Corporate tax or corporation tax is a tax collected from the companies on their net income obtained from their business activity. The revenues that are generated from the corporation tax are the main source of income for the government of Pakistan.
Corporate tax rate
The corporate tax rate depends on the type of company. The corporate tax rate for the year 2019-20 is as follows:
- Banking companies have a corporate tax rate of 35 %
- Public companies ( other than banking companies) has a corporate tax rate of 29%
- Other companies have a corporate tax rate of 29 %
- Small companies have a corporate tax rate of 23 %
The corporate tax rate in the future will be as follows.
- In the year 2021 to 2023, the corporate tax rate will be 29%
Small company rate
- In the year 2021, the corporate tax rate will be 22%
- In the year 2022, the corporate tax rate will be 21%
- In the year 2023, the corporate tax rate will be 20%
Pakistan can generate a handsome amount of revenue through corporate taxes. But unfortunately, these corporate organizations do not pay taxes as per their taxable liabilities.
The main reason behind the tax evasion is the high rate of corporation tax in Pakistan. In December 2015, the corporation tax rate of Pakistan rate was the third-highest in the world.
Currently, Pakistan has a corporate tax rate of 29%. This rate is quite high in comparison with other Asian countries. Thailand has a corporate tax rate of 20%, Bangladesh and Indonesia have a tax rate of 25% and Malaysia has a corporate tax rate of 24 %.
State Bank of Pakistan (SBP) claimed that over the last ten years the Country’s tax to GDP ratio has remained between 8% to 9.5%. According to the Federal Board of Revenue (FBR), only 3000 companies regularly file the tax returns as compared to the 81500 companies registered with the Securities and Exchange Commission of Pakistan (SECP).
Moreover, in the years 2014 and 2015, about 14100 associates and around 7700 companies submit the income tax returns and paid Rs. 10 billion and Rs. 11 billion respectively but in the year 2016, they didn’t file any tax returns.
However, the main reason behind the tax evasion is that the Federal Board of Revenue (FBR) has failed to make sure that all the companies and associates filed their tax returns.
Due to the poor taxation system only 15760 firms, about 19 % filed the tax returns in the year 2016 which means that 80% or 65730 registered companies didn’t submit the income tax return.
The government should focus on effective means to reduce tax evasion in Pakistan. The payment by electronic means can be an efficient alternative. Purchasing of goods/services in cash and not registering that purchase the rate of tax evasion increases.
If the electronic payment system is implemented in Pakistan than no purchase will go unregistered by both supplier and buyer. The smart alternatives will help the Pakistan government to collect a handsome revenue from corporate taxes.