Government plans to remove higher withholding tax rates for late filers, bringing them at par with active taxpayers.
The federal government has proposed the abolition of the term “Late Filer” through the Finance Bill 2026-27, a move that could simplify Pakistan’s tax withholding framework and provide relief to taxpayers who submit their income tax returns after the prescribed deadline.
The proposal was unveiled as part of the Pakistan Budget 2026-27 presented before the National Assembly. If approved by Parliament, taxpayers who file their returns after the due date but remain listed on the Active Taxpayers List (ATL) may no longer face a separate and higher withholding tax regime.
Background of the Term “Late Filer”
According to an analysis by KPMG, the concept of “Late Filers” was introduced through the Finance Act 2024 by inserting Rule 1A into the Tenth Schedule of the Income Tax Ordinance. The amendment created a separate category of taxpayers who appeared on the ATL but had failed to file their returns within the due date or any officially extended deadline.
Under this framework, late filers were subjected to withholding tax rates higher than those applicable to active taxpayers who filed on time. However, these rates remained lower than those imposed on non-filers.
Initially, the higher tax rates for late filers applied only to withholding taxes collected under Sections 236C and 236K, which relate to the purchase, sale, or transfer of immovable property.
The Finance Act 2025 further increased these withholding tax rates, adding to the tax burden on late filers involved in property transactions.
What the New Proposal Means
The Finance Bill 2026-27 proposes the omission of Rule 1A from the Tenth Schedule, effectively eliminating the distinction between active taxpayers and late filers.
As a result, individuals who file their returns after the due date but remain on the ATL would be subject to the same withholding tax rates as taxpayers who submit returns within the prescribed timelines.
Tax experts believe the proposed change could streamline tax administration and reduce complexities associated with multiple taxpayer categories.
However, the government is expected to continue encouraging timely tax return filing through other compliance measures while maintaining stricter treatment for non-filers.
If enacted, the amendment will become part of the broader tax reforms aimed at improving Pakistan’s taxation system during fiscal year 2026-27.
