Introduction
Withholding tax is an important part of Pakistan’s income tax system. In simple terms, tax may be deducted at the time certain payments are made instead of waiting until the taxpayer files an annual income tax return.
The Federal Board of Revenue (FBR) describes withholding tax as an advance payment of tax deducted on specified economic activities. Depending on the relevant provision, the tax deducted may have different treatment for the recipient.
Section 153 of the Income Tax Ordinance, 2001 deals with withholding in several common business transactions, including payments relating to supplies, services and contracts.
What is Section 153?
Section 153 of the Income Tax Ordinance, 2001 contains withholding-tax provisions applicable to specified payments made for goods, services and contracts.
In a typical transaction, the person who is legally required to act as a withholding agent deducts tax from the payment at the applicable rate and deposits it in accordance with the prescribed procedure.
This means businesses should not simply apply one percentage to every Section 153 transaction. The correct treatment depends on the nature of payment, status and type of recipient, applicable provision and current tax rules.
Section 153: Goods, Services and Contracts
For practical understanding, Section 153 transactions can broadly be considered under three important areas.
Supplies / Goods
Section 153(1)(a) deals with specified payments relating to supplies.
Before deducting tax, the payer should determine the nature of the supply, the status of the recipient and the applicable rate under the current FBR rules.
Services
Section 153(1)(b) covers payments for services.
Different types of services can attract different withholding treatment. Therefore, identifying the exact nature of the service is particularly important before selecting a withholding-tax rate.
Contracts
Section 153(1)(c) deals with specified contract payments.
The applicable treatment can depend on factors such as the type of recipient and the nature of the contract.
Why ATL Status Matters
The taxpayer’s status on the Active Taxpayers List (ATL) can materially affect withholding tax.
FBR’s withholding-tax rate cards separately identify applicable rates and, where relevant, different treatment for persons not appearing on the ATL. Therefore, the withholding agent should verify the taxpayer’s current status before applying a rate.
How to Check the Correct Withholding Tax Rate
Before deducting tax under Section 153, use the following process:
- Identify whether the payment relates to supplies, services or a contract.
- Determine the legal status of the recipient, such as an individual, AOP or company.
- Verify whether the taxpayer is on the Active Taxpayers List.
- Check whether a special or reduced rate applies to the particular transaction.
- Verify the rate from the latest FBR Withholding Tax Rate Card and applicable provisions of the Income Tax Ordinance.
- Deduct and deposit the tax using the appropriate procedure and maintain supporting records.
This verification is important because withholding-tax rates and rules can change through Finance Acts and other amendments.
Current FBR Withholding Tax Rate Card
FBR currently provides a Withholding Tax Rate Card for Tax Year 2027, updated up to 30 June 2026 as per Finance Act 2026. Previous-year rate cards are also available on FBR’s website.
Rather than relying on an old rate remembered from a previous tax year, taxpayers and withholding agents should check the latest official rate card before processing a transaction.
Practical Example
Suppose a business receives an invoice from a supplier.
Before making payment, the business should determine whether it is required to act as a withholding agent. If Section 153 applies, it should identify the relevant transaction category, check the recipient’s tax status and verify the current applicable rate.
The withholding amount can then be deducted from the payment and deposited according to the applicable FBR procedure.
The important point is that the rate should be verified first rather than assumed.
Common Mistakes to Avoid
Businesses commonly create compliance problems when they use an outdated withholding rate, fail to check ATL status, classify a service incorrectly, deduct tax under the wrong provision, or fail to maintain proper evidence of deduction and deposit.
Another mistake is assuming that every payment for goods or every service invoice attracts exactly the same rate. Section 153 contains different categories and circumstances, so classification matters.
Frequently Asked Questions
Is Section 153 applicable only to companies?
No. Section 153 is not simply a “company tax” provision. Applicability depends on the transaction and whether the payer falls within the relevant withholding-agent requirements.
Is the withholding rate the same for every service?
No. The applicable rate can vary depending on the type of service and other relevant conditions.
Does ATL status affect withholding tax?
It can. FBR’s rate cards identify ATL and non-ATL treatment for relevant provisions, so taxpayer status should be checked before deduction.
Where should I verify the latest rate?
The safest starting point is FBR’s current Withholding Tax Rate Card together with the latest applicable Income Tax Ordinance and amendments. FBR currently lists the Income Tax Ordinance amended up to 30 June 2026.
Official Sources
For current Section 153 rates and legal requirements, always verify information from official FBR material.
FBR Withholding Tax Rate Cards
Important: FBR itself notes that its withholding rate card is intended as a facilitation/reference resource and that the underlying statute prevails in case of contradiction or error.
