My company made a loss this year. Do we still have to pay tax?

A loss does not take a Pakistani company out of income tax. The Income Tax Ordinance, 2001 has a floor for companies: minimum tax on turnover under section 113. A loss year is one of the situations the section was written for, so most loss-making companies pay tax on their sales even though they have no profit.

What does the law say?

Section 113(1) applies to a resident company and a permanent establishment of a non-resident company. It applies where, “for any reason whatsoever allowed under this Ordinance”, one of the following leaves the company with no tax payable, or with tax payable below the Division IX percentage of turnover:

• (a) a loss for the year;
• (b) the setting off of a loss of an earlier year;
• (c) exemption from tax;
• (d) the application of credits or rebates; or
• (e) the claiming of allowances or deductions, including depreciation and amortization.

Where the section applies, section 113(2)(a) treats the company’s turnover for the year as its income, and section 113(2)(b) says the company pays, “instead of the actual tax payable”, minimum tax at the rates in Division IX of Part I of the First Schedule.

Turnover is defined in section 113(3). For sales of goods it means gross sales or gross receipts, exclusive of sales tax, federal excise duty and trade discounts shown on invoices or bills, and excluding amounts already taxed as a final discharge of liability. It also covers gross fees for services and gross receipts from contracts, again excluding receipts under final tax.

What rate applies to my company?

The rate depends on the business. The Division IX Table, as amended to 30 June 2026 and so in force for tax year 2027, includes:

Business	Rate of turnover
Oil refineries, motorcycle dealers registered under the Sales Tax Act, 1990, oil marketing companies	0.5%
Petroleum agents and distributors registered under the Sales Tax Act, 1990, rice mills and dealers, flour mills, and some other listed persons	0.25%
In all other cases	1.25%

Our copy of serial number 1 of the Table is partly illegible, so this page does not list who falls under it. A company whose business is not listed in the Table falls under “In all other cases” at 1.25%.

What happens to the minimum tax paid in a loss year?

Section 113(2)(c) normally carries forward only the excess of minimum tax over the tax payable at normal rates. The first proviso makes a special rule for a year with no tax payable: “the entire amount of tax paid under sub-section (1) shall be carried forward”. In a loss year the normal tax is nil, so the whole minimum tax goes forward.

The second proviso limits the period. The amount is adjusted against tax liability for the two tax years immediately succeeding the tax year for which it was paid. An Explanation says the adjustment is against tax under clause (1) of Division I or Division II of Part I of the First Schedule, which for a company is the Division II corporate rate.

The business loss itself is dealt with separately. Under section 57(1) and (2), a business loss that cannot be set off in the year is carried forward and set off against business income of later years, for no more than six tax years after the year the loss was first computed.

Worked example (illustrative figures)

Rehman Furniture (Pvt) Ltd in Lahore makes and sells furniture. Its figures below are invented. The rate is the real Division IX rate for tax year 2027.

1. Turnover for tax year 2027, net of sales tax and trade discounts: Rs. 180,000,000.
2. Business result for the year: a loss of Rs. 12,000,000. Tax at the Division II rate on a loss: nil.
3. Section 113(1)(a) applies because a loss for the year leaves no tax payable.
4. Minimum tax: Rs. 180,000,000 x 1.25% = Rs. 2,250,000.
5. The company pays Rs. 2,250,000 for tax year 2027.
6. Because no tax was otherwise payable, the first proviso carries forward the whole Rs. 2,250,000 for adjustment in tax years 2028 and 2029.
7. Separately, the Rs. 12,000,000 loss is carried forward under section 57, for up to six tax years.

If the company earns a profit in tax year 2028 and its Division II tax is higher than its minimum tax for that year, the carried forward Rs. 2,250,000 can be adjusted against that liability. How that works over two years is shown on the carry forward page linked below.

What if …?

What if the loss comes only from old losses brought forward? Section 113(1)(b) covers “the setting off of a loss of an earlier year”. A company that is profitable this year but wipes out its taxable income with brought forward losses is still subject to minimum tax.

What if the company has income taxed under final tax? The Explanation to section 113(1) says “tax payable or paid” does not include tax on deemed income assessed as a final discharge of liability, or tax under sections 4B or 4C. Final tax receipts are also excluded from turnover by section 113(3).

What if the company is exempt from minimum tax? Some persons are taken out of section 113 by the Second Schedule. This page does not list them; check the Second Schedule for your business.

Common mistakes

• Assuming a loss means a nil return. Section 113(1)(a) names a loss for the year as a trigger for minimum tax.
• Carrying forward only part of the minimum tax in a loss year. Where no tax was payable, the first proviso to section 113(2)(c) carries forward the entire amount.
• Using a five or three year window. The Finance Act, 2025 replaced “three” with “two” in the second proviso.
• Confusing the two carry forwards. Minimum tax goes forward for two tax years under section 113. The business loss goes forward for up to six tax years under section 57.

What to check in the official text

Read section 113(1), (2) and (3) with the Explanations and both provisos to sub-section (2)(c). Check the Division IX Table against the official PDF for your business, especially serial number 1, which our copy does not show clearly. Read section 57 for the loss itself. Check the Second Schedule for any exclusion from section 113 that applies to your company.