As per section 153 of the income tax ordinance 2001, a withholding agent has to deduct and deposit the income tax while making payment against the purchase of goods/services and execution of contracts.
The sub-section 7 of section 153 of the income tax ordinance 2001 has prescribed the following persons as withholding agents:-
- The Federal Government
- A Company
- An association of persons constituted by, or under, law
- A non-profit organization
- A foreign contractor or consultant
- A consortium or joint venture
- An exporter or export house
- An association of persons, having turnover of fifty million rupees or above in any of the preceding tax year
- An individual, having turnover of fifty million rupees or above in any of the preceding tax year
- A person registered under the Sales Tax Act 1990
- A person deriving income from the business of construction and sale of residential, commercial or other buildings (builder)
- A person deriving income from the business of development and sale of residential, commercial or other plots (developer)
Before deducting the amount of income tax the withholding agent should confirm the category (company, individual, AOP) and the Active/In-Active status of the taxpayer. As both of the factors will affect the percentage of income tax that is to be deducted from the gross payment.
To check the category following steps should be followed: –
- Go to “e.fbr.gov.pk”
- Move the cursor to the search tab a drop-down list will appear
- From the drop-down list select and click on “NTN Inquiry”
- Enter the NTN, CNIC or Incorporation number
- Enter the valid captcha and click on verify
- The category will appear whether the taxpayer is an individual, AOP or a company
To check whether the taxpayer is appearing under active taxpayer list following steps should be followed:-
- Go to “e.fbr.gov.pk”
- Move the cursor to the search tab a drop-down list will appear
- Select and click on “Active taxpayer list (Income tax)”
- Enter the NTN/CNIC/INC.No and select the date
- Enter the valid Captcha and click on verify
- The status will appear showing if the taxpayer is active or inactive
Purchase of Goods/Supplies:-
The withholding agent must deduct the income tax before making the payment to the supplier, where the number of total goods/supplies would be equal to or more than seventy-five thousand from the respective supplier during a financial year.
If it is difficult to estimate that the total value of goods/supplies from the supplier would be equal to or more than seventy-five thousand during the financial year than it is recommended to deduct the amount of income tax. If the supplier’s category is Company than the withholding rates are:-
| Nature of goods/supplies | Active | In-Active |
| Rice, cotton, edible oil | 1.5% of the gross invoice (inclusive of sales tax) | 3% of the gross invoice (inclusive of sales tax) |
| Purchases from distributors of fast-moving consumer goods | 2% of the gross invoice (inclusive of sales tax) | 4% of the gross invoice (inclusive of sales tax) |
| Any other goods | 4% of the gross invoice (inclusive of sales tax) | 8% of the gross invoice (inclusive of sales tax) |
If the supplier’s category is Individual/AOP than the withholding rates are:-
| Nature of goods/supplies | Active | In-Active |
| Rice, cotton, edible oil | 1.5% of the gross invoice (inclusive of sales tax) | 3% of the gross invoice (inclusive of sales tax) |
| Purchases from distributors of fast-moving consumer goods | 2.5% of the gross invoice (inclusive of sales tax) | 5% of the gross invoice (inclusive of sales tax) |
| Any other goods | 4.5% of the gross invoice (inclusive of sales tax) | 9% of the gross invoice (inclusive of sales tax) |
Purchase of Services:-
The withholding agent must deduct the income tax before making the payment to the supplier, where the number of total services would be equal to or more than thirty thousand from the respective supplier during a financial year.
If it is difficult to estimate that the total value of services from the supplier would be equal to or more than thirty thousand during the financial year than it is recommended to deduct the amount of income tax. The withholding rates applicable for specified services, irrespective of the supplier’s category are:-
| Nature of Service | Active | In-Active |
| Transport services | 3% of the gross invoice (inclusive of sales tax) | 6% of the gross invoice (inclusive of sales tax) |
| Freight forwarding services | ||
| Air cargo services | ||
| Courier services | ||
| Manpower outsourcing services | ||
| Hotel services | ||
| Security guard services | ||
| Software development services | ||
| IT services and IT-enabled services | ||
| Tracking services | ||
| Advertising services (other than by print or electronic media) | ||
| Share registrar services | ||
| Engineering services | ||
| Car rental services | ||
| Building maintenance services | ||
| Services rendered by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited | ||
| Inspection | ||
| Certification | ||
| Testing | ||
| Training services | ||
| Print & Electronic Media Services | 1.5% of the gross invoice (inclusive of sales tax) | 3% of the gross invoice (inclusive of sales tax) |
The withholding rates applicable for other services are:-
| Category | Active | In-Active |
| Company | 8% of the gross invoice | 16% of the gross invoice |
| Individual/AOP | 10% of the gross invoice | 20% of the gross invoice |
Execution of contracts:-
The withholding agent has to deduct the income tax from the gross amount payable (inclusive of sales tax), at the time of making payment to the supplier for the execution of the contract.
The withholding rates are:-
- Other than a contractor for the supply of goods or rendering or providing of services
| Category | Active | In-Active |
| Company | 7% of the gross invoice | 14% of the gross invoice |
| Individual/AOP | 7.5% of the gross invoice | 15% of the gross invoice |
- In case of contract payment to the sportsperson, 10% of the gross invoice (company, individual, AOP)
- Services rendered or provided for stitching, dyeing, printing, embroidery, washing, sizing and weaving, 1% of the gross invoice (company, individual, AOP)