The final tax regime (FTR) remains an important—though often debated—feature of Pakistan’s income tax system for tax year 2026. While many tax experts argue that final taxation limits documentation and broadening of the tax base, the regime continues to apply to specific incomes under the Income Tax Ordinance, 2001, particularly through Section 169.
This interactive guide explains how the final tax regime works, when it applies, and what it means for taxpayers.
🔍 What Is the Final Tax Regime?
Under the final tax regime, tax deducted or collected at source becomes the full and final tax liability on that income. Once tax is withheld, the income is excluded from further assessment, regardless of actual profit or loss.
📌 When Does Section 169 Apply?
Section 169 applies where tax deducted is declared final under specific provisions, including:
• Section 152(1E) – certain payments to non-residents
• Section 152A – gains on disposal of certain debt securities
• Section 154A(2) – export of services
• Section 156(3) – prizes and winnings
• Section 156A(2) – petroleum products
• Section 236Z(7) – certain commercial transactions
If your income falls under these sections, final taxation rules kick in automatically.
🧾 Key Features of Final Taxation (Section 169)
When income is subject to final tax:
✅ The income is not included in taxable income under any head
❌ No expenses or deductions are allowed against such income
❌ No loss adjustment or carry-forward is permitted
❌ No tax credits can be claimed
💰 Refund is not allowed, unless excess tax was deducted
If tax was not deducted or short-deducted, recovery can still be made under Section 162.
📝 Assessment Status Under Final Tax
If all income of a taxpayer is subject to final tax, the law treats the case as:
• Assessment completed under Section 120
• The filed return itself becomes the assessment order
• No separate scrutiny is required by the Commissioner
⚠ Higher Tax for Non-Filers – Important Relief
Where a 100% higher tax rate is applied under the Tenth Schedule for non-filers:
• The original First Schedule rate remains the final tax
• The extra tax becomes adjustable if:
o The return is filed before assessment finalization
This provides a strong incentive to file returns on time.
📊 Why Final Tax Regime Matters in 2026
• Simplifies compliance for specific income streams
• Reduces litigation and assessment disputes
• Still controversial due to limited documentation impact
✅ Takeaway
The final tax regime under Section 169 plays a decisive role in Pakistan’s tax framework for tax year 2026. Knowing whether your income falls under final taxation helps you avoid incorrect claims, refunds, or adjustments and ensures accurate tax filing.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute professional tax or legal advice. For personalized guidance, consult a qualified tax advisor or the Federal Board of Revenue (FBR).