SECTOR AND SCHEME INCENTIVE
With its unique geo-strategic location, skilled human resources and untapped growth potential, Pakistan provides attractive incentives and liberal policies for investment in all sectors of the economy for foreign and local investors. These incentives are available in special schemes and in traditional as well as non-traditional sectors of the economy which offer great opportunities to the business community to invest in the country and to have maximum dividends on their investments..
These incentives have been categorized into special schemes and economic sectors. The information about the incentives is given at three levels:
a) Simple description of the incentives
b) Explanation of incentives
c) Legal text of incentives provided in the relevant law/rules
Despite every effort to make incentive database free of any error or omission, these are only for referencing and guidance purposes and cannot replace the original laws, notifications, rules, and tariff published in the Gazette of Pakistan. Any suggestions and recommendations to make this database further useful will be highly appreciated.
- Income Tax exemption on export of a wide range of IT solutions and services
Income derives from exports of computer software or IT services or IT enabled services is exempted from tax till 30th June, 2025
- Income Tax exemption for Start-ups registered with Pakistan Software Export Board
Profit and gains derived by a Start–up offering technology driven products or services, certified by the Pakistan Software Export Board (PSEB) are exempt from Income Tax for three years.
- Sales Tax exemption on export of IT services
Exports of IT services and IT enabled services are exempt from Sales Tax
- Up to 100% foreign ownership of IT & ITeS companies
As per Pakistan’s Investment Policy 2013, all sectors and activities are open for foreign investment unless specifically prohibited or restricted for reasons of national security and public safety.
- Up to 100% repatriation of profits for foreign IT & ITeS investors
As per Pakistan’s Investment Policy 2013, foreign investors can repatriate profits, dividends, or any other funds in the currency of the country from which the investment was originated.
- 35% of export earnings can be retained in foreign currency for making payments abroad
Exporters of software are allowed to retain up to 35% of their export earnings in Special Exporters Foreign Currency accounts, which can be used for operational expenses and overseas payments.
- Provision of IT enabled office space in Software Technology Parks (STPs)
To help the IT industry of the country to meet its immediate goals of increased FDI, technology transfer, increased exports, technology diffusion, increased employment, and human resource development, so far, thirteen (13) STPs have been established by PSEB to provide IT enabled office space (equipped with quality ICT infrastructure and arrangements of backup power).
- Duty-free import of machinery, equipment and materials
The investors are allowed duty and tax free import of all goods for setting up and operations of their units including machinery, equipment and materials. Moreover, similar facility of getting duty and tax-free goods from tariff areas of Pakistan is also available.
- Duty-free vehicles allowed under certain conditions
Businesses in the zone are allowed to import vehicles without payment of duties & taxes in accordance with the entitlement.
- Reduced rate of Income Tax @ 1%
The normal Income Tax Regime is not applicable to zone businesses instead, presumptive Income Tax @1% is charged by EPZA, which is the final discharge of the liability.
- Freedom from national import regulations
Imports by businesses in the zone do not face general restrictions which are applicable to tariff areas of Pakistan under the Import Policy Order, except for specified conditions.
- Exchange control regulations of Pakistan not applicable
The businesses established in zones have been exempted from regulations relating to Foreign Exchange, which allows businesses to undertake foreign currency transactions with ease and flexibility.
- Domestic market available to the extent of 20% or higher in specified cases.
Goods produced in the Zone can be sold in to domestic market of Pakistan to the extent of 20% of their production or higher in specified cases.
- Obsolete/old machines can be sold in domestic market of Pakistan.
The Export Processing Zone Authority permits sale of obsolete/old machines in domestic market of Pakistan after payment of applicable duties & taxes
- EPZ units allowed to supply goods to Custom manufacturing bonds in Tariff area
To create additional commercial opportunities for the Investors in Zones, the facility of sub-contracting by units based in tariff area to the units in the Export Processing Zone, is allowed.
- ‘B’ Grade goods/used materials can be sold in domestic market.
Manufactured goods of lower quality as well different types of used materials etc. can be sold in tariff area of Pakistan on payment of duty/taxes.
