How business income tax is worked out
Business tax follows the same step method as salary tax but with higher rates. First total your taxable income for the year. Then find the slab, take its fixed amount and add the slab rate on the income above the slab's lower limit. If income is above Rs 10 million, add 10% of the tax as surcharge.
Example: Rs 4,000,000 profit
Tax = Rs 650,000 + 40% × (4,000,000 − 3,200,000) = Rs 970,000. The effective rate is 24.25%.
Salaried or business: which slabs apply to you?
If salary makes up more than 75% of your taxable income, use the salary tax calculator. If it is 75% or less, your whole income is taxed at the non-salaried rates on this page.
Working out your taxable income first
The figure you put in the calculator should be profit, not sales. A grocery shop that sells Rs 15 million worth of goods in a year might only keep Rs 1.8 million after paying for stock, rent, electricity, staff salaries and transport. Tax is charged on that Rs 1.8 million, which comes to Rs 230,000 at the current rates.
Typical allowable expenses include:
- Cost of goods sold, including freight and packing.
- Shop or office rent, utilities and internet.
- Salaries paid to employees (with tax withheld where required).
- Depreciation on machinery, computers, furniture and vehicles used for the business.
- Professional fees, such as the accountant who prepares your return.
Personal spending, like household groceries or school fees, can't be claimed, even if you pay it from the business account. FBR looks at this closely during audits, so it pays to keep business and personal money in separate accounts.
A few examples at different income levels
| Yearly profit | Tax | Effective rate |
|---|---|---|
| Rs 900,000 | Rs 45,000 | 5% |
| Rs 1,500,000 | Rs 150,000 | 10% |
| Rs 3,000,000 | Rs 590,000 | 19.67% |
| Rs 6,000,000 | Rs 1,790,000 | 29.83% |
| Rs 15,000,000 | Rs 6,424,000 | 42.83% |
The last row includes the 10% surcharge, because income is above Rs 10 million.
Why business rates are higher than salary rates
A salaried person earning Rs 1,500,000 a year pays Rs 39,000. A shopkeeper with the same profit pays Rs 150,000. That gap is deliberate. Salaried people have their tax deducted at source every month and can't easily under-report income, while business income is self-declared. The government has kept the business rates higher partly to balance this, and partly because businesses can deduct expenses that employees can't.
Advance tax and withholding
Business owners don't wait until September to pay. Many pay advance tax every quarter under Section 147, and various withholding taxes get deducted along the way, on imports, on supplies to companies, on bank cash withdrawals and so on. When you file your return, you add up everything already paid and only settle the difference. If you've overpaid, you can claim a refund.
Keep every withholding certificate. Your bank, your customers and the utility companies all issue them, and they're the proof you need to adjust the tax.
Partnerships and AOPs
An association of persons, which covers partnership firms, is taxed as one unit using the same slabs shown above. The AOP pays tax on its total profit, and partners' shares from the AOP are generally not taxed again in their own hands, though they are counted to work out the rate on their other income. If you're a partner, ask your accountant how your share interacts with your personal return.
Frequently asked questions
Who should use the business tax calculator?
Use it if most of your income comes from a business, shop, profession (such as doctors, lawyers and consultants), freelancing that is not taxed under a special regime, or an association of persons (AOP) like a partnership.
How much tax is due on Rs 2,000,000 of business income?
Rs 2,000,000 falls in the 30% slab. Tax = Rs 170,000 + 30% × (2,000,000 − 1,600,000) = Rs 290,000, an effective rate of 14.5%.
Do freelancers pay these rates?
Freelancers who bring IT and IT-enabled export earnings into Pakistan through banking channels are usually covered by a reduced final-tax regime on those receipts instead of these slabs. Freelancers with local clients or other income generally use the slabs on this page. Check your situation with FBR or a tax adviser.
Can I deduct business expenses?
Yes. Business tax is charged on taxable income, which is your revenue minus allowable business expenses and depreciation. Enter your profit after expenses for an accurate estimate.
What is the surcharge for high earners?
Non-salaried individuals and AOPs with taxable income above Rs 10 million pay an additional 10% of their tax as a surcharge. The calculator adds this automatically.