Pakistan Income Tax MCQs (With Answers)

Advance Tax – Transitional Phase

41. Which section of the Income Tax Ordinance, 2001 deals with Advance tax on private motor vehicles ? Section 235 Section 234 Section 231B Section 210

Explanation:
Every registering authority of the Excise and Taxation Department shall collect advance tax when a motor vehicle is registered.

Reference: Section 231B. Advance tax on private motor vehicles - ITO, 2001

Exemptions and Tax Concessions

42. Which section of the Income Tax Ordinance, 2001 deals with Foreign government officials ? Section 41 Section 42 Section 43 Section 44

Explanation:
Any salary received by an employee of a foreign government as remuneration for services rendered to such government shall be exempt from tax under the ITO, 2001.

Reference: Section 43. Foreign government officials - ITO, 2001

Exempted Income

43. Salary received by an employee of a foreign government is exempt from tax if : The employee is a Pakistani citizen The employee holds dual nationality The employee works in Pakistan Foreign citizen doing similar work qualifies for tax exemption under reciprocal agreement.

Explanation:
Salary received by an employee of a foreign government is exempt from tax if employee is a foreign citizen, performs similar services as Federal Government employees abroad, and reciprocal exemption is granted

Reference: Section 43. Foreign government officials - ITO, 2001

Rates of Tax for Companies

44. What is the income tax rate applicable to a banking company for Tax Year 2026? 44% 43% 42% 41%

Explanation:
A banking company, as defined in the Banking Companies Ordinance, 1962, is required to pay income tax at 43% for Tax Year 2026.

Reference: First Schedule – Part I, Division II – Income Tax Ordinance, 2001

45. What is the income tax rate applicable to a banking company for Tax Year 2025? 41% 42% 43% 44%

Explanation:
A banking company, as defined in the Banking Companies Ordinance, 1962, is required to pay income tax at 44% for Tax Year 2025.

Reference: First Schedule – Part I, Division II – Income Tax Ordinance, 2001

46. What is the income tax rate applicable to a banking company for Tax Year 2027? 42% 44% 43% 41%

Explanation:
A banking company, as defined in the Banking Companies Ordinance, 1962, is required to pay income tax at 42% for Tax Year 2027.

Reference: First Schedule – Part I, Division II – Income Tax Ordinance, 2001

47. What is the income tax rate applicable to a small company for Tax Year 2026? 20% 25% 29% 21%

Explanation:
Section 2(59AB). Small Company refers to a company that is registered on or after 1st July 2005 under the Companies Act, 2017

Reference: Tax rate applicable : First Schedule – Part I, Division II – Income Tax Ordinance, 2001

48. What is the income tax rate applicable to a Any Other company for Tax Year 2026? 29% 20% 25% 30%

Explanation:
Any Other Company refers to a company that is not classified as a Small Company or Banking Company under the Income Tax Ordinance, 2001.

Reference: First Schedule – Part I, Division II – Income Tax Ordinance, 2001

Company Taxation

49. The tax rate of a Small Company is prescribed under: Section 9 Section 2(59A) Section 4 First Schedule, Part I, Division II

Explanation:
The applicable tax rate is provided in the First Schedule, Part I, Division II of the Income Tax Ordinance, 2001.

Reference: Section 2(59A) - ITO, 2001

50. The paid-up capital plus undistributed reserves of a Small Company must not exceed: Rs. 100 million Rs. 75 million Rs. 50 million Rs. 250 million

Explanation:
Under Section 2(59AB)(i), a Small Company must have paid-up capital plus undistributed reserves not exceeding Rs. 50 million.

Reference: Section 2(59AB). Small Company - ITO, 2001

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