Withholding Tax on Goods, Services, and Contracts under Section 153 – Updated WHT Rates 2026-27

Section 153 of the Income Tax Ordinance, 2001 outlines the tax deduction obligations on payments made for sale of goods, rendering of services, and execution of contracts. It serves as a key part of Pakistan’s withholding tax regime and is especially relevant for prescribed persons, businesses, and professionals.

In this guide, we explain the scope of Section 153, applicable withholding tax (WHT) rates, recent changes via Finance Act 2026, and practical compliance considerations.

Who is Required to Deduct Tax?

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 Under Section 153

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 & Rates Mechanism

Tax is deducted from the gross amount, at rates specified in Division III and IV of Part III of the First Schedule.

• Deductions are treated as minimum tax unless otherwise stated.
• Reduced rate certificates may be granted if advance tax liability is fulfilled.

Exemptions from Section 153

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 are required to deduct tax on payments made for services such as stitching, dyeing, printing, embroidery, washing, and weaving.

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.

Service Tax Rates 2026-27

Here are the  Withholding tax rates for various services for Tax Year 2026-27, 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.

General Services WHT Rates

The withholding tax rate on general services under Section 153 is 7% for filers and 14% for non-filers. General services includes;

• 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.
• 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.
• Technology and Communication: Software development, tracking services, and telecommunication infrastructure (tower) services are covered.

IT & IT Enabled Services

The withholding tax on IT and IT-enabled services is 4% for filers and 6% for non-filers under Section 153.

Reduced Tax Rates for Certain Services

Here’s a breakdown of categories with lower tax rates for filers:

Category	Filer	Non-Filer
Export-Oriented Services	1%	3%
Sale of Rice, Cottonseed, Edible Oils	1.5%	3%
Electronic/Print Media Advertising	1.5%	3%

Terminal & Port Services – is 12% for filers and 24% for non-filers.

Export-Oriented Services includes, dyeing, printing, embroidery, washing, sizing, and weaving services rendered to exporters or export houses.

Social Media, YouTube Revenues

Category	Finance Act, 2026 Amendment	Key Details
Social Media Platforms	New 5% Withholding Tax	A new 5% withholding tax has been introduced on revenues earned by digital content creators and social media influencers from social media platforms such as YouTube, Facebook, and similar digital platforms.
Export Proceeds	Tax Rate Increased	The withholding tax on export proceeds has been increased from 1% to 1.25%.

WHT on Other Services (Not Covered Above)

The withholding tax rate for companies and other taxpayers providing services not specifically covered above — such as legal services, consultancy, medical services, Lawyers , Architects, and similar categories — is 15% for filers and 30% for non-filers under Section 153.

Advance Tax on Functions and Gatherings (236CB)

Has been mitted by Finance Act 2026.

---

Withholding Tax Rates for Goods 2026-27

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%

Distributors of
cigarettes	2.5% / 5%
pharmaceutical products	1%/2%
Distributors, dealers, sub-dealers, wholesalers and retailers of fast-moving consumer goods, fertilizers, electronics excluding mobile phones, sugar, cement, steel and edible oil, if they are appearing in active taxpayers list of income tax and sales tax.	0.25%/0.5%
On supplies of gold, silver and articles thereof	1%/2%

Withholding Tax on Contracts 2026-27

Withholding tax applicable on contractual payments made to businesses and individuals in 2026-27 are;

Category	Filer Rate	Non-Filer Rate	Nature of Tax
Listed / Other Company	7.5%	15%	Advance Tax (adjustable)
Individual / Association of Persons (AOP)	8%	16%	Minimum Tax
Contracts with Sportspersons	15%	30%	Minimum Tax

Other Important Notes

• 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.
• Turnover Definition: Includes gross receipts from sales, contracts, and services (inclusive of tax).
• Special Cases for Tax Credit: Taxes deducted on payments to Special Purpose Vehicles (SPVs) are credited to the originator of the transaction.
• 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.
• Minimum Tax: For sale of goods, tax deducted is not considered minimum tax for manufacturers or listed public companies.

Practical Takeaways

Section 153 ensures effective tax collection and discourages underreporting. However, due care must be taken in:

• Determining the correct thresholds
• Applying the correct withholding rates
• Obtaining reduced tax rate certificates in a timely manner
• For contracts, tax deducted is adjustable for listed public companies.

Summarizing

If your business deals with goods, services, or contracts, understanding Section 153 is crucial for compliance. New WHT rates introduced in the Finance Act 2026 can significantly impact your tax planning. Work with a tax expert to apply the correct deductions, claim exemptions where applicable, and remain compliant.