Islamabad, August 25, 2025 – The Federal Board of Revenue (FBR) has released updated withholding tax rates applicable to exports for the tax year 2025-26, following recent amendments to the Income Tax Ordinance, 2001 through the Finance Act, 2025.
According to the newly issued Withholding Tax Card, the FBR has fixed the rate of withholding income tax on exports at 1% for taxpayers who are listed on the Active Taxpayers List (ATL). However, for individuals or businesses not appearing on the ATL, the rate will be doubled to 2%.
The FBR clarified that these deductions will be collected under Section 154 of the Income Tax Ordinance, 2001, which outlines the procedure for the taxation of exports. The section mandates that every authorized dealer in foreign exchange must deduct tax at the time of realization of foreign exchange proceeds from the export of goods, as per rates specified in Division IV of Part III of the First Schedule.
Further provisions state that banking companies will also be responsible for deducting tax when realizing proceeds under inland back-to-back letters of credit or other prescribed arrangements. Similarly, the Export Processing Zone Authority (EPZA) is tasked with tax collection when industrial undertakings located in designated zones export goods.
The rules also extend to export houses registered under the Duty and Tax Remission for Exports Rules, 2001, and the Export Facilitation Scheme, 2021. Such entities must deduct tax when making payments for firm contracts to indirect exporters, as defined under these schemes.
Additionally, the Collector of Customs is required to collect tax at the time of clearing goods for shipment abroad, ensuring compliance across all channels of exports. Importantly, the FBR confirmed that taxes deducted under Section 154 will be treated as minimum tax on income arising from export-related transactions.
The announcement underscores the government’s commitment to streamlining revenue collection while ensuring that the export sector operates under a transparent and predictable tax framework. Tax experts believe these measures will provide clarity for businesses while enhancing compliance and revenue generation for the state.