Karachi, October 1, 2023 – The Federal Board of Revenue (FBR) has released updated income tax rates for brokerage and commission, which will be applicable for the tax year 2024. These revised rates, effective from July 1, 2023, have been introduced through amendments to the Income Tax Ordinance, 2001.
According to sources within the FBR, the newly established income tax rates for the deduction or collection of taxes under section 233 of the Income Tax Ordinance, 2001, are as follows:
READ MORE: FBR Extends Income Tax Return Filing Deadline to October 31, 2023
Advertising Agents: A tax rate of 10% will be applied.
Life Insurance Agents: For agents whose annual commission income is less than Rs. 0.5 million, the tax rate is set at 8%.
Persons not covered above: A tax rate of 12% will be applicable.
The FBR’s announcement clarifies the taxation rules regarding brokerage and commission as outlined in Section 233 of the Income Tax Ordinance, 2001. This section pertains to payments made as brokerage or commission by various entities, including the Federal Government, Provincial Governments, Local Governments, companies, or associations of persons, to individuals or entities acting as agents.
READ MORE: High-Powered Task Force Formed to Propose Tax Reforms in Pakistan
Key provisions within Section 233 include:
Deduction of Advance Tax: When a payment on account of brokerage or commission is made by the principal (i.e., the entity making the payment) to an agent, the principal is required to deduct advance tax at the rate specified in Division II of Part IV of the First Schedule from such payment.
Agent Retention: If the agent retains commission or brokerage from any amount remitted by them to the principal, they are deemed to have been paid the commission or brokerage by the principal. Consequently, the principal is obligated to collect advance tax from the agent.
READ MORE: Pakistan Surpasses Tax Collection Q1 Target with FBR Collecting Rs 2.04 Trillion
Tax on Advertising Services: In cases where a principal is making a payment for commission to an advertising agent, either directly or through electronic or print media, an additional tax is imposed. This tax is calculated on the amount equal to (A x 15 / 85), where ‘A’ represents the amount paid or to be paid to electronic or print media for advertising services (excluding commission). This tax is deducted at the rate specified in Division II of Part IV of the First Schedule.
Minimum Tax: Tax deducted under the aforementioned provisions, particularly sub-sections (2A) and (2B), is regarded as the minimum tax on the income of the advertising agent.
READ MORE: New Managing Committee Takes Charge at KCAA
Tax Collection Obligation: Where tax is required to be collected from a person under sub-section (1), such tax serves as the minimum tax on the income of the concerned individuals or entities.
The FBR’s recent announcement provides clarity on the taxation of brokerage and commission and ensures compliance with applicable tax laws. It is essential for businesses, agents, and relevant stakeholders to understand and adhere to these tax rates and regulations to avoid any potential legal or financial implications.
