Not Deducting Withholding Tax in Pakistan: FBR Penalty Is Rs 40,000 or 10% of the Tax
A business that fails to deduct or deposit withholding tax faces Rs 40,000 or 10% of the tax on FBR's table. See late deposit and statement penalties too.
Short answer: A business that does not deduct or collect tax it should, or does not deposit it, faces a penalty of Rs 40,000 or 10% of the tax, whichever is higher. A late quarterly statement costs Rs 5,000 if the tax was paid on time, and more if not. These figures come from FBR's own penalty table.
Withholding means you take tax out of a payment and send it to FBR. Employers do it on salary. Companies and shops do it on rent, supplies and contracts. If you are the one paying, FBR treats you as responsible.
We read the penalty table in section 182 of the Income Tax Ordinance on FBR's website on 13 October 2026. All amounts below are from that table.
The main penalty is Rs 40,000 or 10% of the tax
Item 15 covers a person who fails to collect or deduct tax as required, or fails to pay the tax collected or deducted. The penalty is Rs 40,000 or 10% of the tax, whichever is higher.
Here are two examples from our own arithmetic. If the missed tax is Rs 100,000, 10% is Rs 10,000, so the penalty is Rs 40,000. If the missed tax is Rs 1 million, 10% is Rs 100,000, so the penalty is Rs 100,000. The tax itself is still owed.
The table links item 15 to a long list of withholding sections, including those for payments for goods, services, contracts and rent. Our guides explain the common ones: tax on supplier and contractor payments, tax to deduct from rent and tax on salary.
Late deposit and late statements are penalised separately
Item 5 covers tax not deposited in the time or manner required. The penalty is 5% of the tax in default. For a second default there is an extra 25% of the tax in default. For a third and later default, an extra 50%.
Item 1A covers a withholding statement not filed on time. If the tax was already paid on time and the statement comes within 90 days of the due date, the penalty is Rs 5,000. In all other cases it is Rs 2,500 for each day, with a minimum of Rs 10,000.
| Failure | Penalty on FBR's table |
|---|---|
| Did not deduct or collect tax, or did not pay it over | Rs 40,000 or 10% of the tax, whichever is higher |
| Did not deposit tax due on time | 5% of tax in default, then 25% more, then 50% more |
| Statement late, tax paid on time, filed within 90 days | Rs 5,000 |
| Statement late in all other cases | Rs 2,500 a day, minimum Rs 10,000 |
Check your own duty before the next payment
Most mistakes happen when someone pays a bill and forgets that tax should be taken out first. Use a short routine at every payment.
- Ask what the payment is for: salary, rent, goods, services or a contract.
- Check the payee's filer status before you fix the rate.
- Deduct the tax at the rate that applies, and pay the rest.
- Deposit the tax with FBR by the due date, using the correct payment slip.
- Note the deduction for the quarterly statement.
The filer check matters because the rate often depends on it. See the guide to checking filer status before you pay.
The quarterly statement is the proof
The statement tells FBR what you deducted and deposited. It is also how the payee gets credit for the tax. The steps and the current due date are in the guide to filing the quarterly withholding statement.
If the payee's credit is missing because you did not file, they may complain to you. Fixing it quickly also reduces the chance of a notice.
A penalty needs a written order first
Section 182(2) says no penalty is payable unless a written order is passed after the person has been heard. You can pay voluntarily if you accept the default. If you disagree with an order, you can appeal.
The appeal steps are in the page on appealing an FBR income tax order. A lower rate or an exemption for a payee can be requested in advance, as explained in the guide to a section 159 certificate.
Common questions
What is the penalty for not deducting withholding tax in Pakistan?
Rs 40,000 or 10% of the tax, whichever is higher, under item 15 of the section 182 table.
Do I still owe the tax if I pay the penalty?
Yes. The penalty is in addition to the tax. The table says penalties apply in addition to any other punishment under the law.
What if I deducted the tax but filed the statement late?
If the tax was paid on time and you file within 90 days of the due date, the penalty is Rs 5,000. After that it is Rs 2,500 a day, minimum Rs 10,000.
Who is responsible, the payer or the receiver?
The person who must deduct or collect the tax, which is usually the payer. The table names the person who fails to deduct or collect.
Can I appeal a withholding penalty?
Yes. You can appeal the written order to the Commissioner (Appeals).
How we verified this
What we checked, where we read it, and what we could not confirm.
Last checked on 13 October 2026, Pakistan time. We read FBR's page for section 182 of the Income Tax Ordinance, items 1A, 5 and 15. The copy was stamped 23 June 2026, so a change made by the Finance Act 2026 could be missing. We did not read the individual withholding sections, so rates and due dates are not stated here. This page is general information, not legal advice.
About the author
Public Services and Education Journalist
Fajr Riaz is a journalist and content writer at Pakistan Era, based in Lahore. She covers the questions people meet in everyday life in Pakistan: how a public service works, what a change in the rules means, and where to find a reliable answer.
