Why Startups Need to Understand Taxes from Day One
Taxation in Pakistan isn’t just a legal requirement—it’s a foundational part of building a compliant, scalable business. Whether you’re launching a tech startup or scaling an e-commerce brand, understanding how income tax, sales tax, and corporate filings work with the FBR is essential. From registration to reporting, every step affects your financial strategy and investor confidence.
This guide offers a startup-focused breakdown of Taxation in Pakistan, including what founders need to know about compliance, authorities, tax types, and common mistakes.
Who Regulates Taxation in Pakistan: FBR and Provincial Roles
1. Federal Board of Revenue (FBR)
The FBR is the central authority responsible for:
- Collecting federal taxes (like income tax, corporate tax, customs duties, federal excise duties)
- Managing the IRIS e-filing system
- Issuing National Tax Numbers (NTNs)
All registered businesses in Pakistan must interact with the FBR.
2. Provincial Revenue Authorities
Each province handles sales tax on services:
- PRA – Punjab Revenue Authority
- SRB – Sindh Revenue Board
- KPRA – Khyber Pakhtunkhwa Revenue Authority
- BRA – Balochistan Revenue Authority
If your startup sells services (like consulting, software, delivery, or marketing), you may need to register with the relevant province in addition to the FBR.
Types of Taxes in Pakistan
Taxes are broadly categorized into Direct and Indirect taxes. Startups usually deal with both.
A. Direct Taxes
These are paid directly to the government and are based on income or profits.
| Type | Description | Applies To |
| Income Tax | Tax on the profit/income of individuals and companies | Founders, salaried employees, businesses |
| Corporate Tax | Income tax on company profits (separate legal entity) | Private Limited, LLPs |
| Withholding Tax | Advance tax deducted at source | Freelancers, suppliers, service providers |
| Capital Gains Tax (CGT) | Tax on profit from asset sales (e.g., property, shares) | Investors, real estate deals |
| Super Tax | Additional tax on high-income companies | Companies over certain thresholds |
B. Indirect Taxes
Collected during transactions, and passed on to the government.
| Type | Description | Collected By |
| Sales Tax on Goods | Tax on sale of physical goods (standard: 18%) | FBR |
| Sales Tax on Services | Varies by province (standard: 13–16%) | PRA, SRB, etc. |
| Federal Excise Duty (FED) | On luxury items, beverages, telecom, etc. | FBR |
| Customs Duty | On imports/exports | FBR (Customs Wing) |
Key Concepts Startups Must Know
1. National Tax Number (NTN)
Every company must register with the FBR and get an NTN. This is needed for:
- Opening business bank accounts
- Filing returns
- Legal recognition
2. Sales Tax Registration
- If you sell goods, register with FBR for the Sales Tax Number (STRN).
- If you sell services, register with relevant provincial authorities.
3. Tax Year
- Runs from July 1 to June 30
- Returns usually due by September 30 for individuals, December 31 for companies
4. Filing Returns
You must file:
- Monthly sales tax returns (if registered)
- Annual income tax return
- Withholding statements (if you’re deducting WHT)
All filings are done via IRIS: https://iris.fbr.gov.pk
Taxation for Different Business Structures
| Business Type | Tax Responsibility |
| Sole Proprietorship | Income taxed under individual’s name |
| Partnership (AOP) | Filed jointly; taxed as per income slabs |
| Private Limited Company (Pvt Ltd) | Corporate income tax + sales tax + withholding tax compliance |
| LLP (Limited Liability Partnership) | Similar to AOP but with limited liability |
Taxation in Pakistan: Common Startup Mistakes to Avoid
- Skipping registration with PRA/SRB when offering services
- Delaying NTN/Sales Tax registration
- Assuming tax filing is yearly only you may need monthly compliance
- Not deducting withholding tax on payments to vendors
- No documentation of expenses and invoices
Final Thoughts
Taxation in Pakistan can feel complex at first especially for founders focused on product, funding, or growth. But ignoring taxes can lead to penalties, audits, and credibility issues with investors and banks.
By understanding how taxes work and fulfilling your responsibilities you build a strong, compliant, and trustworthy foundation for your startup.
FAQ
Do startups in Pakistan get any tax exemptions or incentives?
Yes, startups registered with the SECP under the definition provided by the Startup Pakistan Policy can avail tax exemptions for up to three years under Section 100F of the Income Tax Ordinance, 2001 provided they are certified by the Pakistan Software Export Board (PSEB).
What taxes are mandatory for a newly registered company in Pakistan?
New companies must comply with Income Tax, Sales Tax (if applicable), Withholding Tax, and possibly Federal Excise Duty, depending on their business type. Additionally, corporate tax returns and annual filings with SECP are mandatory.
What is the corporate tax rate in Pakistan for companies?
As of FY 2025–26, the corporate income tax rate for companies in Pakistan is 29%, unless a lower rate applies under a special regime (e.g., for small companies or IT exporters)
How can startups file their taxes in Pakistan?
Startups can file taxes through the FBR’s IRIS portal. They need to register for NTN, file annual income tax returns, and monthly withholding tax statements if applicable. Hiring a tax consultant is highly recommended for compliance.
Are digital/online businesses required to pay taxes?
Yes, online and digital businesses—whether product-based or service-based—must register, obtain an NTN, and comply with all tax obligations like any physical business, including income tax and sales tax on services (especially in provinces like Punjab and Sindh).