How much tax must a company deduct from payments to suppliers for goods, services and contracts, and is it higher for suppliers not on the Active Taxpayers List?

Every company in Pakistan is a withholding agent for payments to its suppliers. Section 153 of the Income Tax Ordinance, 2001 sets the duty, Division III of Part III of the First Schedule sets the rates, and the Tenth Schedule raises them for payees missing from the active taxpayers’ list. This page reads the law as amended to 30 June 2026, so the rates are those for tax year 2027 (payments from 1 July 2026 to 30 June 2027).

What does the law say?

Section 153(1) requires every “prescribed person” making a payment, in full or in part and including an advance, to a resident person to deduct tax at the time of payment:

• (a) for the sale of goods, including toll manufacturing, except where payments are less than Rs. 75,000 in aggregate during a financial year;
• (b) for rendering or providing services, except where payments are less than Rs. 30,000 in aggregate during a financial year;
• (c) on the execution of a contract, including a contract signed by a sportsperson, but not a contract for goods or services.

Section 153(7) lists the prescribed persons, and item (b) is “a company”. Every company is covered whatever its size.

What are the rates for tax year 2027?

The rates below come from Division III of Part III of the First Schedule, including the changes made by the Finance Act, 2026.

Payment	Payee	Rate
Sale of rice, cotton seed or edible oils	Any	1.5%
Sale of goods (other than toll manufacturing)	Company	5%
Sale of goods (other than toll manufacturing)	Other	5.5%
Toll manufacturing	Company	9%
Toll manufacturing	Other	11%
Listed services: transport, freight forwarding, courier, manpower outsourcing, security guard, software development, IT and IT enabled, engineering including architectural, warehousing, car rental, building maintenance, inspection and certification, testing and training, telecommunication, travel and tour and the other services named in paragraph (2)(i)	Any	7% (4% for IT and IT enabled services)
Independent professional services such as doctors, lawyers, architects, accountants, software engineers or developers working independently	Any	15%
Advertising services, paid to electronic and print media	Any	1.5%
Terminal and port operating services	Company	12%
Services not covered above	Any	14%
Contracts	Sportsperson	15%
Contracts	Company	7.5%
Contracts	Other	8%

An Explanation under paragraph (2)(i) limits the 7% rate to service providers whose services are subject to withholding on gross receipts and who have not challenged taxation of gross receipts in any court.

How does it work in practice?

Base. Tax is deducted from the gross amount payable, including sales tax.

Timing. The deduction happens at the time of payment, including advance payments.

Non-ATL payees. Rule 1 of the Tenth Schedule says that where tax is deducted from a person not appearing in the active taxpayers’ list, the rate “shall be increased by hundred percent of the rate specified in” the Ordinance. The rate doubles.

Certificates. Section 159(2) requires the full deduction unless an exemption or lower rate certificate under section 159(1) is in force for the payee. Section 153(4) separately lets the Commissioner allow a reduced rate, but only where the tax is not minimum tax, and the reduction cannot exceed eighty percent of the Division III rate. For public limited companies, the Commissioner may allow payment without any deduction. Both sections say a certificate applied for by a company is to be issued within fifteen days, and is treated as issued through Iris if the Commissioner does not act.

Worked example (illustrative figures)

Margalla Foods Limited, Islamabad, makes three payments in September 2026. Each payee’s annual payments are above the Rs. 75,000 and Rs. 30,000 limits.

Payment	Gross amount	Rate if payee on ATL	Tax	Rate if payee not on ATL	Tax
Packaging bought from a company (not toll manufacturing), invoice including sales tax	Rs. 2,360,000	5%	Rs. 118,000	10%	Rs. 236,000
Security guard services from a company	Rs. 500,000	7%	Rs. 35,000	14%	Rs. 70,000
Warehouse repair contract with an individual contractor	Rs. 1,000,000	8%	Rs. 80,000	16%	Rs. 160,000

Check: 2,360,000 x 5% = 118,000; 500,000 x 7% = 35,000; 1,000,000 x 8% = 80,000. Each non-ATL figure is twice the ATL figure.

What if …?

What if the supplier is an importer selling goods as imported? Section 153(5)(a) excludes a sale of goods by the importer where tax under the import collection provision has been paid and the goods are sold in the same condition as imported.

What if the payment is a refund of a security deposit? Section 153(5)(c) excludes it.

What if the supplier is a non-ATL person who was not required to file a return? Rule 2 of the Tenth Schedule lets the withholding agent notify the Commissioner electronically, before deducting, with the reasons. If the Commissioner passes no order within thirty days, the contention is treated as accepted.

Common mistakes

• Deducting on the price before sales tax. Section 153(1) uses the gross amount including sales tax.
• Assuming only large companies must deduct. Section 153(7) names “a company” without a size limit.
• Skipping advances. Section 153(1) covers payments “by way of advance”.
• Using the ATL rate for a supplier who has dropped off the list. Rule 1 of the Tenth Schedule applies whenever the payee is not on the list.
• Treating the Rs. 30,000 and Rs. 75,000 limits as per invoice. They are aggregates for the financial year.

What to check in the official text

The consolidated text of section 153 prints the version replaced in 2011 alongside the current section, so read the current sub-sections (1) to (7) carefully in the official PDF. Check the full list of services in paragraph (2)(i) of Division III, because the table above shortens it. Also check whether the Board has notified any exemption, and whether any SRO affects your sector: SROs are not in this corpus.