- Developed land on competitive rates for 30 years
EPZA offers developed land on competitive rates for 30 years to zone enterprises
- Exemption of Custom Duty and Taxes on import of Capital Goods for Zone Enterprises
The company engaged in setting up a unit in SEZ is allowed one-time exemption from all custom-duties and taxes on capital goods imported into Pakistan (except vehicles, their parts and accessories), for their unit subject to verification by the BOI.
- Income Tax exemption for 10 years for zone enterprises
The zone enterprise is allowed exemption from all taxes on income accruable in relation to its commercial production/operation for a period of 10 years, starting from the date of commencement of its commercial operation.
- Exemption of Custom Duty and Taxes on import of Capital Goods for Zone Developers
The company engaged in the development of Special Economic Zones is allowed one-time exemption from all custom-duties and taxes on capital goods imported into Pakistan (except vehicles, their parts and accessories), for the setting up of an SEZ subject to verification by the BOI.
- Income Tax exemption for 10 years for zone developers
The zone developer is allowed exemption from all taxes on income (derived from the development and operation of the SEZ) for a period of ten years, starting from the date of signing of the development agreement
- Income Tax and Custom Duty exemption for SEZ Co-developers
Concession and exemptions available to the developers of SEZs may be extended to co-developers, subject to relinquishment of the same by the developer and endorsement by respective SEZA.
- Exemption from Income Tax for 23 years for businesses in Gwadar Free Zone
A 23-year income tax holiday is available to the Zone Enterprises in the Gwadar Free Zone Area.
- No Sales Tax on supplies of raw material for Zone Enterprises for export
No Sales Tax is levied on supply of raw material for zone enterprises in Gwadar Free Trade Zone, meant for manufacture of good to be exported.
- No Sales Tax on import/supplies of Materials and Equipment for Businesses in Gwadar Free Zone
No Sales Tax is levied on supplies of Materials and equipment for Zone Enterprises for a period of twenty-three years in Gwadar Free Trade Zone.
- No Sales Tax on supplies of Plant & Machinery and their parts for Zone Enterprises
No Sales Tax is levied on Plant & Machinery and their parts which are supplied to Zone Enterprises in Gwadar Free Trade Zone.
- Exemption from Income Tax for 10 years for Businesses in Gwadar Export Processing Zone.
A 10-year income tax holiday is available to the Zone Enterprises in the Export Processing Zone Gwadar.
- Foreign Investors allowed to completely own businesses (100 % equity)
Foreign Investors can establish their own businesses without the need for engaging a local partner/financier in all areas/activities except for a few specified sectors including airline, banking, agriculture and media.
- Availability of land/plots for setting up businesses with lease period of 99 years
Investors in Gwadar Free Trade Zone will be provided plots in the zone on lease for a period of 99 years by the Free Zone Company.
- Exemption from Income Tax for 23 years for Port Operators and Zone Developers.
A 23-year income tax holiday is available to the certain entities in the free zone area.
- 100% exemption on customs duties on import of Capital Goods, materials and vehicles for construction and operation of Port/Zone
100% Custom duty exemption on import of Capital Goods, materials and vehicles for construction, development and operations of Gwadar Port and Gwadar Free Zone, subject to certain conditions.
- Exemption of Sales Tax on import/supplies of Materials and equipment for Port/Zone Developers etc.
No Sales Tax is levied on supplies of Materials and equipment for Port/Zone developers for a period of forty years in Gwadar Free Trade Zone.
- Duty/Tax free import of Vehicles for Port/Zone Developers
No Custom Duty/Sales Tax on import of Vehicles for specified companies engaged in development and operations of Port/Zone for a period of twenty-three years in Gwadar Free Trade Zone.
- Exemption from Income Tax on profit of lender/bank
A 23-year income tax holiday is available to the Financial Institution on profits derived from debt to Port/Zone operators till 30.06.2039.
- Exemption from Income Tax till 30th June, 2039 for contractors and sub-contractors
A 23-year income tax holiday is available to the contractors and sub-contractors of Port/Zone operators (specified companies).
