Does a certified startup still pay minimum tax, and do clients still withhold tax from its payments?

Two separate provisions work together here. Section 65F gives a qualifying startup a credit that wipes out its tax payable, minimum tax included, for three tax years. Clause (43F) of Part IV of the Second Schedule takes a startup out of section 153 altogether, so local clients paying it should not withhold under that section.

What does the law say about minimum tax?

Section 65F(1) allows “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) extends it to a startup as defined in clause (62A) of section 2, for the tax year in which PSEB certifies it and the next following two tax years.

Because the credit expressly names minimum, alternate corporate tax and final taxes, it is not limited to tax on profits. For a startup that also earns local IT income, section 153(3) would normally make tax deducted from services a minimum tax. In the credit years, section 65F covers that category of tax as well.

The credit depends on the conditions in section 65F(2): the return filed, withholding statements filed where the startup is a withholding agent, and sales tax returns filed where required.

What does the law say about withholding?

Clause (43F) of Part IV of the Second Schedule reads: “The provisions of section 153 shall not apply in the case of a start-up, being recipient of payment, as defined in clause (62A) of section 2.”

Clause (62A) defines a startup as a business of a resident individual, AOP or company that began on or after 1 July 2012, offers or intends to offer technology driven products or services, is registered with and duly certified by PSEB, and has turnover under one hundred million in each of the last five tax years. Sub-clause (ii) also lets the Board, with the Federal Minister-in-charge’s approval, notify other businesses.

How does it work in practice?

The two provisions are not tied to the same period. Section 65F(1)(b) limits the credit to three tax years. Clause (43F) refers only to a start-up “as defined in clause (62A)” and contains no year limit of its own. On the text, clause (43F) applies for as long as the recipient meets the definition, but the Ordinance does not say this in so many words.

Clause (43F) also says nothing about how a client should confirm that a supplier is a startup. Section 159(2) tells a payer to deduct the full amount specified in Division III unless a section 159 certificate is in force. Section 159(1)(c) allows a certificate where an amount “is subject to hundred percent tax credit”. A startup in its credit years fits that wording. The Ordinance does not say whether a startup must hold such a certificate before clause (43F) takes effect for a client. This page does not resolve that.

Clause (43F) switches off section 153 only. Other deductions under Division III of Part V of Chapter X, such as tax deducted on export proceeds, are not mentioned in it. For those, the section 159(1)(c) certificate route is the one the Ordinance provides.

Worked example (illustrative figures)

Qalam Code (Pvt) Ltd in Peshawar is a startup under clause (62A)(i), certified by PSEB in tax year 2027. A Lahore company pays it Rs. 3,000,000 for IT services in that year.

1. Without clause (43F), the client would deduct at the Division III rate for IT services, 4%: Rs. 3,000,000 x 4% = Rs. 120,000.
2. Clause (43F) says section 153 does not apply to a startup recipient, so the deduction is Rs. 0 and Qalam Code receives Rs. 3,000,000.
3. Suppose Qalam Code’s total tax payable for tax year 2027, including any minimum tax, is Rs. 450,000.
4. Section 65F credit: 100% x Rs. 450,000 = Rs. 450,000. Tax left to pay: Rs. 0, if the section 65F(2) conditions are met.

What if the credit years end but the business is still a startup?

The section 65F credit stops after the second tax year following certification. Clause (43F) is not tied to those years, so withholding under section 153 would stay switched off while the business meets clause (62A). Tax payable, including any minimum tax, would then be due in the ordinary way.

What if a client deducts anyway?

Neither clause (43F) nor section 65F sets out a procedure for recovering tax a client deducted despite clause (43F). The corpus does not answer this directly.

Common mistakes

• Assuming the credit excludes minimum tax. Section 65F(1) names minimum, alternate corporate tax and final taxes.
• Assuming clause (43F) ends with the credit. It has no year limit of its own.
• Assuming clause (43F) covers every withholding. It refers to section 153 only.

What to check in the official text

Read section 65F, clause (62A) of section 2, and clause (43F) of Part IV of the Second Schedule in the official PDF. Read section 159(1)(c) and (2) if a client asks for a certificate. PSEB certification procedures and any Board notifications under clause (62A)(ii) are outside this corpus.