Section 153 of the Income Tax Ordinance, 2001 of Pakistan outlines the obligations and rules concerning tax deduction at source on payments made for goods, services, and contracts. It applies to prescribed persons who are required to deduct tax on payments to resident individuals or permanent establishments of non-resident entities. Below is a detailed explanation of the section:
Key Provisions of Section 153
The section 153 of income tax ordinance 2001, is applicable to prescribed persons (Withholding Agents), which include:
- Federal, provincial, and local governments.
- Companies, associations of persons (AoPs), and non-profit organizations.
- Exporters, export houses, consortiums, joint ventures, individuals, and entities registered under the Sales Tax Act, 1990, with turnovers of Pak Rs. 100 million or more.
- Persons engaged in construction and sale of buildings or development and sale of plots.
Types of Payments Covered:Prescribed persons must deduct tax on payments made to resident persons for:
- Sale of Goods: Includes toll manufacturing and applies to payments exceeding Pak Rs. 75,000 in aggregate during a financial year.
- Rendering of Services: Covers services such as accounting, legal, medical, and engineering, excluding payments below Pak Rs. 30,000 in aggregate during a financial year.
- Execution of Contracts: Includes construction and other contracts, including those signed by sportspersons, but excludes contracts for the sale of goods or services.
Tax Deduction Mechanism
- Tax is deducted from the gross amount, at rates specified in Division III and IV of Part III of the First Schedule.
- Tax deducted is treated as a minimum tax, except in cases explicitly mentioned.
Exemptions and Exclusions:Tax deduction is not required for certain transactions, such as:
- Sale of imported goods where tax under Section 148 has already been paid.
- Refund of security deposits.
- Payments for securitization of receivables or issuance of sukuks.
- Payments by governments for construction materials supplied to contractors.
Exporters and Export Houses:Exporters and export houses are required to deduct tax on payments made for services such as stitching, dyeing, printing, embroidery, washing, and weaving.
Minimum and Adjustable Tax
- For sale of goods, tax deducted is not considered minimum tax for manufacturers or listed public companies.
- For contracts, tax deducted is adjustable for listed public companies.
Reduced Tax Rates:A reduced tax rate certificate may be issued by the Commissioner if the taxpayer’s advance tax liability has been fulfilled. If the certificate is not issued within 15 days of application, it is deemed issued.
Agent and Third-Party Payments:If a payment is routed through an agent or third party, the agent’s fees are treated as income of the recipient, and tax is to be deducted accordingly.
Definitions and Interpretations
- Goods: Include all tangible items, whether sold under a contract or otherwise.
- Services: Encompass professional services such as those provided by doctors, lawyers, accountants, etc.
- Manufacturer: Defined as a person or entity involved in the transformation of raw materials into finished products.
- Turnover: Gross receipts from sales, services, and contracts, inclusive of taxes and trade discounts.
Special Cases for Tax Credit:Taxes deducted on payments to Special Purpose Vehicles (SPVs) are credited to the originator of the transaction.
Practical Implications:This section ensures a robust tax collection mechanism by requiring withholding taxes on payments for goods, services, and contracts. It minimizes tax evasion, simplifies compliance, and ensures that taxpayers meet their obligations. However, taxpayers and prescribed persons must be aware of specific thresholds, exemptions, and procedural requirements to avoid penalties and ensure proper compliance.
Service Tax Rates 2025
Here are the Withholding tax rates for various services for Tax Year 2025, impacting businesses across diverse sectors. This article provides a comprehensive breakdown of these changes, highlighting categories with lower tax rates and emphasizing relevant services you might utilize. The new tax regime applies to a wide range of services. For services mentioned above, the general tax rates are:
Filers: 4% Non-filers: 8%
- Transportation and Logistics: This encompasses services offered by businesses in transport, freight forwarding, air cargo, courier, and warehousing.
- Human Resources: Manpower outsourcing services fall under this category.
- Hospitality and Security: Hotels and security guard services are also included.
- Technology and Communication: Software development, tracking services, and telecommunication infrastructure (tower) services are covered.
- Financial Services: Share Registrar services, asset management companies, and collateral management services are encompassed.
- Professional Services: Engineering services, data services, inspection, certification testing and training services are included.
- Other Services: Car rental, building maintenance, services by the Pakistan Stock Exchange and Mercantile Exchange, travel and tour services, and oilfield services are also subject to these tax rates.
For other sevices (Not mentioned above) WHT rates are:
- For Companies: Filers: 9% Non-filers: 18%
- Other Taxayers: Filers: 11% Non-filers: 22%
Reduced Tax Rates for Certain Services
Here’s a breakdown of categories with lower tax rates for filers:
- Export-Oriented Services: Stitching, dyeing, printing, embroidery, washing, sizing, and weaving services rendered to exporters or export houses benefit from a 1% tax rate for filers and 3% for non filers.
- Agricultural Products: The sale of rice, cottonseed, and edible oil enjoys a 1.5% tax rate for filers.
- Media Advertising: Electronic and print media advertising services offered by companies, individuals, or associations of persons (AOPs) have a 1.5% tax rate for filers and 3% for non filers.
Withholding Tax Rates for Goods
Separate tax rates apply to the purchase or supply of goods, including general trade and toll manufacturing, based on filer status.
| Category | Filer | Non-Filer |
|---|---|---|
| By Company (Other Goods) | 5% | 10% |
| Toll Manufacturing by Company | 9% | 18% |
| Individual/AOP (Other Goods) | 5.5% | 11% |
| Individual/AOP (Toll Manufacturing) | 11% | 22% |
| Sale of Rice, Cotton Seed, Edible Oils | 1.5% | 3% |
Withholding Tax on Contracts
Withholding tax applicable on contractual payments made to businesses and individuals in 2025 are;
| Category | Filer | Non-Filer |
|---|---|---|
| By Company | 7.5% | 15% |
| Individual/AOP | 8% | 16% |
While Section 153 lays down clear guidelines, challenges may arise in its implementation due to complexities in determining the scope of certain transactions, calculating turnover thresholds, and managing timely issuance of reduced tax rate certificates.
Summarizing
Filing your taxes is crucial. Businesses can benefit from significantly lower tax rates across various services, including transportation, logistics, technology, and professional services. Staying informed about these changes and consulting with a tax professional can help ensure compliance and optimize your tax obligations.
