Finance Act 2026 increases withholding tax from 6% to 7% on a broad range of service payments
ISLAMABAD: The Finance Act, 2026 has increased the withholding income tax rate on payments for a wide range of services from 6 percent to 7 percent, with the revised rate taking effect from July 1, 2026, under amendments to Section 153 of the Income Tax Ordinance, 2001.
The amendment authorises the Federal Board of Revenue (FBR) to collect withholding tax at the higher rate on payments covered under clause (b) of sub-section (1) of Section 153. Under the revised law, businesses making payments for specified services are required to deduct tax at 7 percent of the gross amount payable before making payments to service providers.
The increased withholding tax applies to a broad range of services, including transport, freight forwarding, air cargo, courier, manpower outsourcing, hotel, security guard, software development, information technology (IT), IT-enabled services, tracking, and advertising services, excluding advertisements placed through print or electronic media.
The revised rate also covers payments for share registrar services, engineering and architectural services, warehousing, services provided by non-banking finance companies, data services offered under licences issued by the Pakistan Telecommunication Authority (PTA), telecommunication infrastructure (tower) services, car rental services, and building maintenance services.
In addition, the 7 percent withholding tax will apply to services rendered by the Pakistan Stock Exchange (PSX), the Pakistan Mercantile Exchange (PMEX), inspection, certification, testing and training services, oilfield services, telecommunication services, collateral management services, travel and tour services, Real Estate Investment Trust (REIT) management services, and services provided by the National Clearing Company of Pakistan Limited (NCCPL).
The increase forms part of the government’s revenue-enhancing measures introduced through the Finance Act, 2026 to strengthen tax collection during the fiscal year 2026–27. The higher withholding tax is expected to increase advance tax collections while affecting cash flows for businesses and service providers operating across multiple sectors.
Tax experts note that the amendment expands the government’s efforts to boost revenue mobilisation by increasing the advance tax burden on service-related transactions, while taxpayers eligible for adjustment or credit under the Income Tax Ordinance may continue to claim relief in accordance with the applicable provisions of the law.