How much tax is deducted from export proceeds under section 154, and is it final, minimum or adjustable?

What does the law say?

Section 154 of the Income Tax Ordinance, 2001 is the withholding section for exports of goods. It names the person who must deduct or collect the tax at each point in the export chain, and sends every one of them to the same rate table: Division IV of Part III of the First Schedule.

Clause (1) of that Division, in the edition amended to 30 June 2026, reads that the rate of tax to be deducted under sub-sections (1), (3), (3A), (3B) or (3C) of section 154 “shall be 1.25% of the proceeds of the export.” A footnote records that the Finance Act, 2026 substituted “1.25%” for “1%”. Because the Ordinance is amended to 30 June 2026, this is the rate for tax year 2027, covering 1 July 2026 to 30 June 2027.

Who deducts the tax, and when?

Sub-section	Who deducts or collects	When
154(1)	Authorised dealer in foreign exchange (the bank)	On realisation of foreign exchange proceeds from an exporter’s export of goods
154(3)	Banking company	On realisation of proceeds from a sale of goods to an exporter under an inland back-to-back letter of credit or other arrangement prescribed by the Board
154(3A)	Export Processing Zone Authority	At the time of export by an industrial undertaking located in a zone
154(3B)	Direct exporter or export house registered under the DTRE rules or the Export Facilitation Scheme, 2021	When paying an indirect exporter for a firm contract
154(3C)	Collector of Customs	At clearance of goods exported, on the gross value of the goods

Sub-section (1) says the bank deducts tax “including advance tax” from the proceeds. Sub-section (2), which once covered indenting commission agents, was omitted by the Finance Act, 2022.

Section 154 lists both the bank at realisation and customs at clearance as collection points. The section does not itself explain how the two interact for the same shipment, and this page does not fill that gap.

Is it final, minimum or adjustable?

Section 154(4) says the tax deductible under the section “shall be a minimum tax on the income arising from the transactions referred to in this section”. The footnotes show the history: the word “final” was replaced by “minimum” by the Finance Act, 2024. The same Act removed “sub-section (4) of section 154” from clause (b) of section 169(1), the list of taxes treated as final.

This matters because section 169(2) is what takes final-tax income out of the normal computation: under it, the income “shall not be chargeable to tax under any head of income”. With section 154 no longer on that list, export income is no longer kept outside the normal computation by section 169. Section 154(4) calls the deduction a minimum tax on that income. Section 154 does not spell out the step-by-step mechanics of how the minimum is compared with the tax worked out on the return, so check that point against the current return and the Ordinance as a whole.

What happened to the extra 1% under section 147(6C)?

The Finance Act, 2024 inserted sub-section (6C) into section 147. It required the persons named in sub-sections (1), (3), (3A), (3B) and (3C) of section 154 to deduct or collect “advance income tax under this section at the rate of one percent of such foreign exchange proceeds, or export proceeds, or exports, or payment, in addition to tax collectable or deductible under section 154 of this Ordinance.”

A footnote in the edition amended to 30 June 2026 records that sub-section (6C) was omitted by the Finance Act, 2026. From tax year 2027 the only rate that applies under section 154 is the 1.25% in Division IV.

Worked example (illustrative figures)

Bilal runs a sports goods business in Sialkot. The amounts below are invented; the rate is the one in Division IV for tax year 2027.

1. A shipment brings export proceeds of Rs. 20,000,000 into his bank account.
2. Tax under section 154(1): Rs. 20,000,000 x 1.25% = Rs. 250,000.
3. Bilal also buys stitched balls from a small indirect exporter in Sialkot under a firm contract and pays Rs. 4,000,000. Under section 154(3B), as a direct exporter registered under the Export Facilitation Scheme, he deducts Rs. 4,000,000 x 1.25% = Rs. 50,000 from that payment.
4. For comparison only: under the text that included section 147(6C), the same Rs. 20,000,000 would have borne 1% under section 154 (Rs. 200,000) plus 1% under section 147(6C) (Rs. 200,000), a total of Rs. 400,000. In tax year 2027 the section 147(6C) amount no longer applies.

What if you export services, not goods?

Section 154 covers goods. Section 154A deals with exports of services, such as computer software and IT enabled services, with its own rates in Division IVA of Part III. Those rates are not covered on this page.

Common mistakes

• Treating the deduction as final tax. Section 154(4) now says minimum, and section 169 no longer lists section 154(4) as final.
• Using the old 1% rate. The Finance Act, 2026 replaced it with 1.25% in Division IV.
• Still budgeting for the extra 1% advance tax. Section 147(6C) was omitted by the Finance Act, 2026.
• Thinking only the exporter bears it. Under section 154(3) and (3B), a supplier to an exporter also has tax deducted from payments it receives.

What to check in the official text

Read section 154 and its footnotes in the Ordinance as amended to 30 June 2026, and clause (1) of Division IV of Part III of the First Schedule for the rate. The footnotes to section 147 carry the full text of the omitted sub-section (6C). Section 169 shows which withholding taxes remain final. If your exports are services, read section 154A and Division IVA instead.