New Section 53A allows targeted withholding tax relief for financially stressed businesses, excluding minimum tax under Section 113
ISLAMABAD: The federal government has empowered itself to reduce certain withholding tax (WHT) rates by up to one percentage point through the Finance Act, 2026, introducing a new mechanism aimed at providing targeted relief to businesses facing financial hardship.
The Finance Act has inserted Section 53A into the Income Tax Ordinance, 2001, enabling the Federal Government to rationalise withholding taxes that are treated as minimum tax under specified provisions of the law.
Under the newly inserted section, the government may reduce by one percentage point the rate of any withholding tax classified as minimum tax under the First Schedule of the Income Tax Ordinance, 2001, subject to prescribed conditions and limitations.
However, the concession will not apply to the minimum tax imposed under Section 113 of the Income Tax Ordinance, which will continue to operate under the existing legal framework.
Relief based on economic viability
The Finance Act provides that the reduction in withholding tax rates may be granted where justified on the grounds of economic viability for a specific person or a class of persons.
For the purpose of the new provision, economic viability refers to an anticipated net business loss arising directly or indirectly from the tax burden because of inadequate financial resources to maintain or improve business efficiency.
To qualify for the concession, the anticipated financial hardship must be certified by a Category-A chartered accountant firm recognised and rated by the State Bank of Pakistan (SBP).
Parliamentary oversight
To enhance transparency, the Finance Act requires the Federal Government to place before the National Assembly details of all amendments made under Section 53A during each financial year.
The reporting requirement is intended to ensure parliamentary oversight of executive decisions relating to reductions in withholding tax rates.
Objective of the amendment
The introduction of Section 53A provides the government with greater flexibility to offer targeted tax relief where withholding taxes operating as minimum tax may adversely affect the financial sustainability of businesses.
Tax experts believe the amendment could support industries facing temporary financial stress while maintaining accountability through mandatory parliamentary reporting and independent certification of economic hardship.
The new provision came into force with the enactment of the Finance Act, 2026, and forms part of the government’s broader efforts to rationalise Pakistan’s withholding tax regime and improve the business environment.
