Karachi, December 15, 2024 – The Federal Board of Revenue (FBR) has announced a significant tax policy revision, imposing a 24% advance income tax on brokerage commissions earned by individuals not included in the Active Taxpayers List (ATL) for the tax year 2025. This move aims to ensure compliance and widen the tax net.
According to the FBR’s updated tax rate card for the tax year 2024, persons listed on the ATL are subjected to an advance income tax of 12% on brokerage commissions. However, this rate is doubled for those not on the ATL, pushing it to 24%. The provision is intended to encourage greater tax compliance and penalize non-ATL persons.
Brokerage and commissions are taxed under Section 233 of the Income Tax Ordinance, 2001. The ordinance specifies that commission earned by advertising agents is taxed at a rate of 10% for ATL-listed individuals and 20% for those not on the ATL. In another case, life insurance agents earning less than Rs. 0.5 million annually are subject to an 8% tax if listed on the ATL. For non-ATL individuals, this rate is increased to 16%.
Key Provisions under Section 233
1. Scope of Brokerage and Commission: Payments on account of brokerage or commission by entities such as the federal or provincial government, local authorities, companies, or associations with a turnover exceeding Rs. 100 million must deduct advance tax at the prescribed rates. This deduction applies to both ATL and non-ATL persons.
2. Retention by Agents: When an agent retains brokerage or commission from amounts remitted to the principal, it is deemed that the commission has been paid by the principal. The FBR mandates the principal to collect advance tax from the agent in such cases.
3. Tax on Advertising Agents: Principals making payments to advertising agents, directly or through media channels, must deduct tax at the rates specified under Division II of Part IV of the First Schedule. This is in addition to other applicable deductions, ensuring comprehensive tax compliance.
4. Minimum Tax Clause: The tax deducted under Section 233 is treated as the minimum tax on the income of advertising agents or other individuals earning brokerage or commission.
By doubling tax rates for non-ATL persons, the FBR underscores its commitment to fostering accountability within the tax regime. The measure also aims to ensure equitable taxation across sectors and enhance revenue collection efficiency. The FBR’s stringent enforcement of these regulations is expected to deter tax evasion while promoting a more inclusive fiscal framework.
Taxpayers are urged to comply with ATL requirements to benefit from reduced tax rates and avoid penalties under the updated regime. The FBR’s consistent emphasis on broadening the tax base highlights its role in strengthening Pakistan’s economic stability and governance.