The Federal Board of Revenue (FBR) has released the updated withholding tax card for the tax year 2023, applicable from July 1, 2022, to June 30, 2023. The revised rates specifically outline the tax obligations on payments to non-residents, following amendments introduced through the Finance Act, 2022, to the Income Tax Ordinance, 2001.
Section 152 of the Ordinance comprehensively governs the withholding tax on various categories of payments made to non-residents. The section imposes different rates depending on the nature of the payment, the residency status of the payee, and whether the recipient has a permanent establishment in Pakistan.
Under Sub-section (1), any payment of royalty or technical service fees to non-residents is subject to a 15% withholding tax. Sub-section (1A) covers payments related to construction, assembly, installation, and advertisement contracts. These types of payments are subject to a 7% tax deduction from the gross amount payable to the non-resident.
The scope of taxable payments to non-residents has been expanded further. Sub-section (1AA) introduces a 5% withholding tax on insurance and reinsurance premiums paid to foreign entities. Similarly, Sub-section (1AAA) requires a 10% deduction on advertisement service payments made to non-resident media persons.
A particularly significant clause is Sub-section (1BA), which imposes a 20% final tax on payments to non-residents for foreign-produced commercials or advertisements aired on TV or other media platforms. This provision targets the growing trend of cross-border digital advertising.
Banking companies also play a critical role in ensuring compliance. Sub-sections (1C), (1D), and (1DA) stipulate a 10% withholding tax on fees for offshore digital services, and capital gains arising from the sale of debt instruments and government securities through special accounts like SCRA, FCVA, and NRVA maintained by non-residents.
For non-resident sukuk holders, the applicable tax under Sub-section (1DB) varies from 10% to 25%, depending on whether the investor is an individual, association, or company, and the size of the return on investment.
Exchange companies are also required to withhold tax under Sub-section (1DC) when making payments to non-residents such as global money transfer operators or related international entities. The tax applies to all forms of service charges, fees, or commissions.
The updated section ensures that all critical payments to non-residents—including for goods, services, contracts, and investments—are adequately taxed at source. The withholding mechanism serves as a crucial compliance and revenue assurance tool, ensuring Pakistan captures due taxes on cross-border economic activities involving non-resident entities.