoices, maintain purchase/sales registers

2. Federal Excise Duty (FED):

• Applicable on telecom, beverages, tobacco, air travel, etc.

• Rates vary from 5% to 25%, depending on sector

Audit and Record-Keeping Requirements
Public limited companies are subject to mandatory annual audit under the Companies Act, 2017:

• Conducted by an approved Chartered Accountant

• Must be submitted to SECP and FBR

• Books of accounts must be maintained for at least 6 years

Additional Compliance Requirements:

• Filing of Form A, 29 with SECP for annual and director updates

• AGM filing and statutory board meeting documentation

• Maintenance of share register and directors’ records

Dividend Taxation for Public Companies
When a public company distributes dividends to shareholders:

• Must withhold tax under Section 150

  • 15% for ATL filers

  • 30% for non-filers

• Dividend is treated as final tax for individuals

• Corporate shareholders may treat dividend as part of income from other sources

Taxation of Foreign-Owned Public Companies
Foreign public companies operating in Pakistan or holding stakes in listed companies are subject to:

• Corporate tax on Pakistan-source income

• Withholding tax on profit repatriation, royalties, and dividends

• State Bank of Pakistan (SBP) regulations for fund remittance

Key Tax Challenges for PLCs

• High compliance burden due to multiple taxes and filing schedules

• Discrepancies in withholding, advance tax, and turnover tax calculations

• Frequent SRO changes impacting planning and forecasting

• Documentation requirements for deductions and exemptions

FAQs on Taxation of Public Limited Companies

Q. What is the corporate tax rate for public limited companies?
A. 29%, with a 20% tax credit in the year of stock exchange listing.

Q. Is advance tax mandatory for PLCs?
A. Yes, under Section 147, advance tax must be paid quarterly.

Q. Can a PLC avail tax benefits on donations?
A. Yes, up to 10% of taxable income as a tax credit under Section 61.

Q. What happens if a PLC declares a loss?
A. Minimum tax of 1.25% on turnover applies under Section 113.

Q. Are PLCs subject to audit?
A. Yes, annual audit by a Chartered Accountant is mandatory under SECP and tax laws.

Q. How is dividend income taxed?
A. At 15% for filers and 30% for non-filers. It is treated as final tax.

Conclusion
Public limited companies in Pakistan face a structured and rigorous tax regime that includes corporate income tax, turnover-based minimum tax, withholding obligations, and sales tax compliance. However, they also benefit from tax credits, investment incentives, and lower effective tax rates through strategic planning. Timely filing, robust documentation, and a clear understanding of applicable laws are essential for avoiding penalties and optimizing the company’s financial position. As key players in Pakistan’s formal economy, PLCs must maintain full compliance with FBR and SECP requirements to grow sustainably and responsibly.