What Payroll Taxes Must I Withhold in Pakistan? Complete Guide 2026
Last updated: June 2026 | Reading time: 9 minutes | By: Arshad Associates – Tax & Payroll Compliance Experts
📊 Struggling with payroll tax calculations and compliance? Arshad Associates provides end-to-end payroll management and tax withholding services.
Free initial consultation – ensure your payroll is fully compliant.💰 Income Tax Withholding (PAYE) – Section 149
Under Section 149 of the Income Tax Ordinance 2001, every employer in Pakistan is legally obligated to withhold income tax from employees' salaries under the Pay As You Earn (PAYE) system[reference:0][reference:1]. The tax is calculated on the employee's estimated annual taxable income and divided equally across 12 monthly installments[reference:2].
🔑 Key Points:
- Tax is withheld monthly at the time of salary payment[reference:3].
- The system is adjustable – final tax liability is determined when the employee files their annual return[reference:4].
- Employers must remit withheld tax to FBR by the 15th of the following month[reference:5][reference:6].
- Annual withholding statements must be submitted to FBR by June 30th each year[reference:7][reference:8].
📊 2026 Income Tax Slabs for Salaried Individuals
Pakistan uses a progressive tax system – higher income earners pay higher rates[reference:9]. The following slabs apply for the 2025-26 tax year (effective July 1, 2025)[reference:10]:
| Annual Taxable Income (PKR) | Tax Rate | Calculation Method |
|---|---|---|
| Up to 600,000 | 0% | No tax |
| 600,001 – 1,200,000 | 1% | 1% of amount exceeding PKR 600,000[reference:11][reference:12] |
| 1,200,001 – 2,200,000 | 11% | PKR 6,000 + 11% of amount exceeding PKR 1,200,000[reference:13][reference:14] |
| 2,200,001 – 3,200,000 | 23% | PKR 116,000 + 23% of amount exceeding PKR 2,200,000[reference:15][reference:16] |
| 3,200,001 – 4,100,000 | 30% | PKR 346,000 + 30% of amount exceeding PKR 3,200,000[reference:17][reference:18] |
| Above 4,100,000 | 35% | PKR 616,000 + 35% of amount exceeding PKR 4,100,000[reference:19][reference:20] |
⚠️ Additional Surcharge: If annual taxable income exceeds PKR 10,000,000, an additional 9% surcharge is imposed on the income tax calculated[reference:21][reference:22].
💡 Note: Budget 2026-27 proposals may revise these slabs. Always verify with FBR's latest notifications[reference:23][reference:24].
📝 How to Calculate Monthly Withholding Tax
Example: Employee with annual taxable salary of PKR 2,500,000
- Slab: PKR 2,200,001 – 3,200,000 → 23% bracket
- Base tax: PKR 116,000
- Excess amount: PKR 2,500,000 – PKR 2,200,000 = PKR 300,000
- Tax on excess: PKR 300,000 × 23% = PKR 69,000
- Annual tax: PKR 116,000 + PKR 69,000 = PKR 185,000
- Monthly withholding: PKR 185,000 ÷ 12 = PKR 15,417 per month[reference:25]
🏛️ Employees' Old-Age Benefits Institution (EOBI)
EOBI is a federal institution providing pension benefits to employees[reference:26]. All organizations employing five or more workers in the industrial or commercial sector must register with EOBI[reference:27].
| Contribution Type | Rate | Base |
|---|---|---|
| Employer Contribution | 5% | Minimum wage (currently PKR 40,000)[reference:28][reference:29] |
| Employee Contribution | 1% | Minimum wage (currently PKR 40,000)[reference:30][reference:31] |
⚠️ Important: EOBI contributions are calculated on the minimum wage (PKR 40,000), not the actual salary if it is higher[reference:32].
Example: For an employee earning PKR 100,000/month:
Employer: PKR 40,000 × 5% = PKR 2,000
Employee: PKR 40,000 × 1% = PKR 400
🏥 Provincial Social Security (PESSI/SESSI/etc.)
