Same profit taxed as a sole proprietor versus a company.
Lower-tax structure
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Sole proprietor tax
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Company tax
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Same profit, two very different tax bills
One of the first real decisions a growing business in Pakistan faces is whether to keep trading as a sole proprietor or to register a private limited company. The two are taxed on completely different logic, and at the wrong profit level the choice can cost or save you well over a million rupees a year. This calculator puts the same profit through both regimes side by side and tells you which one carries the lighter tax. You enter your annual profit and your turnover, and it returns the sole-proprietor tax, the company tax, and the lower-tax structure.
It is built for founders, freelancers scaling into a team, and consultants who want a numbers-first answer before they pay a lawyer to incorporate. Tax is only one input. Liability, fundraising, and the cost of running a company all matter too. But you should know the tax gap before you decide, and that is what this tool is for.
How each side is calculated
A sole proprietor is taxed as an individual on the non-salaried slab card, which is steep at the top. The card the calculator uses runs up to a 45 percent marginal rate on the highest band, and a high-income surcharge applies on top, the 9 percent of tax payable that kicks in once taxable income passes PKR 10 million. So the sole-proprietor figure here is slab tax plus that surcharge.
A private limited company is taxed differently. It pays corporate tax on its profit, and the rate this calculator applies is 29 percent. But there is a floor: if the minimum tax on turnover, modelled here at 1.25 percent of turnover, comes out higher than the corporate tax, the company pays that instead. The tool takes the greater of the two. It then adds super tax, the Section 4C charge that only bites once income is very large, so at modest profits it adds nothing. All of these are figures the calculator applies and that the Federal Board of Revenue (FBR) resets through the annual Finance Act, so treat them as the modelled position and confirm the current rates before you act.
PKR 12 million profit on PKR 60 million turnover
Take the defaults: PKR 12 million of annual profit on PKR 60 million of turnover. As a sole proprietor the non-salaried slab card produces a base tax of PKR 4,490,000, and because profit is above PKR 10 million the 9 percent surcharge adds PKR 404,100, for a total of PKR 4,894,100. As a company, corporate tax at 29 percent on PKR 12 million is PKR 3,480,000, which comfortably beats the minimum turnover tax of PKR 750,000, and super tax is zero at this income, so the company total is PKR 3,480,000.
| Component | Sole proprietor | Company |
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The company wins by the difference shown in the result box. The chart compares the two tax totals on the current inputs.
The crossover, and the dividend trap people forget
At low profits the sole proprietor usually wins, because the early slabs are gentle and a company would still pay its flat 29 percent or the turnover floor. As profit climbs into the higher slabs the picture flips, and the flat company rate pulls ahead, as the example shows. That switch point is the crossover, and it moves every time the slabs change, so re-run the tool with the current year's rates rather than trusting last year's answer.
The trap that catches new company owners is that the corporate tax figure here is not the end of the story. Money inside the company is taxed at 29 percent, but to get it into your pocket you usually pay yourself a dividend, and dividends carry their own withholding tax on top. So the true comparison for cash you take home is company tax plus dividend tax, not company tax alone. Leave profits inside the business to reinvest and the company looks even better; need every rupee personally and you should recompute with the dividend layer added. This calculator stops at corporate tax and notes in its result that it does not model the distribution.
A practical aside: a sole proprietor billing for services, a consultant or agency, also faces provincial sales tax on those services through the relevant board, such as the Sindh Revenue Board or the Punjab Revenue Authority, which a goods-only trader does not. That is a separate indirect tax from the income tax this tool compares, but it belongs in your overall picture.
At what profit does a company start to win?
There is no single fixed number, because it depends on the slab thresholds in force that year and on your turnover. The principle is that once your profit pushes well into the upper slabs, where the marginal rate plus surcharge exceeds the flat company rate, the company becomes cheaper. The cleanest way to find your own crossover is to enter rising profit figures in the tool and watch where the winner flips.
Why does the calculator ask for turnover as well as profit?
Because a company cannot pay less than the minimum tax on its turnover, even in a thin-margin or loss year. If your profit is small relative to a large turnover, the 1.25 percent turnover tax the tool applies can exceed the 29 percent corporate tax on profit, and the company then pays the higher turnover figure. Entering turnover lets the calculator apply that floor correctly rather than understating the company bill.