Pakistan Practical Taxation Course Post 9
Section 153 – Tax Deduction on Payments for Goods, Services and Contracts in Pakistan
Introduction
Section 153 of the Income Tax Ordinance, 2001 is one of the most frequently applied withholding tax provisions in Pakistan. It governs tax deduction at source on payments made for goods, services, and contracts, and is extremely important for businesses, companies, withholding agents, and tax practitioners.
This post explains who must deduct tax, applicable rates, filer vs non-filer treatment, adjustable vs minimum tax, and practical compliance requirements.
What is Section 153?
Section 153 requires specified persons to deduct advance income tax at the time of making payment for:
• Supply of goods
• Provision of services
• Execution of contracts
The tax is deducted at source and deposited with FBR.
Who is Required to Deduct Tax under Section 153?
The following are required to deduct tax:
• Companies
• Federal Government
• Provincial Governments
• Local Authorities
• Associations of Persons (AOPs)
• Registered withholding agents
Individuals are generally not withholding agents, except in specific notified cases.
Types of Payments Covered under Section 153
Section 153 is divided into three major categories:
Payment for Goods
Tax is deducted on payments made for supply of goods.
Payment for Services
Tax is deducted on services such as consultancy, professional services, technical services, and other notified services.
Payment for Contracts
Applies to payments made under contracts for construction, manufacturing, installation, repair, or execution of work.
Withholding Tax Rates under Section 153
Tax rates depend on:
• Nature of payment (goods, services, or contracts)
• Filer or non-filer status of the recipient
Key points:
• Filers are subject to lower rates
• Non-filers are subject to higher rates
• Tax is deducted on gross payment, not profit
Rates are prescribed in the First Schedule of the Income Tax Ordinance.
Nature of Tax under Section 153
Tax deducted under Section 153 may be:
• Adjustable tax
• Minimum tax
• Final tax (in limited cases)
Generally:
• Tax on goods is treated as minimum tax
• Tax on services and contracts is adjustable
The exact treatment depends on the nature of business and legal status.
Practical Example
A company makes a payment of PKR 1,000,000 to a registered supplier of services who is a filer.
Tax is deducted at the applicable filer rate under Section 153 at the time of payment and deposited with FBR.
The service provider later adjusts this tax while filing the annual income tax return.
Deposit and Reporting of Section 153 Tax
Withholding tax deducted must be:
• Deposited within the prescribed time
• Reported in the monthly withholding statement
• Reflected in the supplier’s tax profile
Failure to comply may result in penalties and default surcharge.
Common Mistakes to Avoid
• Applying wrong filer or non-filer rate
• Deducting tax on net instead of gross payment
• Not depositing tax within due date
• Incorrect reporting in withholding statements
Conclusion
Pakistan Practical Taxation Course Post 9 FI
Section 153 plays a vital role in Pakistan’s withholding tax system and affects almost every business transaction. Proper understanding of rates, nature of tax, and compliance procedures is essential to avoid penalties and ensure correct tax reporting.
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