(1)   Any person responsible for paying any income chargeable under the head "Salary" shall, at the time of payment, deduct tax on the amount payable at the average rate of tax computed at the rates specified in the First Schedule on the estimated income of the assessee under this head for the financial year in which the payment is made after making such adjustment, as may be necessary, for any excess deduction or deficiency arising out of any previous deduction or failure to make such deduction during the said financial year.

(2)   Any person responsible for paying any income chargeable under the head "Interest on securities" shall, except in cases to which clause (a) of sub-section (2) of section 17 applies, deduct, at the time of payment, tax at the rates specified in the First Schedule:

Provided that tax under this sub-section shall be deducted from the said income as reduced by the amount of Zakat, if any, payable thereon under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980):

Provided further that, where the Deputy Commissioner gives a certificate in writing (which certificate he shall give in every proper case on the application of the assessee) that to the best of his belief the assessee shall not be liable to pay any tax under this Ordinance or shall be liable to pay tax at a rate which is less than the rate specified in the First Schedule, the person responsible for paying any income referred to in this sub-section shall, until such certificate is cancelled by the Deputy Commissioner, pay the amount involved without deduction or deduct the tax at such less rate, as the case may be.

(2A) Any person responsible for paying any sum by way of interest or profit on, an account or deposit maintained with any banking company, or any financial institutions shall deduct, at the time of credit of such interest or profit to the account of the recipient or at the time of payment thereof, whichever is earlier, tax at the rates specified in the First Schedule:

Provided further that nothing contained in this sub-section shall apply to any sum paid or credited before the first day of July, 1989.

(2B) Any person responsible for clearing an outstation cheque for an amount exceeding twenty-five thousand rupees or issuing a demand draft or pay order or special deposit receipt or cash deposit receipts or rupee travellers’ cheques or effecting a telegraphic or electronic transfer of funds shall collect tax from the drawer of such cheque, draft, pay order, receipt or, as the case may be, transfer of funds at the rates specified in the First Schedule; and the credit for the tax collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the person from whom tax has been collected, for the assessment year commencing on the first day of July next following the said financial year, and in the case of an assessee to whom section 72 or section 81 applies, the assessment year as reckoned in accordance with these provisions:

Provided that the provisions of this sub-section shall not apply to the payments made by the Federal Government and Provincial Governments, statutory bodies, universities, approved charitable institutions, industrial undertakings and institutions exempt under the Second Schedule, listed public limited companies, foreign diplomats and foreign diplomatic missions in Pakistan, the intra-company financial transactions and the payments in respect of which the drawer furnishes a statement to the bank in the prescribed manner providing particulars of payment, including the name and address of payer and payee, the national identity card number, national tax number, the amount and purpose of payment and nature of instrument.

(3)   Any person responsible for paying to a non-resident any sum chargeable under the provisions of this Ordinance (other than income to which sub-section (1) or sub-section (2) or sub-section (2A) or sub-section (3A) or sub-section (4) or sub-section (4A) or sub-section (6A) or sub-section (7A) or sub-section (7C) or sub-section (7D) applies) shall, unless such person is himself liable to pay tax thereon as an agent, deduct, at the time of payment, tax at the rates specified in the First Schedule:

Provided that where the Deputy Commissioner gives a certificate in writing (which certificate he shall give in every proper case on the application of the assessee) that to the best of his knowledge and belief, the assessee shall not be liable to pay any tax under this Ordinance or shall be liable to pay tax at a rate which is less than the rate specified in the First Schedule, the person responsible for paying any income referred to in this sub-section to such recipient shall, until such certificate is cancelled by the Deputy Commissioner, pay the amount involved without deduction or deduct the tax at such less rate, as the case may be:

Provided that nothing contained in this sub-section shall apply to any payment made to a branch in Pakistan of a non-resident banking or insurance company.

(3.1) Where a person claims to be an agent of a non-resident he shall, before making any payment to such non-resident, file a declaration to that effect with the concerned Deputy Commissioner.

(3.2) Where a person intends not to deduct tax from any payment other than --

(i)     payment on account of imports of goods where title of ownership is transferred outside Pakistan; or

(ii)    payment on account of educational and medical expenses remitted in accordance with the regulations of State Bank of Pakistan, for the reason that it is not chargeable to tax under this Ordinance,

He shall furnish the particulars of such non-resident and the nature and quantum of such payment to the Deputy Commissioner at the time of making the payment.

