Can a software house get an exemption or lower rate certificate so local clients do not deduct section 153 tax?

A software house can obtain a certificate only where the Ordinance itself treats the income as exempt, lower-taxed or fully credited. Section 159 is the general route and has a fifteen-day deemed issue rule for companies. Section 153(4) is a second route, but its wording limits it to deductions that are not minimum tax, which rules out ordinary IT services receipts.

What does section 159 say?

Section 159(1) applies where the Commissioner is satisfied that an amount to which Division II or III of “this Part” (the Part of Chapter X that contains the withholding sections) applies is:

• (a) exempt from tax under the Ordinance;
• (b) subject to tax at a rate lower than that specified in the First Schedule; or
• (c) subject to hundred percent tax credit under the Ordinance.

Section 153 sits in Division III, so a client’s deduction from a payment for services is within reach. On a written application in the prescribed form, the Commissioner “shall” issue an exemption or lower rate certificate.

Three provisos apply to companies:

1. The Commissioner shall issue the certificate within fifteen days of the company filing its application.
2. If that does not happen, the certificate is deemed issued on expiry of the fifteen days and is “automatically processed and issued by Iris”.
3. The Commissioner may modify or cancel an Iris certificate, recording reasons in writing, after giving an opportunity of being heard.

Section 159(2) is the instruction to the client. A person required to deduct under Division III must deduct the full amount “unless there is in force a certificate issued under sub-section (1)”, in which case it must comply with the certificate.

Why does section 153(4) rarely help a software house?

Section 153(4) lets the Commissioner, on the recipient’s application, allow a payment after deduction at a reduced rate, but only “in cases where tax deductible under sub-section (1) is not minimum”. The reduction “shall not exceed eighty percent of the rate specified in the said Division”, except for public limited companies, where the Commissioner may allow payment without deduction. For a company that has discharged its advance tax liability, the certificate is due within fifteen days and is deemed issued by Iris afterwards.

Section 153(3) says tax deductible under sub-section (1) is minimum tax. Its provisos take out goods sold by manufacturers or listed companies and contracts executed by listed companies. Nothing takes out services. On that wording, IT services receipts fall outside section 153(4). The text does not say clearly whether the public limited company exception escapes the “not minimum” condition, and this page does not resolve that.

Which software houses have a clear ground under section 159?

PSEB-certified startups. Section 65F(1)(b) gives a startup, as defined in clause (62A) of section 2, a tax credit of one hundred per cent of tax payable for the tax year in which it is certified by the Pakistan Software Export Board and the next two tax years. That matches ground (c) of section 159(1). Separately, clause (43F) of Part IV of the Second Schedule says section 153 “shall not apply in the case of a start-up, being recipient of payment”. The Ordinance does not say how a paying client is to verify startup status. A certificate is one documented way to show it.

Exporters with local clients. The Ordinance in this corpus does not give local IT services receipts of an exporter any exemption or lower rate. Being an exporter is not, by itself, one of the three grounds in section 159(1). The corpus contains no provision saying otherwise.

Everyone else. For an ordinary software house, local receipts bear the Division III rate, 4% for IT services and IT enabled services in tax year 2027. The Ordinance does not list what would make that income “subject to tax at a rate lower” than the First Schedule. Without such a ground, section 159 gives the Commissioner nothing to certify.

Worked example (illustrative figures)

Qalam Labs (Pvt) Ltd in Islamabad was certified as a startup by PSEB in tax year 2027 and files a section 159 application on 4 August 2026.

1. Fifteen days from filing end on 19 August 2026.
2. No decision issues by then, so the certificate is deemed issued and Iris issues it.
3. On 25 August a Rawalpindi client pays Qalam Rs. 1,800,000 for a web portal.
4. Without a certificate, the client would deduct Rs. 1,800,000 x 4% = Rs. 72,000.
5. With the certificate in force, section 159(2) requires the client to follow it, and Qalam receives the full Rs. 1,800,000.

What if the Commissioner later cancels the certificate?

The third proviso to section 159(1) allows cancellation or modification after a hearing. The section does not say what happens to payments made while the certificate was in force.

Common mistakes

• Expecting a client to stop deducting on a letter or email. Section 159(2) requires full deduction unless a certificate is in force.
• Using section 153(4) for services. It is limited to deductions that are not minimum tax.
• Assuming exporters qualify automatically. None of the section 159(1) grounds refers to export status.
• Assuming the fifteen-day rule covers everyone. The deemed issue provisos refer to a company.

What to check in the official text

Read section 159(1) and (2), section 153(3) and (4), section 65F, clause (62A) of section 2 and clause (43F) of Part IV of the Second Schedule in the Ordinance amended to 30 June 2026. The prescribed application form and Iris filing steps are not part of this corpus.