You send an invoice to a big company or a government department. They pay you — but they hold back a portion of the sales tax. You did not expect this. This is called sales tax withholding (when the buyer keeps back part of the tax from your payment on behalf of the FBR). It is legal, it is common, and if you do not handle it correctly, it creates a cash flow problem you will not see coming.
Who Takes the Tax Out of Your Payment?
Government departments, large companies with sales above PKR 100 million, and SECP-registered corporations are all required to hold back a portion of sales tax when they pay you. The amount they hold back depends on your tax status. If your business is registered and active on the FBR Active Taxpayer List (ATL), they hold back less. If you are not registered or your status has lapsed, they hold back much more — sometimes the entire sales tax amount on the invoice.
Check the FBR ATL (the official list of registered taxpayers on the FBR website) at the start of every month. If your name is not on it, fix it immediately. Your buyer will check it before they pay you. An inactive status means they take more of your money and you have to chase a refund later — which can take months.
What Happens to the Tax That Was Held Back?
The buyer sends the held-back amount to the FBR by the 15th of the following month through the FBR IRIS portal. They are also supposed to give you a written certificate showing how much was held back. Keep that certificate. You will need it when you file your own sales tax return to claim it as tax already paid.
If your buyer does not give you this certificate, ask for it in writing. Without it, your accounts will not match the FBR records. Mismatches generate automatic notices under the Sales Tax Act that you must reply to within 15 working days. A missing certificate is one of the most common reasons suppliers get these notices.
Three Simple Habits to Avoid Problems
First, check every new buyer's ATL status before you sign a contract with them. Second, keep a simple spreadsheet of every invoice where tax was withheld — who held it, how much, and which month. Match this to your monthly sales tax return before you file. Third, save all withholding certificates in one folder — digital or paper — for at least five years.
If you find a mismatch between what was withheld and what you declared, reach out to our taxation services team right away. A small error caught before filing costs almost nothing to fix. The same error found during an FBR audit means a fine of PKR 10,000 or 5% of the tax, whichever is higher, plus interest. Stay on top of it monthly and it never becomes an emergency.
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