(3.3) Notwithstanding anything contained in sub-section (3.2), the Deputy Commissioner may, where he has reason to believe that the payment is chargeable to tax under this Ordinance, direct the person making the payment to deduct tax from such payment at the rates specified in the First Schedule or such lower rate as he may by an order in writing, specify.

(3A) Any person responsible for paying to a non-resident any sum by way of fees for technical services shall, unless such person is himself liable to pay tax thereon as an agent, deduct, at the time of payment, tax at the rate specified in the First Schedule:

Provided that, where on an application of an assessee the Deputy Commissioner gives a certificate in writing that the assessee is liable to pay tax under any treaty or convention for avoidance of double taxation, entered into between the Government of Pakistan and the country of residence of the assessee, at a rate which is lower than the rate specified in the First Schedule, the person responsible for paying any sum as fees for technical services to such assessee shall, until such certificate is cancelled by the Deputy Commissioner, deduct tax at such lower rate.

(4)   Notwithstanding anything contained in this Ordinance, -

(a)    any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person, being residents, (hereinafter referred to respectively as "payer" and "recipient"), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or a company, or a registered firm, or any foreign contractor or consultant or consortium shall,  deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year if any, in which the "said date", as referred to therein, falls, whichever is the later :

Provided that the provisions of this clause shall apply, mutatis mutandis, to any payment made on or after the first day of July, 1998, to a non-resident person on account of execution of a turnkey contract, a contract or sub-contract for designing, supply of plant and equipment and construction of power projects, a contract for construction, assembly or like project in Pakistan or any other contract for construction or for services rendered other than that to which the provisions of sub-sections (3A) and (4A) apply.

Explanation. - For the purposes of clause (a) the expression "supply of goods" includes both cash and credit purchases of goods by the payer, whether under a contract or not, on credit, or in cash.

(b)    the Commissioner may, on an application made by any such recipient and after making such enquiry as he thinks fit, allow, by an order in writing, any person responsible for making such payment not to deduct any tax from any payment or payments made to such recipient in any financial year; and where such order is made, the person responsible for making any payment shall thereafter, and until such order is cancelled, make such payment without deduction of tax under clause (a); and

Provided that-

(i)     nothing contained in clause (a) or clause (b) shall apply to any payment made on account of the refund of any security deposit or to the purchase of an asset under a lease and buy back agreement by a modaraba or a leasing company; and

(ii)    nothing contained in sub-section (10) shall apply to companies as payers.

(4A) Any person responsible for making any payment in full or in part (including a payment by way of advance) to any person, on account of brokerage or commission on behalf of the Government, a local authority, a company, a registered firm or foreign contractor or consortium shall deduct tax, at the time of making such payment, at the rate specified in the First Schedule:

Provided that where any person receives payment on behalf of his principal and remits it after deducting his commission such commission shall be deemed to have been paid to him and the tax shall be collected by such principal.

(5)   Notwithstanding anything contained in any law for the time being in force,

(a)    the Collector of Customs shall, in the case of every importer of goods, collect advance tax computed, on the basis of the value of such goods as increased by the customs duty and sales-tax, if any, levied thereon, at the rates specified in the First Schedule, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, in which the "said date", as referred to therein, falls whichever is the later;

(b)    the tax under clause (a) shall be collected in the same manner and at the same time as the customs duty, as if such goods (even though exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (IV of 1969) shall, so far as may be, apply accordingly;

Provided that in the case of a manufacturer importing raw materials, other than edible oils, exclusively for its own use, the Regional Commissioner of Income Tax may certify reduction of the rate of collection upto one hundred percent, if the aggregate of tax paid or collected during that year equals the amount of tax paid by such assessee in the immediately preceding year and the certificate is not issued during the first year of assessee’s business:

Provided further that the provisions of this sub-section shall not apply to-

(i)     any person re-importing re-usable containers for re-export qualifying for customs and sales tax exemption on temporary import under Customs Notification SRO 344(I)/95, dated the 25th April, 1995; or

(ii)    any person importing the following petroleum products, namely :-

"Motor Spirit (MS), Furnace Oil (FO), JP-1 and MTBE."

Provided also that if at any stage it is known that the provisions of this proviso have been misused, such person shall be treated as an assessee in default in respect of such tax and be treated accordingly.

