Key withholding tax rate reductions for tax year 2027
Beyond the standard rates in the First Schedule, several specific clauses in the Second Schedule to the Income Tax Ordinance, 2001 reduce withholding tax for particular categories of recipients. Here are the key ones relevant to most taxpayers and businesses:
- Profit on debt to a non-resident person with no permanent establishment in Pakistan (subject to conditions): reduced to 10%
- Profit on Federal Government debt instruments purchased through specified foreign currency or non-resident accounts: 10%, final tax
- Dividends attributable to bagasse and biomass-based co-generation power projects: reduced to 7.5%
- Payments to distributors of pharmaceutical products: 1%; distributors of cigarettes: 2.5%
- Distributors, dealers, wholesalers and retailers of fast-moving consumer goods, fertilizer, electronics (excluding mobiles), sugar, cement, steel and edible oil, where the taxpayer is on the Active Taxpayers List for both income tax and sales tax and is a Tier-1 retailer integrated for real-time reporting: 0.25%
- Payments to the National Logistics Corporation: 3%
- Brokerage and commission for a person running an online marketplace: 5%
- Oil tanker contractor services: 2%
- Supply of gold and silver articles: 1%, adjustable
Why these reductions exist
Most of these reduced rates target specific sectors the government wants to support or where standard rates would create disproportionate cash flow burdens relative to typically thin margins (distribution, logistics, bullion trading). If your business falls into one of these categories, applying the standard rate instead of the reduced one means overpaying tax unnecessarily.
If you're not sure whether a reduced rate applies to your business, our team can confirm this before you finalise a transaction – get in touch via the contact page.