Section 236Y: tax on paying foreign services by card
Most Pakistanis paying for a foreign subscription by card have never noticed the small additional charge on the statement. It is advance income tax, and until recently it was set at a level high enough to matter for anyone with meaningful foreign software or education costs.
What the provision covers
Section 236Y applies where a banking company remits an amount abroad on behalf of a cardholder, using a debit, credit or prepaid card. The mechanism is what is taxed, not the merchant category, so it reaches:
- Foreign streaming, media and content subscriptions.
- Software licences, cloud services and app store purchases.
- Overseas education fees and examination fees paid by card.
- International online shopping and marketplace purchases.
- Foreign advertising and platform spend charged to a card.
The Finance Act 2026 reduction
| Status | Position for Tax Year 2027 |
|---|---|
| Active taxpayer | 0.5%, reduced from the previous level |
| Inactive taxpayer | Higher rate applies |
You bought or sold property this year, tax was deducted at the time of registration, and nobody explained whether you get it back.
For a business, this is not the only provision
A business paying a foreign vendor should consider two questions rather than one:
- The card collection under this section, applied by the bank on the remittance.
- Whether the payment also engages the provisions on payments to non-residents, which depends on the character of the payment — a royalty, a technical service fee, an offshore digital service or a purchase of goods each sit differently.
Paying a substantial foreign software licence on a company card does not remove the characterisation question. See payments to non-residents.
Keeping the record without effort
The reason this collection goes unclaimed is that it never looks like a tax document. Three habits fix that:
- Use one card for foreign spend so the collections are isolated on a single statement rather than scattered across several.
- Request an annual consolidated certificate from the bank covering advance tax collected on foreign remittances for the tax year. Most banks will issue one on request; almost nobody asks.
- Post the collections to a dedicated ledger account rather than to bank charges, so the annual total is visible when the return is prepared.
For a business this also matters for a second reason: foreign platform and software costs are an expense line that a reviewer will look at, and having the remittance evidence organised supports both the deduction and the credit at the same time.
Payment method changes the provision
| How you pay | What applies |
|---|---|
| Debit, credit or prepaid card | Section 236Y collection on the remittance |
| Bank wire transfer to the supplier | Provisions on payments to non-residents, with a treaty dimension |
| Through a Pakistani reseller or agent | Domestic withholding provisions, potentially with sales tax implications |
This matters commercially. Where a foreign service is available through a local reseller, the tax treatment of the two routes is not identical, and neither is the paperwork.
What it costs at realistic spend levels
The per-transaction amount is small enough to ignore and the annual total is not. At the active-taxpayer rate:
| Annual foreign card spend | Collection at 0.5% |
|---|---|
| Rs 120,000 — personal subscriptions | Rs 600 |
| Rs 600,000 — a freelancer software stack | Rs 3,000 |
| Rs 3,000,000 — a small agency cloud and ad spend | Rs 15,000 |
| Rs 12,000,000 — a software house infrastructure costs | Rs 60,000 |
At the inactive rate each of those figures multiplies. For a business the collection is recoverable where adjustable, so the real question is whether anyone is tracking it — and in most businesses nobody is, because it arrives as a line on a card statement rather than as a tax document. Ask the bank for an annual consolidated certificate and post the collections to their own ledger account.
Claiming it
- Identify the collections from your card and bank statements, or ask the bank for a consolidated certificate for the year.
- Establish whether the collection is adjustable for your circumstances.
- Total it for the tax year — individually the amounts are small, annually they are not.
- Claim it in the return as advance tax paid, with the evidence retained.
- Confirm it appears against your registration in FBR records — refunds.
For most individuals this is a small annual figure that goes unclaimed because nobody tracks it. For a business with significant foreign platform spend, ask the bank for an annual certificate as a matter of routine and post it to a dedicated ledger account so the total is visible at year end — bookkeeping for tax compliance.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
- Withholding Tax Rate Cards (FBR)
- Tax Year 2027 withholding rate summary (KPMG Pakistan)
- Finance Act 2026 (FBR)
- Income Tax Basics (FBR)
Questions people also ask
Which payments does this actually catch?
Remittances abroad made by a bank on behalf of a cardholder using a debit, credit or prepaid card. In practice that covers foreign streaming and software subscriptions, cloud services, app stores, overseas education fees paid by card, and international online shopping. It is the mechanism that is taxed rather than the specific merchant.
How much did the rate change?
The Finance Act 2026 reduced it to 0.5% for active taxpayers, described in commentary as major relief given the previous level. For anyone paying substantial foreign software or subscription costs by card this is a meaningful reduction, and it is one of the clearer benefits of being on the Active Taxpayer List.
Can I claim this back?
Where the collection is adjustable it becomes a credit against your annual liability, so it is recoverable through a filed return. In practice most individuals never claim it because the amounts are small per transaction and nobody keeps the record. For a business paying significant foreign subscription costs, the annual total is worth tracking.
Does it apply to a business paying for foreign software?
The collection attaches to the card remittance regardless of whether the cardholder is an individual or a business. Separately, a business paying a foreign vendor may also have obligations on payments to non-residents depending on the nature of the payment, so the card collection is not necessarily the only consideration.
Does it apply to a bank transfer rather than a card payment?
Section 236Y is directed at card-based remittances. A wire transfer to a foreign supplier is a different transaction and may fall under the provisions governing payments to non-residents instead, with different rates and a treaty dimension. The payment method genuinely changes which provision applies.
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