Government Proposes 5% Withholding Tax on Social Media Earnings in Budget 2026

The Finance Bill 2026 has proposed a major change in the taxation of Pakistan’s growing digital economy by introducing a new withholding tax regime on income earned through social media platforms.

The proposed amendment seeks to insert Section 154B into the Income Tax Ordinance, 2001, bringing revenues generated by digital content creators and social media influencers within a formal tax deduction framework.

According to tax expert M. Amayed Ashfaq Tola, President of Tola Associates, the proposed provision requires all banking and non-banking financial institutions to deduct tax at the time of credit or receipt of payments generated through social media platforms.

Finance Bill 2026 Proposes 5% Withholding Tax on Social Media Earnings

The measure applies to individuals and entities earning income from content monetisation on platforms such as YouTube, Facebook, Instagram, TikTok and other similar digital platforms. The definition of “payment” under the proposed law has been drafted broadly to include inward remittances, transfers and credits received through banking channels, including payments routed via online payment service providers and digital financial intermediaries.

Tola explained that the provision effectively brings the entire digital content monetisation ecosystem into the withholding tax net regardless of the method through which earnings are received.

A key feature of the proposed Section 154B is the distinction between resident and non-resident taxpayers. For resident persons, the tax deducted at source will be treated as minimum tax, while for non-resident persons without a permanent establishment in Pakistan, the deduction will constitute final tax liability.

Under Division IIIAB of the proposed law, a tax rate of 5 percent will be deducted from payments made to resident persons appearing on the Active Taxpayers’ List (ATL). The same 5 percent rate will apply to non-resident persons; however, the tax deducted from non-residents will be treated as final tax.

The Federal Board of Revenue (FBR) has also been empowered to issue rules and implementation guidelines through notifications in the official gazette, including mechanisms for taxpayer identification, reporting and compliance monitoring.

The proposed legislation comes against the backdrop of earlier draft amendments issued through SRO 545(I)/2026 and SRO 546(I)/2026, which sought to establish a more detailed taxation framework for social media income.

Under those draft rules, the FBR proposed a Revenue Per Mille (RPM) model for YouTube earnings, fixing revenue at Rs195 per 1,000 views. The framework also introduced thresholds of 50,000 annual subscribers or 12,250 quarterly subscribers to determine whether digital activity constituted a systematic and continuous business.

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The draft amendments proposed a two-stage income calculation method. Total remuneration would have been determined as the higher of either RPM-based revenue calculations or actual receipts received in cash or kind. Taxable income would then have been calculated after allowing deductions for expenses, capped at 30 percent of total revenue.

The draft framework also contemplated quarterly advance tax payments and mandatory disclosures through a dedicated section of the income tax return.

However, Tola noted that the draft SROs have not yet been formally incorporated into the Income Tax Rules, 2002, leaving their legal status uncertain.

He further observed that while the earlier draft rules were based on estimated earnings derived from RPM calculations, the newly proposed Section 154B relies on actual revenue receipts. As a result, questions remain regarding the treatment of advance tax obligations proposed under Rules 13ZL and 19O of the draft amendments, particularly given that the new withholding tax is proposed as minimum tax for residents and final tax for non-residents.

The proposed changes signal the government’s intent to increase documentation and tax compliance within Pakistan’s rapidly expanding digital creator economy, while also creating a formal mechanism for taxing income generated through global social media platforms.