Updated withholding tax rates under Section 153 apply to payments for goods, services, contracts and e-commerce transactions from July 1, 2026.
ISLAMABAD: The Federal Board of Revenue (FBR) has notified the income tax withholding rates applicable to payments for goods, services and contracts for Tax Year 2027, effective from July 1, 2026, following the issuance of the updated Income Tax Ordinance, 2001 incorporating amendments introduced through the Finance Act, 2026.
The revised rates, prescribed under Section 153 of the Income Tax Ordinance, 2001, apply to a broad range of commercial transactions, including the sale of goods, provision of services, execution of contracts and payments made through e-commerce platforms.
Withholding tax on payments for goods
Under Section 153(1), the FBR has prescribed the following withholding tax rates on payments for goods:
• Sale of rice, cotton seed oil and edible oils: 1.5% of the gross amount payable.
• Sale of goods (other than toll manufacturing):
o Companies: 5% of the gross amount payable.
o Persons other than companies: 5.5% of the gross amount payable.
• Toll manufacturing:
o Companies: 9% of the gross amount payable.
o Persons other than companies: 11% of the gross amount payable.
Tax rates for services
The updated law specifies different withholding tax rates depending on the nature of the service provided.
A 7% withholding tax will apply to payments for a wide range of specified services, including transport, freight forwarding, air cargo, courier, manpower outsourcing, hotel, security guard, software development, engineering and architectural services, warehousing, telecommunication infrastructure (tower) services, car rental, building maintenance, oilfield services, telecommunication services, travel and tour services, REIT management services, inspection, certification, testing and training services, share registrar services, and data services licensed by the Pakistan Telecommunication Authority.
The same rate also applies to services rendered by the Pakistan Stock Exchange Limited, the Pakistan Mercantile Exchange Limited and the National Clearing Company of Pakistan Limited.
However, the FBR has retained a concessional withholding tax rate of 4% for information technology (IT) services and IT-enabled services.
Independent professional services
Payments made to independent professionals, including doctors, lawyers, architects, accountants, software engineers and software developers, will be subject to a 15% withholding tax.
Advertising and port services
Payments made to electronic and print media for advertising services will attract withholding tax at 1.5% of the gross amount payable.
Meanwhile, payments to companies providing terminal and port operating services will be subject to a 12% withholding tax.
For all other services not specifically covered under the prescribed categories, the applicable withholding tax rate has been fixed at 14% of the gross amount payable.
Withholding tax on contracts
The FBR has also notified withholding tax rates for payments made under contracts.
Payments to sportspersons will continue to attract tax at 15%, while payments under contracts will be taxed at 7.5% where the recipient is a company and 8% where the recipient is a person other than a company.
E-commerce transactions
The updated provisions also prescribe withholding tax rates for digitally ordered goods and digitally delivered services conducted through e-commerce platforms.
A 1% withholding tax will apply where payment is made through digital means or banking channels via a payment intermediary.
For transactions settled through the Cash on Delivery (COD) method, courier companies will collect withholding tax at 2% of the gross amount paid or payable.
Effective from Tax Year 2027
The notified withholding tax rates are effective from July 1, 2026 and will apply throughout Tax Year 2027.
The revised rates form part of the updated Income Tax Ordinance, 2001, as amended through the Finance Act, 2026. The FBR has advised withholding agents, businesses and taxpayers to apply the prescribed rates under Section 153 when making payments for goods, services, contracts and eligible e-commerce transactions.