Finance Act 2026 expands sales tax withholding rules to toll manufacturers and brings AoPs and individuals into the wider regime.
ISLAMABAD: The Federal Board of Revenue (FBR) has included toll manufacturers in the category of sales tax withholding agents under the Sales Tax Act, 1990, as part of amendments introduced through the Finance Act, 2026.
The FBR explained the key changes through Sales Tax Circular No. 1 of 2026, which outlines major amendments made to the Sales Tax Act, 1990 through the Finance Act, 2026.
According to the FBR, Associations of Persons (AoPs) and individuals have now been brought at par with companies as withholding agents under Serial No. 4 of the Eleventh Schedule of the Sales Tax Act.
The Finance Act, 2026 has also introduced a new Serial No. 14 in the Eleventh Schedule, specifically covering toll manufacturers and imposing a withholding requirement on their conversion charges.
FBR expands sales tax withholding scope
Previously, companies as defined under the Income Tax Ordinance, 2001 were required to withhold sales tax at 5% of the gross value of supplies made by a person other than an active taxpayer.
The amended law has expanded the scope of Serial No. 4 by adding AoPs and individuals to the list of withholding agents.
This means the sales tax withholding framework now covers a broader range of entities, increasing the number of businesses responsible for collecting and depositing tax under the prescribed rules.
Toll manufacturers face new withholding requirement
Under the newly introduced Serial No. 14, a toll manufacturer is required to withhold and deposit an amount equivalent to four times the tax charged on conversion charges where the services are provided by persons other than registered persons.
The measure specifically targets manufacturing arrangements in which a business processes or converts goods on behalf of another party.
The FBR said the change is aimed at strengthening sales tax collection from the unregistered and unorganised segment of the manufacturing sector.
The new requirement places an additional compliance responsibility on toll manufacturers and is intended to improve tax collection from transactions involving unregistered service providers.
Finance Act 2026 expands tax documentation
The inclusion of toll manufacturers in the sales tax withholding regime is expected to broaden the tax collection mechanism by placing additional responsibility on businesses involved in manufacturing arrangements.
The amendments form part of the government’s wider measures under the Finance Act, 2026 to expand the tax base, improve documentation and ensure greater compliance across previously less-regulated segments of the economy.
By bringing additional categories of businesses and transactions within the withholding framework, the FBR aims to strengthen monitoring of sales tax transactions and reduce leakage from the formal tax system.