- Low rate of customs duties on import of capital goods used in Dairy Sector.
Plant, machinery and other capital goods used for establishing dairy farms can be imported on concessional rates of customs duty.
- Low rate of customs duties on import of capital goods used in Poultry Sector.
The plants, machinery and other capital goods used for establishing poultry farms can be imported on concessional rates of customs duty.
- Low duties on capital goods used for handling, processing and storage of Vegetable and Fruits etc.
Machinery and equipment used for cleaning, sorting or grading can be imported on concessional rate of Custom duty.
- Exemptions on Income Tax for the food processing and beverages sector.
To incentivize the exporters of vegetables, fruits meat preparation and poultry, duty drawback is paid.
- Low rates of customs duty on import of capital goods used by Food Processing Industry.
Machinery, equipment and other capital goods for miscellaneous Agro-Based Industries like milk processing, fruit, vegetable or flowers grading, picking or processing etc. can be imported on low rate custom duty
- 0% customs duty on capital goods for setting up Fruit Processing in specific areas.
Custom free import is allowed on plant, machinery and equipment imported for setting up fruit processing and preservation units in Gilgit-Baltistan, Balochistan and Malakand Division, which are fruit growing areas of the country.
- Concessional rate of customs duties on import of ingredients for preparation of Value Added Chicken Products (VACP).
Apart from availability of locally produce inputs, the import of inputs for manufacturing value added chicken products is also allowed on concessional rates of customs duty.
- Low rate of customs duties on import of seafood processing machinery and equipment.
Concessional rates of customs duty on import of Fish or Shrimp farming and Seafood processing machinery and equipment
- Duty Free Import of machinery & equipment.
Textile Sector is allowed to import machinery & equipment without paying duties & taxes, if it is not manufactured locally.
- Duty Drawback of Taxes (DDT) for Textile Sector.
In order to provide duty drawback of taxes collected from the garments, home textiles and processed fabric to manufacturing cum exporting units and commercial exporters, the Duty Drawback of Taxes Order 2018 notified by the Textile Division. The duty drawback under said order is allowed for the shipments made from 1st July 2018 to 30th June 2021.
- Long Term Financing Facility (LTFF) at Concessional Rates.
Under LTFF, Participating Financial Institutions (PFIs) provide long term local currency finance on concessional rate of 6% as compared to normal KIBOR (which is higher) for purchase of plant and machinery to be used by the export oriented projects meeting specified criteria.
- Export Refinance Facility (EFS) at concessional rate of 3.0%.
Low markup rate of 3.0 % per annum is available for exporters availing financing facilities under Export Finance Scheme (EFS).
- Permission to import restricted items by manufacturers cum exporters.
Export houses operating under various schemes for manufacturing of goods for export are allowed to import restricted items which are required for production of finished goods.
- Fully automated system for Repayment of customs–duties to exporters.
The repayment of customs duty to exporters is being made through a computerized system, directly into the company’s bank account.
- Zero Custom Duty for textile products for export to China.
Under Free Trade Agreement with Pakistan, China has eliminated Custom Tariff on 313 High Priority Tariff lines of different good including Textile Products of Pakistan for export to China.
- Low tariff/exemptions on exports to countries of EU due to GSP+ status.
Pakistan has been granted GSP+ status by European Union since 2014 due to which the manufacturing units of Pakistan are granted easy access to export their products to European Union. This is done through tariff concessions for their goods when entering the EU market. Due to this arrangement, the industrial units of Pakistan gain a competitive advantage for the European market.
- Duty free imports of plants and machinery for setting up the assembly and/or manufacturing facility on a one-time basis.
The Federal Government is pleased to exempt whole of Federal Excise Duty on franchise services falling under PCT heading 9823.0000 payable by the vendors of the auto parts industry having Technical Agreements with foreign based auto parts manufacturing companies.
- Exemption of raw material for Import of 100 vehicles of the same variant in CBU form at 50 percent after ground breaking of the project.
