KARACHI: The Pakistan Advertising Association has urged the government to undertake urgent rationalisation of the taxation framework applicable to the advertising industry in its budget proposals for FY2026-27.
In a submission to the Federal Board of Revenue (FBR), the association said the current withholding tax structure has imposed an excessive and unsustainable burden on a fully documented and compliant sector, affecting liquidity, operational viability and growth prospects.
Ahmed Hussain Kapadia, chairperson of the Pakistan Advertising Association, said advertising agencies play a central role in driving brand growth, media revenues and consumer markets. “We want to be a partner in Pakistan’s documentation drive, not a burden on it,” he said. “We are not asking for exemptions or special treatment. We are asking for a tax framework that reflects commercial reality, where the tax paid bears a rational relationship to the income actually earned by advertising agencies. The proposals are constructive, evidence-based and in the long-term interest of sustainable revenue generation.”
The association said the current framework effectively results in disproportionate taxation on gross receipts rather than actual income, while also creating compliance burdens and frequent disputes for the industry.
It highlighted several structural anomalies in its proposals. Withholding tax on commission income is currently applied on gross invoice values inclusive of sales tax. In the absence of a refund mechanism, cumulative deductions often exceed the applicable corporate tax rate of 29 per cent on net income, resulting in what it described as irreversible over-taxation of compliant agencies.
The association also pointed to the absence of a statutory definition of “advertising services” in the Income Tax Ordinance 2001, which it said has led withholding agents to misclassify services under unrelated categories, resulting in deductions at 15 per cent instead of the applicable 6.0 per cent.
Among its proposals, the association recommended reducing withholding tax on commission income from 10 per cent to 5.0 per cent, and on service income from 6.0 per cent to 3.0 per cent. It also called for exclusion of sales tax from withholding tax calculations to address the “tax-on-tax” issue, introduction of a clear statutory definition of advertising services, and reforms to ease liquidity constraints arising from extended credit cycles.
According to the association, implementation of these measures would strengthen tax documentation and administration, improve voluntary compliance, reduce litigation and enable the advertising sector to continue contributing to economic activity, employment generation and revenue growth.
