Withholding tax on exports: sections 154 and 154A

Pakistan applies distinct, generally favourable withholding tax rates to exporters, recognising the importance of foreign exchange earnings. These are covered separately for goods and services.

Export of goods (section 154)

• Realization of foreign exchange proceeds on export of goods: 1.25%, minimum tax
• Realization of proceeds on sale of goods to an exporter under an inland back-to-back letter of credit: 1.25%, minimum tax
• Export of goods by an industrial undertaking in an Export Processing Zone: 1.25%, minimum tax
• Payments by a direct exporter or export house (registered under DTRE/EFS) to an indirect exporter: 1.25%, minimum tax
• Clearing of exported goods: 1.25%, minimum tax

Notably, export of goods withholding is a flat rate – there is no Active Filer versus Non-Filer distinction under Section 154.

Export of services (section 154A)

• Export of computer software, IT services, or IT-enabled services by persons registered with the Pakistan Software Export Board: 0.25%, final tax subject to conditions
• Other services rendered or exported outside Pakistan, royalty/commission from a foreign enterprise for use of intellectual property outside Pakistan, construction contracts executed outside Pakistan, and foreign commission to an indenting agent: 1%, final tax subject to conditions

Why this matters for exporters

The significantly lower rates for IT/software exports (0.25%) compared to other exported services (1%) reflect government policy to encourage the IT sector specifically. If your business exports a mix of software and other services, it's worth confirming which portion of your revenue qualifies for the lower rate.

Our team regularly assists exporters with correctly categorising foreign exchange receipts for withholding purposes – contact us to review your specific export activity.