What happens to our IT export tax rate if the company is not PSEB-registered or its registration lapses, for example when the bank deducts 1% instead of 0.25%?

The difference between 0.25% and 1% on IT export proceeds is decided by one condition in the law: registration with the Pakistan Software Export Board (PSEB). If that condition is not met when the bank realises the proceeds, the Ordinance points to the higher rate.

What does the law say?

Section 154A(1) of the Income Tax Ordinance, 2001 requires every authorized dealer in foreign exchange to deduct tax from foreign exchange proceeds at the rates in Division IVA of Part III of the First Schedule. Clause (a) lists “exports of computer software or IT services or IT enabled services” and adds the words “where the exporter is registered with and duly certified by the Pakistan Software Export Board (PSEB).”

That wording was put in by the Finance Act, 2022. It replaced the earlier expression “in case tax credit under section 65F is not available”, as recorded in the footnotes to the section.

Division IVA, as amended up to 30 June 2026, has two rows:

S. No.	Type of receipt	Rate of tax
1	Export proceeds of computer software or IT services or IT enabled services by persons registered with Pakistan Software Export Board	0.25% of proceeds for tax years 2024 up to tax year 2029
2	Any other case	1% of proceeds

An IT exporter that is not registered with PSEB does not fit row 1. Row 2, “any other case”, applies 1% of proceeds. Section 154A(1) does not say in terms which clause then covers an unregistered IT exporter. Clause (b) covers “services or technical services rendered outside Pakistan or exported from Pakistan”, and row 2 is the only rate the table gives for anything outside row 1.

How does it work in practice?

The rate is applied at the moment of realisation. If a Faisalabad software house’s registration has lapsed, or its application is still pending, when a client’s payment is realised, the proceeds do not meet the row 1 description at that time. The Ordinance contains no grace period and no provision for registration obtained later to reach back to earlier proceeds.

The Ordinance is also silent on how an authorized dealer checks PSEB status. Section 154A(5) says the Board, in consultation with the State Bank of Pakistan, shall prescribe the mode, manner and procedure of payment. Those instructions are not part of this corpus.

Worked example (illustrative figures)

Chenab Softworks (Pvt) Ltd in Multan realises export proceeds of Rs. 18,000,000 in tax year 2027. Its PSEB registration lapsed on 31 October and was renewed on 15 January. Rs. 6,000,000 of the proceeds was realised between those dates, and Rs. 12,000,000 while it was registered.

1. Proceeds realised while registered: Rs. 12,000,000 x 0.25% = Rs. 30,000.
2. Proceeds realised during the gap: Rs. 6,000,000 x 1% = Rs. 60,000.
3. Total deducted for the year: Rs. 30,000 + Rs. 60,000 = Rs. 90,000.
4. Had it been registered all year: Rs. 18,000,000 x 0.25% = Rs. 45,000.
5. Cost of the gap: Rs. 90,000 - Rs. 45,000 = Rs. 45,000.

This assumes each deduction was made at the rate matching the company’s status on the day of realisation.

What if the bank deducted 1% while we were registered?

If the company was registered with and certified by PSEB at the time, the rate properly deductible was 0.25%, so part of the deduction was more than the law required. Section 170(1) allows a taxpayer who has paid tax in excess of the amount properly chargeable to apply to the Commissioner for a refund. Under section 170(2), the application must be in the prescribed form and made within three years of the later of the assessment order date or the date the tax was paid.

Where the tax is final, section 169(2)(e) says there shall be no refund of the tax collected or deducted, unless it is in excess of the amount for which the taxpayer is chargeable. Excess deduction beyond the correct rate is that kind of excess. The Ordinance does not describe any separate procedure for the bank itself to reverse a deduction.

What if we were not registered at all?

Then 1% is the rate the Ordinance specifies, and there is no excess to refund. Registering later changes the rate only for proceeds realised after the exporter meets the row 1 description.

Common mistakes

• Treating the 0.75% gap as automatically refundable. A refund under section 170 needs tax paid in excess of the amount properly chargeable. A correct 1% deduction is not an excess.
• Assuming the 1% case cannot be final. Section 154A(2) applies to tax deductible under the section generally. The difference is that exporters outside clause (a) must also meet the sales tax return condition in section 154A(2)(c), where a sales tax return is required.
• Assuming a PSEB application is enough. The clause says “registered with and duly certified by” PSEB. The Ordinance does not treat a pending application as registration.

What to check in the official text

Read section 154A(1)(a), (2) and (5) and the Division IVA table in the official PDF of the Ordinance amended up to 30 June 2026. Read section 170 for the refund timeline and section 169(2)(e) for the limit on refunds of final tax. PSEB’s own registration and certification rules are outside this corpus.