Introduction
Withholding tax on residents is collected under Section 153 of the Income Tax Ordinance, 2001.
Table of Contents
According to Section 81 of the Income Tax Ordinance, 2001, “A person shall be a resident person for a tax year if the person is —
(a) a resident individual, resident company or resident association of persons for the year; or
(b) the Federal Government.”
The withholding tax on residents is collected for the following transactions:
a) Supply of goods;
b) Rendering of services;
c) Execution of contracts
The Section 153 (1) of the Income Tax Ordinance, 2001 enunciates:
“Every prescribed person making a payment in full or part including a payment by way of advance to a resident person
a) for the sale of goods [including toll manufacturing] [, except where payment is less than seventy-five thousand Rupees in aggregate, during a financial year];
(b) for the rendering of or providing of services [except where payment is less than thirty thousand Rupees in aggregate, during a financial year];
(c) on the execution of a contract, [including contract signed by a sportsperson] but not including a contract for the sale of goods or the rendering of or providing services,
shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule.”
Note
- There’ll be no withholding tax on a resident if payment is less than Rs. 75,000 for the supply of goods by a single supplier.
- If the payment for rendering service is less than Rs. 30,000 in the aggregate to a single payee, there’ll be no withholding tax on such a payment.
- The contract for the supply of goods or the rendering of services is not covered under Section 153 (c) but such contracts come within the ambit of Section 153 (a) or (b) as the case may be.
Withholding Tax on Residents-Exporters
Every exporter or an export house shall deduct tax from the gross amount payable 1% while making a payment in full or part or in advance to a resident person or permanent establishment in Pakistan of a non-resident person for services of stitching, dying, printing, embroidery, washing, sizing and weaving,
Withholding Tax on Residents Section 153-Exemption
The withholding tax on Residents under Section 153 will not be applicable to:
- a sale of goods where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported. Note It means that if the income tax is withheld by the Customs office at the time of import of certain goods and such goods are delivered to the buyer without any value addition, no income tax will be withheld while making payment under Section 153 (1).
- a refund of any security deposit;
- a payment made by the Federal Government, a Provincial Government or a Local Government to a contractor for construction materials supplied to the contractor by the said Government or the authority;
- the purchase of an asset under a lease and buy back agreement by a modaraba, leasing company, banking company
or financial institution; or - any payment for securitization of receivables or issuance of sukuks by a Special Purpose Vehicle to the Originator.
Nature of Withholding Tax on Residents
- Tax withheld on supply of goods will be adjustable where payment is received by the company being a manufacturer of such goods; or
- Where a public company listed on a registered stock exchange in Pakistan, receives payment for the supply of goods or execution of the contract, the income tax withheld will be adjustable for such a public company.
- In the case of all other payments tax withheld under Section 153 (1) and (2) will be minimum.
- Tax will be withheld under Section 153 under Division III Part III of the First Schedule of Income Tax Ordinance 2001.