Tax rates on payments for goods, services during 2022-2023

Federal Board of Revenue (FBR) has issued latest withholding tax rates on payments to goods, services and contracts during the year 2022-2023.

The FBR issued the withholding tax card for tax year 2023 (July 01, 2022 to June 30, 2023) after amending the Income Tax Ordinance, 2001 through changes brought through Finance Act, 2022.

Following is the text of Section 153 related to Payments to goods, services and cotracts and rates of withholding tax (in bold):

Section 153. Payments for goods, services and contracts.—

(1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person —

(a) for the sale of goods including toll manufacturing, except where payment is less than seventy-five thousand Rupees in aggregate, during a financial year;

The withholding tax rate under Section 153(1)(a) in case of sales of rice, cotton seed or edible oils is 1.5 per cent for return filers and 3 per cent for persons not on the Active Taxpayers List (ATL).

The withholding tax rate under Section 153(1)(a) in case of sales of goods by a company, is 4 per cent for return filers and 8 per cent for persons not on the Active Taxpayers List (ATL).

The withholding tax rate under Section 153(1)(a) in case of sales of goods by any other, is 4.5 per cent for return filers and 9 per cent for persons not on the Active Taxpayers List (ATL).

(b) for the rendering of or providing of services except where payment is less than thirty thousand Rupees in aggregate, during a financial year;

The withholding tax rates under Section 153(1)(b) in case of certain service is 3 per cent and 6 per cent for persons not on the ATL.

The withholding tax rates under Section 153(1)(b) for services other than mentioned above in case of company, is 8 per cent and 16 per cent for persons not on the ATL.

The withholding tax rates under Section 153(1)(b) for services other than mentioned above in any other case, is 10 per cent and 20 per cent for persons not on the ATL.

The withholding tax rates under Section 153(1)(b) in respect of persons making payments to electronic and print media for advertising services, is 1.5 per cent and 3 per cent for persons not on the ATL.

(c) on the execution of a contract, including contract signed by a sportsperson but not including a contract for the sale of goods

or the rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule;

Provided that where the recipient of the payment under clause (b) receives the payment through an agent or any other third person and the agent or, as the case may be, the third person retains service charges or fee, by whatever name called, from the payment remitted to the recipient, the agent or the third person shall be treated to have been paid the service charges or fee by the recipient and the recipient shall collect tax along with the payment received.

The rate of withholding tax under Section 153(1)(c) in case of sportsperson is 10 per cent for income tax return filer and 20 per cent for persons not on ATL.

The rate of withholding tax under Section 153(1)(c) for a company is 6.5 per cent for income tax return filer and 13 per cent for persons not on ATL.

The rate of withholding tax under Section 153(1)(c) any other case is 7 per cent for income tax return filer and 14 per cent for persons not on ATL.

(2) Every exporter or an export house making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person for rendering of or providing services of stitching, dying, printing, embroidery, washing, sizing and weaving, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of Part III of the First Schedule.

The withholding tax rate under Section 153(2) is one per cent for income tax return filers and 2 per cent for persons not on the ATL.

(3) The tax deductible under sub-section (1) and under sub-section (2) of this section, on the income of a resident person or, shall be minimum tax.

Provided that,—

(a) tax deducted under clause (a) of sub-section (1) shall not be minimum tax where payments are received on sale or supply of goods, by a, —

(i) company being a manufacturer of such goods; or

(ii) public company listed on a registered stock exchange in Pakistan;

(c) tax deducted under clause (c) of sub-section (1) shall be adjustable if payments are received by a public company listed on a registered stock exchange in Pakistan, on account of execution of contracts.

“Explanation.— For the removal of doubt, it is explained that the income of resident person referred to in sub-section (3) means the amount on which tax is deductible under sub-section (1) or (2) of this section.

(4) The Commissioner may, on application made by the recipient of a payment referred to in sub-section (1) and after making such inquiry as the Commissioner thinks fit, may allow in cases where tax deductible under sub-section (1) is not minimum, by an order in writing, any person to make the payment,—

(a) without deduction of tax; or

(b) deduction of tax at a reduced rate;

Provided that the Commissioner shall issue certificate for payment under clause (a) of sub-section (1) without deduction of tax within fifteen days of filing of application to a company if advance tax liability has been discharged:

Provided further that the Commissioner shall be deemed to have issued the exemption certificate upon the expiry of fifteen days to the aforesaid company and the certificate shall be automatically processed and issued by Iris:

Provided also that the Commissioner may modify or cancel the certificate issued automatically by Iris on the basis of reasons to be recorded in writing after providing an opportunity of being heard.

(5) Sub-section (1) shall not apply to —

(a) a sale of goods where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported;

(d) a payment made by the Federal Government, a Provincial Government or a Local Government to a contractor for

construction materials supplied to the contractor by the said Government or the authority;

(f) the purchase of an asset under a lease and buy back agreement by a modaraba, leasing company, banking company or financial institution; or

(g) any payment for securitization of receivables “or issuance of sukuks” by a Special Purpose Vehicle to the Originator.

(6) Where any tax is deducted by a person making a payment for a Special Purpose Vehicle, on behalf of the Originator, the tax is credited to the Originator.

(7) In this section, —

(i) “prescribed person” means—

(a) the Federal Government;

(b) a company;

(d) a non-profit organization;

(e) a foreign contractor or consultant;

(f) a consortium or joint venture;

(g) an exporter or an export house for the purpose of sub-section (2);

(h) an association of persons, having turnover of one hundred million rupees or above in any of the preceding tax years;

(i) an individual, having turnover of one hundred million rupees or above in any of the preceding tax years;

(j) a person registered under the Sales Tax Act, 1990 having turnover of one hundred million rupees or more in any of the preceding tax years; or

(k) a person deriving income from the business of construction and sale of residential, commercial or other buildings (builder); or

(l) a person deriving income from the business of development and sale of residential, commercial or other plots (developer).

(ii) “services” includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee;

(iii) “sale of goods” includes a sale of goods for cash or on credit, whether under written contract or not;

(iv) “manufacturer” means a person who is engaged in production or manufacturing of goods, which includes—

(a) any process in which an article singly or in combination with other articles, material, components, is either converted into another distinct article or product is so changed, transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or

(b) a process of assembling, mixing, cutting or preparation of goods in any other manner; and

(v) “turnover” means—

(a) the gross sales or gross receipts, inclusive of sales tax and federal excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods;

(b) the gross fees for the rendering of services for giving benefits including commissions;

(d) the company’s share of the amounts stated above of any association of persons of which the company is a member.

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