Tax Relief for Upgrading Your Business: Understanding Tax Credit for Investment

In Pakistan, the government incentivizes companies to upgrade their industrial operations by offering a tax credit for investments in plant and machinery. This article explains the details of this tax credit, its benefits, and provides an example for better understanding.

What is the Tax Credit for Investment?

Income Tax Ordinance, 2001 allows companies to claim a tax credit for a portion of the amount they invest in purchasing new plant and machinery. This credit is intended to encourage businesses to modernize, expand, or replace outdated equipment, ultimately boosting industrial growth.

Key Points about the Tax Credit:

  • Eligible Activities: The credit applies to investments in plant and machinery for balancing, modernization, and replacement, not just expansion.
  • Credit Percentage: The current rate of the tax credit is 10% of the investment amount. Prior to 2019, the rate was 5%.
  • Tax Payment Reduction: The credit amount is directly deducted from the company’s tax payable in the year the machinery is installed.
  • Carry-Forward Provision: If the company’s tax liability is insufficient to utilize the entire credit in the installation year, the remaining credit can be carried forward for deduction in the following two tax years.

Example: Tax Credit Calculation

ABC Company, a well-established manufacturer, decides to modernize its production line by purchasing new machinery for PKR 1,000,000.

  • Tax Credit Calculation: 10% of PKR 1,000,000 = PKR 100,000
  • Tax Benefit: ABC Company can deduct PKR 100,000 from its tax payable in the year the new machinery is installed.


The tax credit for investment in plant and machinery offers a significant financial benefit to companies investing in upgrades. By taking advantage of this incentive, businesses can optimize their operations, improve efficiency, and potentially gain a competitive edge. It’s important to consult with a tax advisor to ensure your company meets eligibility criteria and maximizes the benefits of this tax credit program.

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