Written by Hamza Shahnawaz in Taxation, Top stories Tax Expenditure Report 2026 says conservative benchmark avoids overstating the fiscal cost of corporate tax concessions. ISLAMABAD: The Federal Board of Revenue (FBR) has explained why it applies a 24.5 per cent benchmark tax rate for non-banking companies when estimating corporate tax expenditures, despite data showing that companies paid a considerably higher effective tax rate during the latest tax year. The explanation, contained in the Tax Expenditure Report 2026, outlines the methodology used by the FBR to calculate the fiscal cost of tax exemptions, concessions and incentives granted under Pakistan’s tax laws. Benchmark Rates Based on Tax Law According to the report, benchmark income tax rates are derived from the statutory provisions of the Income Tax Ordinance, 2001. Individual taxpayers are assessed using the applicable income tax slabs, while taxpayers reporting losses are assigned the 1.25 per cent minimum tax under Section 113 of the ordinance. Export income is benchmarked at 1 per cent for the purpose of estimating tax expenditures. For banking companies, the FBR applies a 39 per cent benchmark rate, reflecting both the corporate income tax and the super tax imposed under Section 4C of the Income Tax Ordinance. Why Non-Banking Companies Are Benchmarked at 24.5% The methodology differs for non-banking companies. The FBR uses an average benchmark tax rate of 24.5 per cent, explaining that companies outside the banking sector are subject to different statutory tax rates depending on their industry, business size and applicable tax provisions. According to the report, the lower benchmark has been adopted as a conservative measure to avoid overstating the fiscal cost of corporate tax incentives and concessions. Corporate Tax Data Shows Higher Effective Rate The report also reveals that an analysis of corporate income tax returns for Tax Year 2025 produced a substantially higher effective tax burden than the benchmark used for tax expenditure calculations. According to the FBR, non-banking companies…