The Federal Government can reduce certain minimum-tax withholding rates by up to one percentage point where the tax burden threatens the economic viability of businesses.

ISLAMABAD: The Federal Board of Revenue (FBR) has clarified the provisions governing the rationalisation of withholding taxes that are in the nature of minimum tax for Tax Year 2027.

According to the Income Tax Ordinance, 2001, updated up to June 30, 2026, the FBR has explained Section 53A, which empowers the Federal Government to reduce certain withholding tax rates.

Federal Government Can Reduce Withholding Tax

Under Section 53A, the Federal Government may reduce the rate of any withholding tax that is in the nature of minimum tax by one percentage point, based on the economic viability of a person or class of persons.

However, this provision does not apply to the minimum tax chargeable under Section 113 of the Income Tax Ordinance, 2001.

Any reduction in a withholding tax rate remains subject to restrictions and limitations that may be specified by the Federal Government.

The law also requires the Federal Government to place before the National Assembly details of amendments made to withholding tax rates in the First Schedule during a financial year under Section 53A.

What Is Economic Viability?

Section 53A defines “economic viability” in relation to the financial impact of the tax burden on businesses.

The term includes an anticipated net loss of business income arising directly or indirectly from the tax burden, particularly where resources are unavailable to maintain or improve business efficiency.

The economic viability of a person or class of persons must be certified by a Category A chartered accountant firm, based on the rating issued by the State Bank of Pakistan.

Section 113 Minimum Tax Excluded

The provision gives the Federal Government limited authority to rationalise certain minimum-tax withholding rates where the tax burden threatens the economic viability of businesses.

However, the authority does not extend to the minimum tax imposed under Section 113.

The FBR’s clarification forms part of the updated Income Tax Ordinance, 2001, applicable for Tax Year 2027 and incorporating amendments up to June 30, 2026.