Explanation. – As used in this sub-section,-

(i)     "value", in relation to any goods, means the value as determined under section 25 of the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty; and

(ii)    "Collector of Customs" means a person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969) and includes a Deputy Collector of Customs, an Assistant Collector of Customs or an officer of Customs appointed as such under the aforesaid section.

(5A) Any person, being an authorised dealer in foreign exchange, shall at the time of realisation of foreign exchange proceeds on account of export of goods by a person, being an exporter or on account of commission due to, an indenting commission agent, deduct tax at the rates specified in the First Schedule:

(5AA) Every banking company shall at the time of realization of proceeds on account of supply of goods to an exporter under an inland back to back letter of credit, deduct tax at the rates specified in the First Schedule.

(5AAA) Notwithstanding anything contained in this Ordinance or in any other law for the time being in force, --

(a)    the Collector of Customs, in the case of every importer of wheat, who opened a letter of credit before the nineteenth day of May, 1999 other than a person who filed a bill of entry before the said date, shall, in addition to the tax collectable under sub-section (5), collect tax equal to ninety per cent of the amount of difference in the exchange rate prevailing at the close of banking hours on the said day as notified by the National Bank of Pakistan for selling T.T. and O.D., and the rate at which payment in foreign exchange was made or foreign exchange was booked, as the case may be; and

(b)    the tax under clause (a) shall be collected in the same manner and at the same time as the customs duty as if such goods (even though exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (IV of 1969), shall, so far as may be, apply accordingly. The provisions of this sub-section shall take effect from the 12th day of June, 1999.

(5B) On encashment of any bearer certificate (whether in Pakistan rupee or foreign currency) purchased on or after the 15th day of June, 1995, issued by or on behalf of the Government, banking company, financial institution or any company referred to in sub-clause (a) or sub-clause (b) of clause (16) of section 2, any local authority or any finance society, any person responsible for encashment of such certificate shall deduct advance tax, at the time of encashment of such certificate, at the rate specified in the First Schedule.

(6)   Any person responsible for the collection of motor vehicles tax shall, at the time of collecting the said tax, collect income tax at the rates specified in the First Schedule in respect of any transport vehicle:

Provided that where the motor vehicle tax is collected instalments, income tax may also be collected in like manner.

Provided further that the collection of tax in respect of passenger transport vehicles with registered seating capacity of not less than ten persons shall be made for a period of ten years commencing with the first day of July of the year of make of such vehicles.

(6A) The principal officer of a company shall, at the time of making payment to a shareholder, not being a company, on account of dividends, deduct tax at the rate specified in the First Schedule.

(7)   The principal officer of any domestic company shall, before the company issues bonus shares or bonus to its shareholders, pay to the credit of the Federal Government the tax at the rates specified in the First Schedule; and where the principal officer fails to do so the company of which he is the principal officer, shall, without prejudice to any other liability which it may incur under this Ordinance, be deemed to be an assessee in default in respect of the said tax:

Provided that the tax payable in respect of bonus shares or bonus, as the case may be, may be recovered from the shareholder receiving such bonus or bonus shares, if it cannot be recovered from the company and all the provisions of this Ordinance shall, so far as may be, apply accordingly.

(7A) Any person making sale, by public auction, of any property,  belonging to the Government, a local authority, a public, company, a foreign association declared to be a company under clause (16) of section 2, or a foreign contractor or consultant or consortium shall collect advance tax, computed on the basis of sales price of such property and at the rate specified in the First Schedule, from any person to whom such property is sold, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the person purchasing such property for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date" as referred to therein, falls, whichever is the later.

Explanation:-For the purposes of this sub-section, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect octroi duties, tolls, fees or other levies, by whatever name called

(7B) Any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person, on account of the rent of house property (including rent of furniture, fixtures and services, if any) on behalf of Government, a local authority, a company, a non-government charitable institution, a private educational institution, a hospital, a clinic or a maternity home, or the diplomatic mission of a foreign state shall, where the annual rent of such property exceeds one hundred thousand rupees, deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year, if any, in which the "said date", as referred to therein, falls, whichever is the later:

(7BB) (a) At the time of approving any building plan for construction in respect of any building, not being a residential house, the person responsible for such approval, shall collect advance tax from the owner of such property on the estimated cost of construction of such building at one-half of the rates specified in the First Schedule, and the credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such owner for the assessment year commencing on the first day of July next following such financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year in which the "said date" as referred to therein, falls, whichever is the later; and

(b)    at the time of issuing completion certificate for the building referred to in clause (a), the person responsible for issuance of such certificate shall collect advance tax from the owner of such property on the estimated cost of construction of such building at one half of the rates specified in the First Schedule, and the credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the owner of the building for the assessment year commencing on the first day of July next following such financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year in which the "said date" as referred to therein, falls, whichever is the later:

Provided that the Central Board of Revenue may, by notification in the official Gazette, specify,-

(ii)    the method for the determination of the "estimated cost of construction.

