Higher withholding tax rates on property transactions for late filers have been withdrawn, aligning them with active taxpayers to encourage return filing.
ISLAMABAD: The Federal Board of Revenue (FBR) has abolished the ‘late filer’ category under the Finance Act, 2026, removing the higher withholding tax rates previously applicable to taxpayers who filed their income tax returns after the prescribed due date.
According to FBR sources, the amendment is intended to encourage tax return filing by eliminating the distinction between taxpayers who submit their returns within the due date and those who file after the deadline but subsequently become active taxpayers.
The ‘late filer’ category was introduced through the Finance Act, 2024 by inserting Rule IA in the Tenth Schedule to the Income Tax Ordinance, 2001.
Under that framework, taxpayers appearing on the Active Taxpayers List (ATL) who failed to file their returns by the due date or the extended due date were classified as late filers. They were subject to withholding tax rates higher than those applicable to timely filers but lower than the rates imposed on non-filers.
The higher withholding tax rates applied only to transactions under Sections 236C and 236K of the Income Tax Ordinance, 2001, relating to the purchase, sale and transfer of immovable property.
The Finance Act, 2025 subsequently increased these withholding tax rates for late filers, further widening the tax burden on delayed return filers involved in property transactions.
However, the Finance Act, 2026 has now omitted Rule IA of the Tenth Schedule, effectively abolishing the late filer category and withdrawing the higher withholding tax rates associated with it.
As a result, taxpayers who file their income tax returns after the due date but are included in the Active Taxpayers List will now be subject to the same withholding tax rates as taxpayers who filed their returns within the prescribed or extended deadline.
Tax experts said the amendment simplifies Pakistan’s withholding tax framework by eliminating the separate tax treatment for late filers. They believe the move may encourage more individuals to file outstanding tax returns and regain active taxpayer status without facing additional withholding tax on property transactions, while maintaining the distinction between active taxpayers and non-filers.