Section 152 of the Income Tax Ordinance 2001 covers withholding tax on foreign payments, including royalties, technical services, contracts, digital services and securities transactions.
ISLAMABAD: The Federal Board of Revenue (FBR) has outlined the tax deduction requirements applicable to payments made to non-residents during Tax Year 2027 under Section 152 of the Income Tax Ordinance 2001.
The FBR issued the Ordinance updated up to June 30, 2026, for Tax Year 2027, covering the period from July 1, 2026, to June 30, 2027. Section 152 establishes withholding tax obligations for persons making specified payments to non-residents, with applicable rates determined by the relevant divisions of the First Schedule.
The provisions cover a broad range of cross-border transactions, including royalties, technical services, construction contracts, insurance premiums, advertising services, offshore digital services, securities investments and payments to overseas financial service providers.
Tax deduction on royalties and technical services
Under Section 152(1), any person paying royalties or fees for technical services to a non-resident that are chargeable to tax under Section 6 must deduct tax from the gross amount paid. The applicable rate is prescribed in Division IV of Part I of the First Schedule.
The law also requires tax deduction on payments made, including advance payments, to non-residents under specified construction, assembly and installation projects in Pakistan. These provisions extend to supervisory activities associated with such projects, other construction-related service contracts and advertising services provided by television satellite channels.
Tax must also be deducted from insurance and reinsurance premiums paid to non-residents, as well as payments to non-resident media persons relaying advertising services from outside Pakistan.
The tax deducted under these provisions is treated as a minimum tax on the relevant income of non-residents.
Tax on foreign advertising and digital services
Section 152(1BA) requires a 20% tax deduction from the gross amount paid to a non-resident for foreign-produced commercials intended for broadcast on television channels or other media. The tax is treated as a final tax on the non-resident’s income arising from such payments.
The Ordinance also addresses offshore digital services. Under Section 152(1C), a banking company or financial institution remitting fees for offshore digital services to a non-resident on behalf of a resident or a permanent establishment in Pakistan must deduct tax where the payment is chargeable to tax under Section 6.
However, the provision excludes deduction where the recipient is also liable to Digital Presence Proceeds Tax and the same tax has already been collected.
Tax on securities, sukuk and international payments
Section 152 also places withholding obligations on banking companies and other specified entities dealing with investments and cross-border financial transactions.
These include:
• Special Convertible Rupee Accounts (SCRAs): Tax deduction on capital gains from the disposal of specified debt instruments and government securities held by qualifying non-resident companies without a permanent establishment in Pakistan. Different treatment applies where the holding period is less than six months.
• Foreign currency and non-resident accounts: Tax deduction on capital gains from specified debt instruments, government securities and certificates, including Shariah-compliant variants, held through designated accounts.
• Sukuk investments: Deduction of tax on returns paid to non-resident sukuk holders at the rates prescribed in the First Schedule.
• International money transfers: Licensed exchange companies must deduct tax on specified service charges, commissions and fees paid to global or international money transfer operators and other eligible persons facilitating outward remittances.
• Card networks and payment gateways: Banking companies must deduct tax on specified transaction fees, licensing fees, service charges, commissions and interbank financial telecommunication services.
The Ordinance provides that tax deducted under the specified securities, sukuk and international payment provisions is treated as final tax for the relevant persons and income.
General withholding tax on payments to non-residents
Under Section 152(2), a person making a payment to a non-resident must generally deduct tax from the gross amount at the rate specified in Division II of Part III of the First Schedule, unless the payment falls under a specific provision or an applicable exception.
Section 152(2A) separately covers payments to a permanent establishment in Pakistan of a non-resident. Prescribed persons making payments for the sale of goods, services or certain contracts must deduct tax from the gross amount payable, including sales tax where applicable.
Tax deducted under Section 152(2A) is generally treated as minimum tax. However, the law provides an exception for payments received by a company that manufactures the goods it sells, in circumstances covered by the relevant provision.
The Ordinance also allows certain exceptions where the payment is already subject to withholding under other provisions, is taxable to a Pakistani permanent establishment with the Commissioner’s written approval, is payable by a person liable as the non-resident’s representative, or relates to income on which the non-resident is not chargeable to tax.
Reduced tax rates and exemption certificates
Section 152 provides a mechanism for obtaining approval to make certain payments without withholding tax or at a reduced rate.
A person intending to make a payment without deduction, other than payments eligible for a reduced rate under an applicable double taxation agreement, must generally notify the Commissioner in writing before making the payment. The notice must include the non-resident’s name and address, the nature and amount of the payment, and other prescribed particulars.
Under Section 152(5A), the Commissioner must decide the matter within 30 days of receiving the notice. If no order is issued within that period, an exemption certificate is deemed to have been issued and is to be processed automatically through IRIS, subject to the statutory conditions, including the exclusion of days taken for adjournments requested by the applicant. The Commissioner may subsequently modify or cancel an automatically issued certificate for recorded reasons after providing an opportunity of being heard.
Where the Commissioner has reasonable grounds to believe that the payment is taxable in Pakistan, an order may direct the payer to deduct tax.
The law also permits the Commissioner, in specified cases, to authorise reduced withholding rates. Where the statutory conditions are met, the reduction may not exceed 80% of the prescribed rate. A separate provision addresses payments forming part of an overall cohesive business operation and allows withholding equal to 20% of the tax otherwise chargeable under Section 152(1A), subject to the applicable conditions.
Exceptions for imports and other payments
Section 152(7) excludes certain payments from the notification procedure under Section 152(5). These include qualifying imports of goods where ownership passes outside Pakistan and the transaction is supported by import documents.
However, exceptions apply where the supply forms part of an overall arrangement involving installation, construction, assembly, commissioning, guarantees or supervisory activities, and the principal activities are undertaken by associates or a permanent establishment in circumstances covered by the law.
Educational and medical expenses remitted in accordance with State Bank of Pakistan regulations are also covered by the stated exception.
The Ordinance defines a prescribed person for the purposes of Section 152 by reference to Section 153(7).
The applicable withholding rate and final or minimum tax treatment depend on the nature of the payment, the recipient’s tax status, the relevant provision of Section 152 and the First Schedule. Taxpayers making cross-border payments must therefore assess the specific transaction and any applicable statutory exemption before remitting funds.