Finance Bill 2026 proposes to empower the federal government to reduce certain minimum withholding tax rates to support economic viability.
ISLAMABAD: The Finance Bill, 2026 has proposed granting the federal government powers to introduce special minimum tax rates by rationalising specified withholding taxes under the Income Tax Ordinance, 2001.
Through the insertion of a new Section 53A into the Income Tax Ordinance, 2001, the government seeks to provide flexibility in adjusting withholding tax rates that operate in the nature of minimum tax, with the aim of improving economic viability for certain taxpayers and sectors.
According to the proposed Section 53A, the federal government may reduce the rate of withholding taxes classified as minimum tax under the First Schedule of the Income Tax Ordinance, 2001.
The proposed provision states:
“(1) The Federal Government may reduce the rate of any of the withholding taxes in the nature of minimum tax as given in First Schedule of this Ordinance, other than minimum tax chargeable under section 113 of this Ordinance, up to 1% on the basis of economic viability in cases of persons or class of persons, subject to such restrictions and limitations as the Federal Government may specify.”
The amendment clarifies that the powers granted under the new section will not extend to the minimum tax imposed under Section 113 of the Income Tax Ordinance, which governs minimum tax on the income of certain taxpayers.
Tax experts believe the proposed measure is aimed at addressing concerns raised by businesses regarding the burden of withholding taxes that are treated as final or minimum tax liabilities, particularly in sectors operating under low profit margins.
The Finance Bill, 2026 also introduces a parliamentary oversight mechanism for the exercise of these powers.
Under sub-section (2) of the proposed Section 53A:
“The Federal Government shall place before the National Assembly all amendments made in rates of withholding taxes in the First Schedule, in a financial year under this section.”
This requirement is intended to ensure transparency and accountability by keeping the National Assembly informed of any changes made to withholding tax rates during a financial year.
The proposed amendment is expected to provide the government with greater flexibility to offer targeted tax relief to specific industries, businesses or classes of taxpayers facing economic challenges, while maintaining legislative oversight over such adjustments.
If approved by Parliament, the new provision will become part of the Income Tax Ordinance, 2001 upon the enactment of the Finance Bill, 2026, enabling the federal government to reduce eligible minimum withholding tax rates to as low as 1 per cent based on economic considerations.
