The Federal Board of Revenue, through the Office of the Deputy Commissioner Inland Revenue, Withholding Taxes Zone, Regional Tax Office Peshawar, issued an official administrative notice instructing chief executive officers of major commercial banking institutions across the country to enforce withholding tax deductions across erstwhile Federally Administered Tribal Areas and Provincially Administered Tribal Areas. The official communication, dated July 20, 2026, was addressed to executive leadership across leading conventional and Islamic commercial banks, directing regional branches and operational units to immediately align their tax deduction mechanisms with recent statutory amendments introduced under the Finance Act, 2026.
The formal directive clarifies that legal amendments enacted within the Finance Act, 2026, have modified existing provisions of the Income Tax Ordinance, 2001. Under these updated legislative terms, income tax exemptions previously granted to residents and commercial entities operating within the erstwhile tribal regions have been officially withdrawn. Consequently, all income streams generated within these territorial jurisdictions are now subject to regular statutory taxation in full accordance with the applicable provisions governing the national income tax framework.
Tax authorities have explicitly outlined three specific operational instructions for banking institutions to ensure complete compliance across their branch networks. First, commercial banks are required to deduct withholding tax on profit on debt payments made to account holders residing in the erstwhile FATA and PATA territories, pursuant to Section 151 of the Income Tax Ordinance, 2001. This measure ensures that interest and profit distributions generated through banking deposits in regional branches are brought into the formal tax collection mechanism.
Second, the tax authority instructed financial institutions to apply withholding tax deductions on rent payments disbursed to landlords leasing property and premises to bank branches located within the erstwhile tribal areas, in accordance with Section 155 of the Income Tax Ordinance, 2001. Third, the directive mandates the deduction of withholding tax from salary disbursements made to bank employees stationed within these regions, as governed by Section 149 of the Income Tax Ordinance, 2001, effectively integrating payroll processing in these districts into standard national tax administration protocols.
The directive was issued under the signature of Deputy Commissioner Inland Revenue Muhammad Siddique, emphasizing that active cooperation from executive management across the financial sector is crucial to executing these structural tax changes. By establishing uniform withholding mechanisms across all geographic regions, tax authorities aim to broaden the national tax base, streamline revenue collection, and eliminate regional tax disparities across commercial banking channels nationwide.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.