In Pakistan, payments made to company directors, such as directorship fees or fees for attending board meetings, are subject to withholding tax under Section 149(3) of the Income Tax Ordinance, 2001.
This provision ensures that taxes are collected at source on all director-related remuneration, reinforcing transparency and compliance in corporate governance.
Understanding Section 149(3): Deduction of Tax on Directorship Fee
According to Section 149(3):
“Notwithstanding anything contained in sub-sections (1) and (2), every person responsible for making payment for directorship fee or fee for attending board meeting or such fee by whatever name called, shall at the time of payment, deduct tax at the rate of twenty percent of the gross amount payable.”
In simpler terms, this means that any company or entity paying a director’s fee must deduct 20% tax at source before releasing the payment.
Scope of Applicability
Section 149(3) applies to:
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All companies registered under the Companies Act, 2017.
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All organizations or bodies paying fees, honoraria, or attendance allowances to directors or board members.
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Both resident and non-resident directors (subject to treaty conditions in case of non-residents).
Key Features of Section 149(3)
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Mandatory Withholding: The payer is legally bound to deduct tax at 20%.
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Applicable on All Types of Fees: Directorship fee, board meeting attendance fee, or any similar payment.
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On Gross Amount: The tax is deducted on the full payment amount without any expense adjustments.
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Non-Final Tax: The deducted amount is adjustable, meaning directors can claim credit in their annual return.
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Responsibility on the Payer: The company or entity making payment is treated as the withholding agent.
Example: How the Tax Deduction Works
Suppose a company pays PKR 500,000 to a director for attending board meetings.
Deduction at 20%:
500,000 × 20% = PKR 100,000
The company must deduct PKR 100,000 as withholding tax and pay PKR 400,000 to the director.
The deducted amount must be deposited with FBR within the prescribed time.
Legal Responsibility of the Payer
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Deduct tax at the time of payment or credit, whichever occurs earlier.
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Deposit the deducted tax into the Government Treasury under the correct head of account.
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File the monthly withholding statement (Section 165) through the IRIS system.
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Issue a withholding certificate to the director to enable tax credit in the annual return.
Failure to deduct or deposit tax can result in:
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Default surcharge under Section 205.
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Penalty under Section 182.
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Disallowance of expense for tax purposes.
Rationale Behind Section 149(3)
The purpose of this provision is to:
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Ensure tax collection at source from high-value payments.
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Bring corporate directors into the formal tax net.
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Strengthen accountability and transparency in company payments.
Compliance Checklist for Companies
- Verify the director’s NTN and active taxpayer status.
- Deduct 20% tax from every fee or honorarium payment.
- Deposit the deducted tax by the 15th of next month.
- File monthly withholding statements in IRIS.
- Issue certificates for the deducted tax to each director.
Section 149(3) reinforces Pakistan’s tax collection framework by mandating 20% tax deduction on directorship and board-related fees.
For companies, this is not merely a compliance obligation — it’s a demonstration of responsible corporate governance.
For directors, it’s an opportunity to claim tax credit and maintain transparency in declared income.
FAQs on Section 149(3) Directorship Fee Tax Deduction
1. What is Section 149(3) about?
It requires every company or payer to deduct 20% tax at source from payments made to directors as directorship or board meeting fees.
2. Who is responsible for deducting the tax?
The company or paying entity is responsible for withholding tax before making payment to the director.
3. What is the tax rate under Section 149(3)?
The rate is 20% of the gross amount payable as fee, attendance allowance, or similar remuneration.
4. Does this deduction apply to all directors?
Yes, it applies to executive and non-executive directors, whether resident or non-resident, unless exempted by treaty.
5. Is the 20% tax a final tax?
No, it is an adjustable tax credit, which directors can claim in their annual income tax returns.
6. When should the tax be deducted?
Tax must be deducted at the time of payment or credit, whichever occurs first.
7. What happens if the company fails to deduct tax?
Failure results in penalties, default surcharge, and disallowance of expense for tax computation.
8. Can directors claim refund of deducted tax?
Yes, if their total annual tax liability is less than the amount deducted, they may claim a refund or adjustment.
9. Is the deduction applicable even if the director is not an employee?
Yes, this section applies even if the director is not an employee — as it targets directorship or board-related payments.
10. Are foreign directors covered under Section 149(3)?
Yes, but in case of non-resident directors, double taxation treaties (DTTs) may reduce or exempt the rate.
11. Does this include payments for advisory roles?
Only if the payment is made for services rendered as a director or board member, not for independent consultancy.
12. Is the deduction made before or after GST or other taxes?
The deduction is made on the gross amount payable, excluding any indirect taxes.
13. How should the deducted tax be deposited?
The company must deposit the tax in the Government Treasury using FBR’s prescribed payment system (PSID/CPR).
14. How can directors verify that tax was deposited?
They can check it in FBR’s IRIS portal under “Deducted/Collected Tax Information” once the company files the statement.
15. What documents should directors keep?
They should retain the withholding certificate, fee voucher, and bank advice for tax filing and audit purposes.
16. What section governs the filing of withholding statements?
Withholding statements are filed under Section 165 of the Income Tax Ordinance, 2001.
17. Does Section 149(3) apply to government organizations?
Yes, if they make payments equivalent to directorship or board fees to appointed members.
18. What if a director receives multiple board fees from different companies?
Each company must independently deduct 20% tax at source on its respective payments.
19. Can a company deduct less than 20% if the director’s income is low?
No, the statutory rate of 20% must be deducted; adjustments can be made later in the director’s tax return.
20. Why is compliance with Section 149(3) important?
Because it ensures timely tax collection, avoids penalties, and promotes transparent corporate tax behavior in Pakistan.
Featured Image Prompt:
A formal image showing a company board meeting in Pakistan, with directors reviewing financial papers and an accountant deducting withholding tax at 20%, symbolizing compliance with Section 149(3).
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Alt Text: Section 149(3) tax deduction on directorship fee under Income Tax Ordinance 2001
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Image Title: Directorship Fee Tax Deduction in Pakistan
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Caption: Tax deduction at source under Section 149(3) — 20% withholding on directorship and board fees.
