What is Withholding Tax in Pakistan?
Withholding tax plays a vital role in Pakistan’s taxation system, ensuring that taxes are collected at source before income reaches the taxpayer. Understanding how withholding taxes work, their types, rates, and implications can help taxpayers comply with regulations while reducing their financial and administrative burden.
In Pakistan, if you have ever made an extra payment while withdrawing cash, buying property, or registering a car, chances are you have paid withholding tax.
What is Withholding Tax?
What is Withholding Tax in Pakistan?
Withholding tax (WHT) in Pakistan is a type of advance tax collected by the government on income or transactions. Instead of waiting for you to pay the tax at the end of the year, the government automatically deducts it from salaries, bank transactions, property sales, and more.
Tax is deducted at the time of earning or spending.
Types of Tax Withholding in Pakistan:
What is Withholding Tax in Pakistan?
Pakistan’s tax framework consists of two basic types of withholding taxes:
Final withholding tax. This is a one-time, final deduction. The amount withheld is considered the final tax liability on that particular income and is not subject to further adjustments or refunds when the taxpayer files their annual tax return.
Adjustable withholding tax. This is an initial deduction that is credited against the taxpayer’s total tax liability at the end of the fiscal year. If the amount withheld is more than the final tax, the taxpayer is eligible for a refund. Conversely, if the amount withheld is less than the final liability, the taxpayer will be required to pay the remaining amount. Salary income is a prime example of income that is subject to adjustable withholding tax.
Who collects withholding tax?
What is Withholding Tax in Pakistan?
The Federal Board of Revenue (FBR) collects withholding tax through withholding agents, which include
employers, banks, property dealers, mobile companies
car registration authorities
government departments, etc.
These agents deduct tax on behalf of the FBR before they remit your payment or provide you with any service.
Where is withholding tax applicable?
What is Withholding Tax in Pakistan?
These are the common areas where withholding tax is deducted in Pakistan.
Type of transaction: Example of withholding tax
Salary (above taxable limit) Employer deducts tax before payment of salary.
Bank transactions, Cash withdrawals exceeding Rs. 50,000
Tax deduction on the sale of property or the sale of land
Vehicle registration Tax paid during the registration of the new vehicle
Mobile phone bills Tax is deducted from prepaid balance and monthly bills.
Business payments to suppliers or contractors are also taxed
Filers vs. non-filers: A big difference:
What is Withholding Tax in Pakistan?
There are two types of taxpayers in Pakistan:
Filers (those who file income tax returns)
Non-filers (those who do not file returns)
Non-filers pay a lot of withholding tax.
For example
Cash withdrawal tax
Filer 0% and non-filer: 0.6%
Property purchase and sale tax
Filer 2% non-filer 5-7%
So becoming a filer helps you save a lot of money.
Can you claim a refund for the withholding tax?
Yes! If you are a filer, withholding tax is adjustable, meaning
It can be adjusted against your annual income tax.
If you have made an overpayment, you can claim a refund while filing your tax return.
But if you don’t file your return, the tax will be gone forever!
Why is withholding tax important?
What is Withholding Tax in Pakistan?
Ensures tax collection from every corner of the economy.
Helps track undocumented income.
Brings more people into the tax net.
Acts as a compliance tool for the FBR.
How to avoid additional withholding tax?
Become a filer by filing your annual income tax return.
Keep your FBR profile updated
Ensure that your CNIC is linked to your bank, SIM card, and property transactions.
Maintain records as a filer.
Conclusion:
What is Withholding Tax in Pakistan?
Withholding tax may seem like a silent deduction, but it plays a big role in Pakistan’s tax system. By understanding it and becoming a filer, you can protect your money, maintain compliance, and even get a refund.
Contact Us:
What is Withholding Tax in Pakistan?
What is Withholding Tax in Pakistan?
Follow us on social media for updates, tips, and tax humor:
- Facebook: MBS Taxation
- Website: MBS Taxation
- Our Website Contact Form: Click Here
- Whatsapp Number: +923087543324
We’re here to simplify your taxes so you can focus on what matters most—your work, business, and life!
FAQs:
What is Withholding Tax in Pakistan?
What is withholding tax in simple words?
Withholding tax is an advance tax that is deducted at the time of a transaction (like withdrawing cash or buying property) and paid directly to the government.