Federal Board of Revenue has confirmed that the withholding tax rate on IT and IT-enabled services will remain unchanged at 4 percent for the fiscal year 2025-26. This decision was outlined in an official income tax circular following the implementation of the Finance Act 2025, which has brought notable changes to tax rates across various service categories.
According to the circular, the Finance Act 2025 sets a new flat withholding tax rate of 15 percent for services not specifically listed under the Income Tax Ordinance and for sports persons. This marks a sharp increase from previous rates, which stood at 9 percent for companies and 11 percent for non-company entities, and 10 percent for sports persons. The adjustment is part of broader reforms aimed at streamlining the taxation framework and generating higher revenue from the services sector.
For specified services under section 152, the withholding tax rate has doubled from 4 percent to 8 percent. Similarly, under section 153, the rate has been increased from 4 percent to 6 percent. These changes apply to a wide range of professional and technical services, excluding IT and IT-enabled services, which retain their preferential 4 percent rate in a move widely seen as a measure to support the country’s digital economy.
Industry stakeholders have noted that maintaining the lower rate for IT and ITeS sends a positive signal to local and international investors in the technology sector. Pakistan’s IT industry has been one of the fastest-growing segments of the economy in recent years, with exports reaching record highs. The government’s decision to keep this rate steady is expected to help sustain the growth momentum, attract foreign contracts, and support small and medium-sized enterprises that rely on competitive pricing to secure global business.
Meanwhile, the increase in rates for other service categories reflects the government’s effort to bring tax rates more in line with regional benchmarks. The 15 percent rate for non-specified services aims to create a more uniform tax system while closing gaps that previously allowed for lower taxation in certain sectors. For professional service providers outside the IT domain, however, the revised rates will likely lead to higher operational costs, which could be passed on to clients.
FBR’s announcement underscores the balancing act between increasing tax revenue and maintaining competitiveness in strategic sectors. While the broader service sector will face higher taxation in FY26, the technology sector continues to benefit from targeted incentives that align with Pakistan’s vision of building a robust digital economy. Retaining the 4 percent withholding tax rate on IT and ITeS is consistent with the government’s stated priority of supporting digital transformation and boosting tech exports.
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