Whenever an advertisement (print, TV, online, billboards, social media, etc.) is purchased by a business in Pakistan, it may lead to a tax that is required to be paid under the head of advertisement services. In other words, tax on advertisement services in Pakistan is not an independent or special tax, but rather it is placed within a larger context of sales tax/ service tax/ withholding tax on advertising services.

This blog highlights the existing sales tax rates, regulations, and exemptions (where applicable).

Legal Underpinning and Institutional Organization.

The Federal Board of Revenue (FBR) is in charge of the federal indirect taxes (goods and some services) and withholding regimes. Following the 18^th amendment, most provincial jurisdictions have a number of regimes on sales tax on services (i.e. Punjab, Sindh service taxes). In Islamabad Capital Territory, (tax on services) Ordinance, 2001, advertising/consultancy is specifically mentioned in the list of services which are taxable under CIT.

Therefore, there are some overlapping mechanisms: normal sales tax on services, withholding tax deductions, and special rules of advanced tax/withholding on advertisements.

Liability to Sales Tax

The following sectors are obliged to register sales tax and impose sales tax on their supplies/services:

1. Manufacturing
2. Import
3. Services
4. Distribution, wholesale, and retail stage (it was previously being levied at the manufacturing and import level, and now its focus has been increased to the remaining sectors.)

All the locally produced and imported goods except computer software, poultry feeds, medicines and unprocessed agricultural produce of Pakistan and other items stipulated in the Sixth Schedule to The Sales Tax Act, 1990 are subject to Sales Tax.

Rates/Withholding Provisions (2025)

The following rates apply now to advertisement services:

A few caveats:

• The withholding/collecting tax is usually imposed on a collecting agent or withholding agent usually on large companies, government departments etc.
• In case the advertiser is a registered/ active taxpayer, some reduced rate/ partial withholding can be made.
• The proposed new digital ads tax specifically targets non-residents/ foreign websites that will issue digital advertisements in Pakistan

Rules and Compliance Requirements

Invoice/ documentation: the service provider shall provide a reasonable tax invoice with his/her registration, STRN/ NTN and tax break-ups.

Failure to deposit on time: the amount withheld should be deposited by the 15^th day of the month

Reporting: the withholding agents submit a withholding statement (sales tax withholding) and returns.

Whom it does not include: the list includes public bodies, federal and provincial departments, autonomous institutions, companies, and registered persons who purchase advertisement services.

Non-residents/ foreign advertisers: According to new proposals, the tax returns of foreign digital advertisers will be required to be presented quarterly in Pakistan; otherwise, remittances may be blocked.

Exemptions and Special Cases

Although no blanket and generally reported, an exemption ad service carve-out exists, there are situations where the load can be lighter or even shifted:

• Zero-rated or exemption – When the advertiser or the service is subject to an exemption in the provincial service tax (e.g. education, health, non-profit, in certain provinces) the ad service may be tax-exempt or at a reduced rate.
• Small/ simplified regime – Regimes in very small service providers can be covered by simplified regimes, although advertising is regularly included in taxable services.
• Foreign advertisers not physically based – They are charged with the 5% digital tax, but can claim non-nexus (this is contentious)
• Inter-provincial service allocations – There can also be instances where services across provincial boundaries (i.e. ad bought in Karachi in Islamabad), there can be allocation or tax credit mechanisms.

Due to the variations in provincial regimes, there is always a need to cross-check the province (Punjab, Sindh, KPK, etc.) where the service can be considered delivered.

Relationship with E-Commerce, Sales Tax, etc.

• Taxes on E-Commerce: Businesses involved in online selling of commodities are expected to collect sales tax (normally 17%) and be registered by the FBR.
• Sales tax rates in Pakistan: the sales tax rate on the goods in Pakistan is 18%
• Pakistani sales tax registration: All parties that make taxable supplies (goods or services) have to seek registration of sales tax via the FBR IRIS portal to abide in the law requirement.
• Tax on consultancy services in Pakistan: The consultancy services are classified within the concept of the special advice/professional services and are subject to the service tax on the provincial level and are subject to the withholding taxes.
• Sales tax on services FBR: FBR organizes federal and provincial sales tax regimes and lots of services (such as advertising) are taxed at the provincial level or by federal withholding tax.

Such a web of cross-over tax regulations implies that companies engaging in advertising services should not only observe the conditions of the advertisement tax, but also that the service registration and compliance should be met at the federal and provincial levels.

How Sidekick Can Help Businesses Circumvent Advertisement Tax

Sidekick is a full-service business consultancy, tax and accountancy firm. Sidekick supports the organizations to remain abreast to the changing tax laws in Pakistan. Their team of qualified accountants and tax advisors handles all the sales tax registration, up to the advertisement tax compliance, not to mention tax filing, which is done promptly without any errors. Sidekick interprets the notification of the FBR and provincial, and determines whether an advertisement is federal or provincial. They use ERP-based bookkeeping to automate ad expenses entries, compute the amount of sales tax that is right on services, and match withholding ledgers.

In a nutshell, Sidekick integrates tax knowledge and practical compliance solutions such that businesses can manage advertisement tax requirements and concentrate on growth.

Conclusion

Tax on advertisement service in Pakistan is a multi-tiered monster. It is entrenched in an extended sales tax/ service tax/ withholding system, and emerging systems of digital advertisement taxation (5% on foreign expenditure) are complicating matters. The effective rates (10% withholding, 13-16% and the additional advance tax on advertisements using foreign actors) are not insignificant.