In a move that offers stability to Pakistan’s tech industry, the Federal Board of Revenue (FBR) has confirmed that the withholding tax rate for Information Technology (IT) and IT-enabled services will stay at 4% for the fiscal year 2025-26. This decision comes despite a broader increase in withholding tax rates affecting various other service categories.
Tech Industry Gets a Break Amid Tax Reforms
According to FBR’s latest income tax circular—issued under the Finance Act, 2025—the government has decided to maintain the 4% rate for IT-related services, shielding the sector from a wave of tax hikes that now apply to other service providers.
While the withholding tax on non-specified services (under Section 153) has been raised sharply to 15%, and specified services under Sections 152 and 153 now face rates of 8% and 6% respectively, IT and IT-enabled services are notably excluded from these adjustments.
Broader Tax Policy Changes Target Rate Uniformity
Prior to these changes, non-specified services were taxed at 9% for corporate entities and 11% for non-corporates. Individuals such as sportspersons were taxed at 10%. The new structure represents an effort by the FBR to bring consistency and simplification across the tax regime, although it also reflects a tightening fiscal stance.
By keeping the IT sector’s rate steady, the government appears to be signaling continued support for a high-growth, export-oriented industry that has become increasingly vital to Pakistan’s economy.
What This Means for Businesses
For companies operating within the IT sector, the unchanged rate offers a degree of certainty at a time when fiscal policy is becoming more aggressive in other areas. For other service-based businesses, however, the increased withholding rates will likely translate to higher tax burdens unless specific exemptions apply.
As the government seeks to balance revenue generation with sectoral growth, the FBR’s latest circular draws a clear line: while broader tax reforms are moving ahead, tech will continue to receive preferential treatment—at least for now.
