Introduction. Pakistan’s manufacturing sector bears a disproportionately high documented tax burden relative to its contribution to GDP, compounded by additional levies such as the Workers’ Welfare Fund (WWF) and Workers’ Profit Participation Fund (WPPF). Against this backdrop, the author proposes a targeted tax-relief framework that is growth- and export-oriented while remaining revenue-neutral for the Government.
The proposed framework is the author’s proposal and may be considered by legislators and other stakeholders as a basis for further discussion, refinement and consultation so that the approach can be made practical and workable for both industry and the Government.
Under the proposed three-year framework, qualifying corporate manufacturers would be allowed to move towards an effective income tax rate of 25 percent for Tax Years 2027 to 2029, compared with the current combined rate of 37 percent, comprising 29 percent corporate income tax and 8 percent super tax. The relief would operate only against growth above the Tax Year 2026 benchmark, ensuring that the Government’s existing revenue base remains protected.
The proposed framework does not simply reduce tax on existing profits. It uses the Tax Year 2026 position as a floor and provides manufacturers with a measurable incentive to increase profitability, production, exports and investment. Any additional income determined through assessment, rather than voluntarily declared, would remain taxable at 37 percent.
The relief would be available only to qualifying and fully compliant manufacturers and would remain subject to strict documentation, digital payment, e-invoicing, sales reporting, Track and Trace/Electronic Production Monitoring and foreign-currency payment conditions. Greater manufacturing activity should also generate additional sales tax and other indirect tax revenues, supporting the proposal’s intended revenue-neutral effect and making the proposed framework a growth measure that may remain reasonably acceptable within Pakistan’s IMF-related fiscal constraints.
Eligibility criteria
• Corporate manufacturers as defined under the Income Tax Law.
•At least 80 percent of turnover must originate from manufacturing activities.
• Manufacturing operations must be separately reported in the audited financial statements.
• Accounts must be audited by Category ‘A’ auditors listed on the SBP panel.
Proposed tax rate reduction
• Current effective tax rate: 29 percent corporate tax plus 8 percent super tax, resulting in a combined rate of 37 percent.
• Proposed rate: Up to 25 percent effective tax rate for Tax Years 2027 to 2029.
• Condition: No tax on incremental income over Tax Year 2026, provided the effective tax rate does not fall below 25 percent.
Illustrative Example
• Assessment adjustments: If income is revised upward upon assessment, the incremental income is taxed at 37 percent.
• Base year: Tax Year 2026 declared income is the benchmark for calculating incremental income.
Minimum tax under Section 113
• Minimum tax is frozen at the Tax Year 2026 level to avoid triggering additional minimum tax solely because normal tax is reduced in subsequent years.
• Example: If minimum tax in Tax Year 2026 is 3,500, it remains unchanged even if turnover increases.
Compliance conditions
Payments: All payments must be made through digital or cross-bank channels, except daily wages. Compliance should be verified through auditor certification or an ICAP-approved framework.
Revenue: E-invoicing and POS integration should be mandatory.
Sales reporting: CNIC or NTN details of distributors, wholesalers and retailers should be reported, potentially through endorsement of statements filed under sections 236G and 236H.
Track and Trace/Electronic Production Monitoring: Mandatory compliance where applicable.
Foreign Currency Payments: Foreign currency payments for imports and expenses, excluding capital expenditure, borrowings and interest, must not exceed the Tax Year 2026 level after deducting exports. Auditor certification should be required.
Additional Incentives
- Advance tax estimation
• Self-declared higher income in the first quarter should be accepted without scrutiny.
• Advance tax should be based on Tax Year 2026, excluding withholding tax under section 148.
• Exemption certificates under section 153 should be issued at the start of each quarter.
- Withholding Tax on Imports under Section 148
• Exemption should be available for raw material imports exceeding Tax Year 2026 levels.
• The exemption certificate should be issued once the Tax Year 2026 threshold is crossed.
• Alternatively, where advance tax under section 147 is paid on a gross basis, exemption certificates under sections 148 and 153 should be issued upfront.
Copyright Business Recorder, 2026
The writer is a seasoned Chartered Accountant, based in Karachi, with over 24 years of post-qualification experience in taxation