Erstwhile FATA/PATA: FBR asks banks to deduct WHT on transactions, specified payments

ISLAMABAD: The Federal Board of Revenue (FBR) has directed all commercial banks to start deducting withholding taxes on financial transactions/ specified payments in the erstwhile Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) following the withdrawal of tax exemptions under the Finance Act, 2026.

In a letter issued to the chief executives of banks, the FBR’s Regional Tax Office (RTO) Peshawar stated that the Finance Act, 2026 has amended the Income Tax Ordinance, 2001, abolishing the tax exemptions previously available to the erstwhile FATA/ PATA. As a result, income arising in these areas is now taxable in accordance with the applicable provisions of the Ordinance.

The tax authority instructed banks to ensure deduction of withholding tax on profit on debt paid to residents of the erstwhile FATA/PATA under section 151, rent payments made to landlords of bank premises in these areas under section 155 and withholding tax deduction on salary payments under section 149 of the Income Tax Ordinance, 2001.

The FBR urged banks to implement the statutory changes across their branch networks and ensure full compliance with the amended tax regime, adding that its offices would provide any necessary clarification regarding the implementation of the new provisions.

Meanwhile, the FBR has formally notified local government offices in Ex-PATA that, following the Finance Act, 2026, the income tax exemptions have been withdrawn and withholding tax provisions under the Income Tax Ordinance, 2001 are now fully applicable.

Authorities have been directed to immediately begin deducting, depositing, and reporting withholding taxes.

The Office of the Inland Revenue Officer, Unit-03, Mardan Zone has been written to the Tehsil Municipal Officer (TMA), Samarbagh, Lower Dir on the implementation of Withholding Tax Provisions in ex-PATA.

The letter informs the TMA that an FTN (Free Tax Number) has been issued to TMA Samarbagh.

The FTN is to be used for the deduction, collection, deposit, and reporting of withholding taxes under the Income Tax Ordinance, 2001.

Under the Finance Act, 2026, the income tax exemptions previously available to former-PATA areas have been withdrawn.

Consequently, the withholding tax provisions now apply in Ex-PATA, and all withholding agents must deduct applicable withholding taxes; collect and deposit them into the government treasury and report the taxes in accordance with the law.

The TMA is directed to deposit all applicable withholding taxes using its allocated FTN, submit copies of the relevant Computerized Payment Receipts (CPRs) to the Inland Revenue Office, and comply immediately, Mardan Tax Office added.

Copyright Business Recorder, 2026