(7C) Any person responsible for making any payment to any person (hereinafter called the ‘recipient’) by way of a prize on prize bond or on account of winnings from a raffle, lottery or crossword puzzle shall deduct from the said payment (in case the payment is made in cash) or collect from the recipient ( in case the payment is made in any other form) advance tax at the time of such payment at the rate specified in the First Schedule.

(7D) Any person responsible for making any payment by way of profit or interest on bonds, certificates, debentures, securities or instruments of any kind issued by any banking company, or any company referred to in sub-clause (a) or sub-clause (b) of clause (16) of section 2, or any local authority, or any finance society, not being a payment to which sub-section (2) of section 50 applies, shall deduct, advance tax, at the time of making such payment, at the rate specified in the First Schedule:

Provided that where the Deputy Commissioner gives a certificate in writing (which certificate he shall give in every proper case for a period of three years on the application of a recognised provident fund) that to the best of his knowledge and belief, it shall not be liable to pay any tax under this Ordinance or shall be liable to pay tax at a rate which is less than the rate specified in the First Schedule, the person responsible for paying any income referred to in this sub-section to such recognised provident fund shall, until such certificate is cancelled by the Deputy Commissioner, pay the amount involved without deduction or deduct tax at such less rate, as the case may be.

(7E) At the time of preparing electricity consumption bills in respect of any commercial or industrial consumer, the person responsible for preparing such bills, shall charge tax on the amount of the electricity bill at the rates specified in the First Schedule, and the credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such consumer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year in which the "said date" as referred to therein falls, whichever is the later.

(7F) At the time of preparing telephone bills or issuing or selling prepaid telephone cards for mobile telephones, the person responsible for preparing such bills or issuing or selling such prepaid telephone cards shall charge tax on the amount of such bill or card, as the case may be at the rates specified in the First Schedule, and the credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such subscriber for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year in which the "said date" as referred to therein falls, whichever is the later:

Provided that nothing contained in this subsection shall apply where the Government or a diplomat is the subscriber.

(7G) At the time of preparing gas consumption bill in respect of any commercial or industrial consumer, the person responsible for preparing such bill, shall charge tax on the amount of the gas bill at the rates specified in the First Schedule, and the credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such consumer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessment year in which the "said date" as referred to therein falls, whichever is the later.

(7H) Every person, at the time of making sale of petroleum products to a petrol pump operator, shall collect tax on the amount of commission or discount allowed to such operator at the rate specified in the First Schedule.

(8)   Any sum deducted or collected, or purported to be deducted or collected, under this section shall be-

(a)    deemed, in cases to which sub-sections (1), (2) and (3) apply, to be income received by the assessee;

(b)    treated as payment of tax on behalf of the assessee; and

(c)    paid within the prescribed time and in the prescribed manner by the person making the deduction or collection, as the case may be, to the credit of the Federal Government.

(9)   For the purpose of this section,-

(a)    "person responsible" means the prescribed person and includes,-

(i)     in the case of a company, local authority or an association of persons, the principal officer thereof, and

(ii)    in every other case, the payer himself, and

(b)    any sum from which tax is deductible under this section shall be deemed to be income chargeable to tax under this Ordinance.

(10) Notwithstanding the omission of the first proviso to Sub-section (2A), clause (c) of sub-section (4), and the provisos to sub-section (4A), sub-section (5), sub-section (5A), sub-section (6A), sub-section (7B) and sub-section (7BB), and substitution of the proviso to sub-section (4), under the Finance Act, 1994 (XII of 1994), and without prejudice to the provisions of section 6 or section 24 of the General Clauses Act, 1897 (X of 1897), all the notifications issued under the aforesaid provisions till the 30th day of June, 1994, shall be deemed to have been validly made and continue to remain in force until specifically repealed or amended.