Section 153: The Tax Your Client Deducts Before Paying Your Invoice

Withholding · Section 153

Section 153 is the provision most Pakistani businesses meet without ever reading it. It is why your invoice for Rs 100,000 was settled with a payment of Rs 92,500 and a certificate.

All Pakistan Taxes desk · 17 August 2026

The Ordinance requires certain payers, described as prescribed persons and including companies and government bodies, to deduct tax at source when paying for goods, for services, or under a contract. The deduction is made before the payment reaches you, and the payer deposits it against your name.

This is not an extra tax. It is collection machinery, moving the point of collection from the recipient to the payer, on the reasonable assumption that a company with an accounts department is easier to police than thousands of individual suppliers.

The rates, and why the category matters

Rates vary by what is being paid for and by the status of the recipient. The distinctions are finer than most suppliers realise, and misclassification is a common source of disputes.

Services attract their own rates, with specified categories treated more favourably than general services. Published rate cards differ between sources and are amended through annual finance legislation, so the sensible practice is to confirm the current rate for your specific category before invoicing rather than relying on what applied last year.

What holds constant is the penalty structure. Non-filer rates run at roughly double the filer rate across categories. For a supplier invoicing regularly, that difference dwarfs the cost and effort of filing a return, which is the entire policy intent. Our filer versus non-filer cost breakdown puts figures against the gap.

The minimum tax trap

This is the part that catches service providers, and it is worth understanding before it appears as an unexpected liability.

For most categories, a Section 153 deduction is treated as minimum tax rather than as a simple advance payment. The distinction matters enormously. Where a deduction is an advance, it is credited against your final liability and any excess is refundable. Where it is minimum tax, it sets a floor: you pay the higher of the amount withheld or your computed liability, and there is no refund of the difference if the withholding exceeded what you would otherwise have owed.

Minimum tax treatment means the deduction is the least you will pay, not an instalment towards a smaller final bill.

The corollary runs the other way too. A service provider whose slab-based liability exceeds the tax withheld owes the difference at year end. Businesses that treat the withholding certificate as settling the matter in full can find a balance falling due at filing, on income they have already spent.

If you are the one deducting

Withholding agents carry obligations that are enforced independently of the supplier’s position. A prescribed person must deduct at the correct rate, deposit the tax within the prescribed time, file the periodic withholding statement, and issue a certificate to the recipient.

Failure to deduct does not shift the cost to the supplier. The agent becomes personally liable for the amount that should have been withheld, plus default surcharge and penalty. In practice this means a company that pays a supplier gross by oversight has bought itself the tax bill, and recovering it from the supplier afterwards is a commercial negotiation rather than a legal right.

The other recurring failure is the statement rather than the payment. Businesses that deduct and deposit correctly but file withholding statements late or incompletely still attract penalties, and the mismatch between deposits and statements is exactly the kind of discrepancy that generates an FBR notice.

What suppliers should do

Reconcile every payment against the invoice and the certificate. A client who withholds but never deposits leaves the shortfall showing against your account rather than theirs, and the certificate is your evidence that the deduction happened.

Stay on the Active Taxpayer List continuously rather than seasonally. Status is checked at the date of payment, so falling off the list for a month can double the deduction on any invoice settled during it. The route back is covered in our guide to becoming a filer through IRIS and the ATL, and anyone without a tax number should start with the NTN guide.

Freelancers and remote workers billing local companies encounter Section 153 constantly, and its interaction with export income and the wider filing position is set out in our freelancer filing guide. Where a deduction has genuinely exceeded the liability and the category permits a refund, the process runs through the refund claim.

Common questions