The Finance Act 2026-27 has reduced the advance tax on outgoing payments made abroad through Pakistani bank issued credit, debit, and prepaid cards from 5 percent to 0.5 percent, effective July 1. Pakistan IT Industry Association described the 90 percent reduction as a direct, tangible win for technology companies that rely on foreign platforms to run daily business operations.
Under the previous rate, every outgoing payment made abroad through a Pakistani card, whether for cloud infrastructure, software as a service subscriptions, developer tools, or other international software services, carried a recurring 5 percent cost. With the new 0.5 percent rate now in effect, that cost has become largely negligible for businesses making frequent international payments through card based transactions. The tax, collected under Section 236Y of the Income Tax Ordinance, applies specifically to outgoing payments processed through Pakistani issued cards for services such as cloud infrastructure providers, software subscriptions, and developer tools sourced from international vendors.
Pakistan IT Industry Association placed the reduction alongside the 0.25 percent concessionary income tax rate for IT and IT enabled services exporters, which was separately extended through Tax Year 2029 in the same budget, describing both measures together as signals that this year’s Finance Act delivered meaningful support for the technology sector. The card transaction tax cut is expected to particularly benefit smaller IT firms, startups, and individual freelancers who routinely pay for cloud infrastructure, software subscriptions, and development tools priced in foreign currency, expenses that had previously carried a real and recurring cost under the higher withholding rate.
The tax reduction is adjustable rather than final, meaning cardholders who are active taxpayers can continue to claim the amount deducted as a credit against their annual income tax liability when filing returns, with any excess deduction refundable. Non-filers, by contrast, continue to face a higher rate under Pakistan’s tax law, which imposes an additional surcharge on individuals not listed on the Federal Board of Revenue’s Active Taxpayers List, reinforcing the incentive for individuals and businesses to remain compliant filers in order to benefit fully from the reduced rate.
The move forms part of a broader set of measures introduced through the Finance Act 2026-27 aimed at rationalising the country’s withholding tax regime, alongside changes affecting property transactions, corporate income thresholds, and export related taxes. For Pakistan’s information technology sector specifically, the combination of the reduced card transaction tax and the extended concessionary export tax regime reflects a continued government effort to lower the operational cost of running technology businesses that depend heavily on foreign cloud services, software tools, and international payment platforms to remain competitive in global markets.
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