Do PSEB-certified tech startups get a tax exemption, for how many years, and who counts as a startup?

A qualifying startup does not get a blanket exemption under the current Ordinance. It gets a tax credit under section 65F equal to one hundred per cent of its tax payable, which in effect cancels the tax for three tax years: the year the Pakistan Software Export Board (PSEB) certifies it and the next two.

What does the law say?

Section 65F(1) allows listed persons “a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum, alternate corporate tax and final taxes”. Clause (b) names:

a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years.

Section 65F(2) sets conditions, “where applicable”:

• (a) the return has been filed;
• (b) withholding tax statements for the relevant tax year have been filed, where the person is a withholding agent; and
• (c) sales tax returns for the matching tax periods have been filed, if the person must file them under any federal or provincial sales tax law.

Who counts as a startup?

Clause (62A) of section 2 has two limbs. Under sub-clause (i), a startup is a business of a resident individual, AOP or company that:

1. commenced on or after the first day of July, 2012;
2. is engaged in, or intends to offer, technology driven products or services to any sector of the economy;
3. is registered with and duly certified by the Pakistan Software Export Board; and
4. has turnover of less than one hundred million in each of the last five tax years.

Sub-clause (ii) adds any business of a person or class of persons meeting conditions that the Board, with the approval of the Federal Minister-in-charge, notifies in the official Gazette. No such notification is held in this corpus.

All four tests in sub-clause (i) apply together. A company started in 2010, or one without PSEB certification, is outside sub-clause (i) however innovative its product.

How does it work in practice?

The credit is counted in tax years. Section 65F(1)(b) starts the clock in the tax year of PSEB certification, not the year the business began. A startup that was founded years earlier but certified later still gets its three years from certification, provided it meets every part of clause (62A).

The credit reduces tax payable; it does not remove the duty to file. Condition (a) of section 65F(2) requires the return to be filed. If the startup employs staff and deducts tax from their pay, it is a withholding agent and must also have filed its withholding statements.

Separately, clause (43F) of Part IV of the Second Schedule says section 153 does not apply where the recipient of the payment is a startup as defined in clause (62A). That is covered on the related page about minimum tax and withholding.

Worked example (illustrative figures)

Rahbar AI (Pvt) Ltd was incorporated in Lahore in 2021 to build software for clinics. It has had turnover below one hundred million in every tax year. PSEB certifies it in November 2026, which falls in tax year 2027 (1 July 2026 to 30 June 2027).

1. Credit years: tax year 2027 (certification), tax year 2028 and tax year 2029.
2. Suppose its tax payable for tax year 2027, including any minimum tax, is Rs. 1,200,000.
3. Credit under section 65F: 100% x Rs. 1,200,000 = Rs. 1,200,000.
4. Tax left to pay: Rs. 1,200,000 - Rs. 1,200,000 = Rs. 0, provided the return, withholding statements and any required sales tax returns are filed.
5. In tax year 2030 the credit under clause (b) no longer applies.

What if the startup has been trading for less than five years?

Clause (62A)(i) requires turnover under one hundred million “in each of the last five tax years”. It does not say how the test applies to a business that has existed for fewer than five tax years. This page does not resolve that.

What if turnover crosses one hundred million?

The definition requires turnover below that figure in each of the last five tax years. Section 65F does not say whether a startup that crosses the figure during its three credit years loses the rest of the credit. The text is silent on that point.

Common mistakes

• Counting the three years from incorporation. Section 65F(1)(b) counts from the tax year of PSEB certification.
• Assuming registration alone is enough. Clause (62A)(i) says “registered with and duly certified by” PSEB.
• Skipping the return because tax is nil. Section 65F(2)(a) makes filing a condition of the credit.
• Reading “one hundred million” as rupees without checking. The clause prints “one hundred million” without a currency word. Confirm the figure in the official text.

What to check in the official text

Read section 65F and clause (62A) of section 2 in the official PDF, and clause (43F) of Part IV of the Second Schedule. PSEB’s own certification rules are outside this corpus, as are any Board notifications under clause (62A)(ii).