Are you an exporter in Pakistan? Understanding the tax rules for export proceeds is crucial to remain compliant and optimize your tax planning. For the tax year 2026, the Federal Board of Revenue (FBR) has updated the Income Tax Ordinance, 2001 under Section 154, detailing tax deduction on export proceeds.
What Section 154 Says About Export Tax Deduction
Section 154 governs how tax, including advance tax, is deducted on the realization of export proceeds. Here’s a breakdown for exporters:
1. Authorized Dealers in Foreign Exchange
• At the time of realizing foreign exchange proceeds from exports, authorized dealers must deduct tax at the rate specified in Division IV of Part III of the First Schedule.
• This deduction applies to both full and partial proceeds of the export transaction.
2. Banking Companies & Inland Back-to-Back LCs
• Banking companies must deduct tax at the same rate when realizing proceeds from the sale of goods under inland back-to-back letters of credit (LCs) or other arrangements prescribed by the FBR.
• This ensures that tax compliance is integrated with the banking transaction of exports.
3. Export Processing Zone (EPZ) Authority
• Industrial undertakings in EPZs are subject to tax deduction at export time, collected by the EPZ Authority.
• The deduction rate aligns with Division IV of Part III of the First Schedule.
4. Direct Exporters & Export Houses
• Direct exporters or export houses registered under the Duty and Tax Remission for Exports Rules, 2001, and the Export Facilitation Scheme, 2021, must deduct tax when paying indirect exporters under firm contracts.
• The prescribed deduction rate is again based on Division IV of Part III.
5. Customs Collection at Export Clearance
• The Collector of Customs is responsible for collecting tax from the gross value of exported goods at the rate specified in Division IV of Part III during clearance.
6. Nature of Tax Deducted
• The tax deducted under Section 154 is considered minimum tax on the income arising from the export transactions.
• Exporters can account for this deduction while calculating their total tax liability, ensuring transparency and compliance.
Key Takeaways for Exporters in 2026
• Tax on exports is deducted at source by authorized dealers, banks, EPZ authorities, direct exporters, and customs.
• The deduction rate is uniformly prescribed in Division IV of Part III of the First Schedule.
• This tax is minimum tax, forming part of the overall income tax computation.
• Compliance with Section 154 is essential to avoid penalties and ensure smooth repatriation of export proceeds.
Key Tip:
💡 Check your deductions: Exporters should regularly review export invoices, banking remittances, and customs documentation to ensure correct tax deductions. Tools like FBR’s online portal or accounting software can automate tracking.
Disclaimer: This article is for general information and educational purposes only. It does not constitute legal, tax, or financial advice. Consult a tax professional or official FBR resources for compliance.