Provincial social security institutions provide healthcare and other benefits to employees[reference:33]. Contributions vary by province and apply to employees earning below certain wage thresholds.
| Province | Employer Rate | Wage Ceiling | Employee Rate |
|---|---|---|---|
| Sindh (SESSI) | 6% | PKR 37,000/month[reference:34] | 0% |
| Punjab (PESSI) | 6% | PKR 1,000/day[reference:35] | 0% |
| Other Provinces | Varies | Check local authority | 0% |
💡 Example (Sindh): For an employee earning PKR 35,000/month (below PKR 37,000 ceiling):
Employer: PKR 35,000 × 6% = PKR 2,100 per month[reference:36]
Note: Provincial rates and thresholds may change. Always verify with the relevant provincial authority (PESSI, SESSI, etc.)[reference:37].
🏭 Workers' Welfare Fund (WWF) & Workers' Participation Fund (WPPF)
These are employer-only contributions based on company profitability, not employee salaries.
Workers' Welfare Fund (WWF)
Rate: 2% of total income (if total income exceeds PKR 500,000)[reference:38][reference:39]
Applicability: Industrial establishments meeting the income threshold[reference:40]
Workers' Participation Fund (WPPF)
Rate: 5% of net profits[reference:41][reference:42]
Applicability: Companies meeting certain capital/asset thresholds[reference:43]
📅 Payroll Compliance Calendar & Deadlines
| Obligation | Frequency | Deadline | Authority |
|---|---|---|---|
| Income Tax Withholding (PAYE) – remittance | Monthly | 15th of following month[reference:44][reference:45] | FBR |
| EOBI Contribution | Monthly | 15th of following month[reference:46] | EOBI |
| Provincial Social Security | Monthly | 15th of following month[reference:47] | PESSI/SESSI/etc. |
| Annual Withholding Statement | Annual | June 30th[reference:48][reference:49] | FBR |
| Corporate Income Tax Return | Annual | December 31st[reference:50] | FBR |
🧮 Complete Payroll Tax Calculation Example
Scenario: Company in Sindh, employee with monthly salary PKR 150,000 (annual PKR 1,800,000).
| Tax/Contribution | Rate | Calculation | Amount (PKR) |
|---|---|---|---|
| Income Tax (PAYE) | Slab 3 (11%) | PKR 6,000 + 11% × (1,800,000 – 1,200,000) = PKR 6,000 + 66,000 | 72,000 annual / 6,000 monthly |
| EOBI – Employee | 1% of min wage | PKR 40,000 × 1% | 400 |
| EOBI – Employer | 5% of min wage | PKR 40,000 × 5% | 2,000 |
| Social Security (SESSI) – Employer | 6% of wages | PKR 37,000 × 6% (capped at ceiling) | 2,220 |
| Total Employee Deduction | Income Tax + EOBI Employee | 6,400 | |
| Total Employer Cost (additional) | EOBI Employer + Social Security | 4,220 |
Net salary to employee: PKR 150,000 – PKR 6,400 = PKR 143,600
Total employer cost: PKR 150,000 + PKR 4,220 = PKR 154,220
⚠️ Penalties for Non-Compliance
- Late remittance of withholding tax: Default surcharge under Section 205 of the Income Tax Ordinance[reference:51].
- Non-registration with EOBI: Legal prosecution and penalties[reference:52].
- Late EOBI deposits: Penalties and interest charges[reference:53].
- Failure to file annual withholding statements: FBR penalties and audit flags[reference:54].
- Incorrect withholding: Back-taxes, penalties, and reputational damage[reference:55].
❓ Frequently Asked Questions (FAQs)
📞 Let Arshad Associates Handle Your Payroll Tax Compliance
Payroll tax management in Pakistan involves multiple authorities – FBR, EOBI, and provincial social security institutions[reference:63]. Arshad Associates provides comprehensive payroll services including:
- Monthly income tax withholding calculation and remittance
- EOBI registration and monthly contribution filing
- Provincial social security compliance (PESSI/SESSI)
- Annual withholding statements and returns
- Payroll audit support and compliance advisory
📚 Further reading:
✅ Ensure your payroll is 100% compliant. Let Arshad Associates handle your payroll tax withholding and filings.
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