Updated withholding tax rates under Section 152 apply to contracts, services, capital gains and other payments to non-residents from July 1, 2026.
ISLAMABAD: The Federal Board of Revenue (FBR) has notified the income tax withholding rates applicable to payments made to non-residents for Tax Year 2027, effective from July 1, 2026, under the updated Income Tax Ordinance, 2001.
The revised rates, incorporated through amendments introduced by the Finance Act, 2026, apply to a range of payments covered under Section 152 of the Income Tax Ordinance, including contracts, services, capital gains and other specified transactions involving non-resident individuals and entities.
Withholding tax rates on payments to non-residents
According to the updated provisions, the following withholding tax rates will apply:
| Nature of Payment | Tax Rate |
| Payments under Section 152(1A) | 7% of the gross amount payable |
| Payments under Section 152(1AA) | 5% of the gross amount paid |
| Payments under Section 152(2) | 20% of the gross amount paid |
| Payments under Section 152(1AAA) | 10% of the gross amount paid |
| Capital gains under Sections 152(1D) and 152(1DA) | 10% of the amount of capital gain |
Tax rates for contracts with non-residents
The FBR has also prescribed separate withholding tax rates for payments under Section 152(2A)(a) relating to contracts with non-residents.
Companies making such payments will be required to deduct tax at 5% of the gross amount payable, while all other taxpayers will be subject to a withholding tax rate of 5.5%.
IT services receive concessional tax rate
The updated law prescribes an 8% withholding tax on payments made for a broad range of services provided by non-residents, including transport, freight forwarding, air cargo, courier, manpower outsourcing, hotel, security guard, tracking, advertising (excluding print and electronic media), share registrar, engineering, car rental, building maintenance, inspection, certification, testing, training and oilfield services.
The same 8% rate also applies to services rendered by the Pakistan Stock Exchange Limited and the Pakistan Mercantile Exchange Limited.
However, the Finance Act, 2026 has retained a concessional withholding tax rate of 4% for software development services, information technology (IT) services and IT-enabled services, recognising the strategic importance of the digital economy.
For all other services not specifically covered under the prescribed categories, withholding tax will be deducted at 15% of the gross amount payable.
Tax rates for sportspersons and other payments
Under Section 152(2A)(c), payments made to non-resident sportspersons will continue to attract withholding tax at 15% of the gross amount payable.
For other payments covered under the same provision, the applicable withholding tax rate has been fixed at 8% of the gross amount payable.
Applicable from Tax Year 2027
The notified withholding tax rates are effective from July 1, 2026 and will apply throughout Tax Year 2027.
The FBR has advised withholding agents, businesses and tax practitioners to apply the revised rates under Section 152 of the Income Tax Ordinance, 2001, when making payments to non-resident individuals and entities, in accordance with the amendments introduced through the Finance Act, 2026.