The Federal Government is pleased to exempt raw materials, sub-components, sub-assemblies, components and assemblies as are not manufactured locally, imported for the progressive manufacture of vehicles, equipment and machinery as specified in Table-I and sub- components, sub-assemblies, components
- Concessional rate of custom duty @ 10 percent on non-localised parts and @ 25percent on localised parts for a period of five years for the manufacturing of Cars and LCV’s
The Federal Government is pleased to exempt components (which include sub-components, components, sub-assemblies and assemblies but exclude consumables), imported in any kit form, 4 [and direct materials for assembly or manufacture of vehicles falling under Chapter 87 of the First Schedule to the said Act
- Custom duty shall be charged Import of all parts (both localized and non-localized parts and @ 25 percent for a period of three and five years.
Import of localized parts at prevailing customs duty applicable to non-localized parts for manufacturing of trucks, buses and prime-movers for a period of three years;
- Exemption of custom duty on all imported sub component for motorcycles.
The additional customs-duty leviable shall not be charged on sub-components and components, imported in any kit form by a new entrant assembler or manufacturer, for assembly or manufacturing of motorcycles.
- Construction Sector Granted Status of Industry.
The Income Tax Ordinance has been amended to declare construction sector as an industrial undertaking, making it eligible for benefits and concession available to other industries.
- New Fixed Tax Regime from Tax Year 2020 and Onwards for Eligible Builders and Developers.
An optional ‘Fixed tax regime’ from tax year 2020 and onwards for eligible builders and developers has been introduced on the income, derived from the sale of buildings or sale of plots, from a new or an incomplete existing project. Prior to this, tax was levied on a net income basis. Rate and computation of liability is determined under rule 10 of the eleventh schedule
- Exemption of Withholding Tax on Purchase of Building Materials.
Eligible Developers and Builders shall be exempted from withholding taxes on purchase of building materials
Dividend income paid to a person by a builder or developer company out of the profits and gains derived from a project shall be exempt from tax and also from tax withholding obligations.
- Reduced Advance Tax on Auction Sale.
Reduced rate of advance tax of 5% has been introduced for sale of immovable property through auction
- Reduction in Tax Liability for Low Cost Housing.
Any tax payable on the income, profits and gains of projects of low cost housing under NAYA Pakistan Housing & Development Authority or EHSAAS programme shall be reduced by 90%.
- Exemption of Capital Gains Tax.
Capital gains received by an individual on the sale of residential property (personal/family) house or flat, have been exempted from income tax.
- Banks to increase credit for financing the housing & construction sector.
With a view to promote housing and construction of buildings (Residential and Non-Residential) in Pakistan, State Bank of Pakistan (SBP) has decided to advise mandatory targets to the banks. Accordingly, each bank shall ensure that the financing for housing and construction of buildings (Residential and Non-Residential) shall be at least 5% of their domestic private sector credit by December, 2021.
- Custom Duty, Sales Tax and Advance Income Tax Exemption on import of Aircraft & related items.
i. Sales Tax and Custom Duty Exemption on import of Aircraft acquired lease, engine, simulators, spare parts, maintenance kits, equipment required for setting up Maintenance, Repair & Overall (MRO) workshop, Machinery, equipment, furniture & fixture imported for establishment of new airport.
ii. Only Custom Duty exemption on Ground handling equipment, service and operation vehicles, catering equipment and fuel trucks
- Sales Tax and Custom Duty Exemption on import of Ships, other floating and specialised crafts.
i. Custom Duty Exemption on import of floating crafts including tugs, survey vessels and other specialized crafts.
ii. Custom Duty & Sales Tax exemption on Ship spares, stores & equipment and containers for transportation of cargo.
- Zero percent Sales Tax on supply, repair, spare parts for ships.
Zero percent Sales Tax on supply, repair/maintenance and spare parts for ships which are not ships of gross tonnage of less than 15 LDT
- Income tax exemption up to 2030 on the income of Ships and other floating crafts.
Income Tax exemption on income of Ships and all floating crafts chartered by a Pakistan entity and flying Pakistani flag shall be exempt up to 2030