Advertising and marketing agencies in Pakistan play a key role in promoting brands, creating digital campaigns, managing media placements, and driving commercial visibility. These agencies may operate as full-service creative firms, digital marketing companies, media buying houses, outdoor advertising providers, or freelancers offering specialized services.
The sector is subject to a comprehensive taxation framework under both federal and provincial laws, including income tax, sales tax on services, and withholding tax. This article explains the tax obligations, applicable rates, compliance procedures, and exemptions relevant to advertising and marketing firms in Pakistan.
Regulatory Authorities Involved
1. Federal Board of Revenue (FBR)
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Administers income tax under the Income Tax Ordinance, 2001
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Collects sales tax on goods (e.g., promotional merchandise)
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Oversees withholding tax compliance
2. Provincial Revenue Authorities
Administer Sales Tax on Advertising and Marketing Services as taxable services:
| Province | Authority |
|---|---|
| Punjab | Punjab Revenue Authority (PRA) |
| Sindh | Sindh Revenue Board (SRB) |
| KPK | KP Revenue Authority (KPRA) |
| Balochistan | Balochistan Revenue Authority (BRA) |
Classification of Advertising & Marketing Services
| Service Type | Tax Status |
|---|---|
| Creative design and branding | Taxable service |
| Media buying and planning | Taxable service |
| Outdoor advertising (billboards, hoardings) | Taxable service |
| Digital and social media marketing | Taxable service |
| Content creation and production | Taxable service |
| Event marketing and activations | Taxable service |
| Promotional item supply | Taxable as goods under FBR |
Income Tax Obligations
Applicability
All agencies are liable to pay income tax on net profits under the Income Tax Ordinance, 2001.
Tax Rates
| Entity Type | Rate (TY 2025) |
|---|---|
| Companies | 29% |
| AOPs/Individuals | Progressive rates up to 35% |
| Minimum Tax (Section 113) | 1.25% of turnover |
Allowable Business Deductions
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Salaries and wages
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Equipment, laptops, and software licenses
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Rent, utilities, and maintenance
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Travel and marketing expenses
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Advertising platform costs (Google, Meta, etc.)
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Freelance subcontracting or production costs
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Depreciation of assets
Filing Requirements
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Annual income tax return via FBR Iris
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Quarterly advance tax payments (for companies and large AOPs)
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Maintain verifiable accounting records and invoices
Sales Tax on Services (Provincial Tax)
Taxable Services
All advertising-related services are explicitly taxable under provincial sales tax laws. Providers must register with the provincial revenue authority of their business location.
| Province | Tax Rate | Governing Notification |
|---|---|---|
| Punjab (PRA) | 16% | Second Schedule of PRA Act |
| Sindh (SRB) | 13% | SRB Notifications on Advertising |
| KPK (KPRA) | 15% | KP Sales Tax on Services Act |
| Balochistan (BRA) | 15% | BRA Rules |
Key Notes
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If an agency operates in multiple provinces, it must obtain separate STRNs
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Some authorities (like SRB) differentiate between ad agency commission and gross billing amount, requiring both to be reported
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Digital advertising services, including influencer marketing, are fully taxable
Filing and Compliance
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STRN registration with PRA/SRB/KPRA/BRA
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Monthly sales tax return by 18th of each month
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Sales tax invoice must mention tax charged separately
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Input tax claimable on allowable purchases
Input Tax Credit
Input tax is adjustable against:
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Equipment purchases
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Office rent and utilities
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Software licenses and cloud tools
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Vendor-provided services (e.g., content production, printing)
Withholding Tax Obligations
Tax Collected By Clients (As Payees)
Advertising agencies often face withholding tax deductions by corporate clients under:
| Section | Nature of Payment | Rate |
|---|---|---|
| 153(1)(b) | Services | 10% |
| 153(1)(a) | Goods/supplies (promo items) | 4.5% (companies) |
| 233 | Commission on media buying | 12% |
Note: Reduced rates apply if the agency is listed as an Active Taxpayer (ATL).
Tax Deducted By the Agency (As Withholding Agent)
If registered as a withholding agent, the agency must deduct tax on:
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Salaries: Section 149
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Rent: Section 155
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Freelancer payments or subcontractors: Section 153
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Utility bills: Section 235
Monthly withholding statements and tax deposits are mandatory under FBR Iris.
Digital Advertising Payments
Payments made to foreign platforms such as Google Ads, Meta/Facebook, YouTube, or LinkedIn Ads may be subject to:
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15% withholding tax under Section 152 if payments are made abroad
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No sales tax on such foreign transactions, but FBR may disallow deductions if not properly recorded
Agencies using foreign payment gateways (e.g., Stripe, Payoneer) must disclose all foreign inflows and expenses in their returns.
Taxation of Freelancers and Influencers
If you subcontract services like:
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Influencer marketing
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Content creation
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Freelance design or video production
You are required to deduct 10% withholding tax if the freelancer is not on ATL.
Freelancers themselves are also required to:
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File annual tax returns
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Register with FBR (even if not a company)
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Pay tax on net income after business expenses
Compliance Checklist
| Requirement | Frequency |
|---|---|
| FBR Income Tax Return | Annually |
| Sales Tax Return (PRA/SRB) | Monthly |
| Withholding Tax Statements | Monthly |
| SECP Annual Return (if Pvt Ltd) | Annually |
| Tax Invoice Issuance | Every transaction |
| Advance Tax Payments (Section 147) | Quarterly |
| EOBI/Social Security (if >5 employees) | Monthly |
Penalties for Non-Compliance
| Offense | Penalty |
|---|---|
| Non-filing of sales tax return | Rs. 10,000–50,000 + Rs. 500/day |
| Non-issuance of invoice | Rs. 10,000 minimum |
| Non-payment of withholding tax | Equal to tax + default surcharge |
| Failure to register with PRA/SRB | Up to Rs. 100,000 |
| Misreporting commission or media cost | Audit + penalties |
Tax Planning Tips for Agencies
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Maintain separate accounts for media buying and agency commission
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Clearly separate taxable services from pass-through costs
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File returns on time to remain on ATL and enjoy reduced WHT rates
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Register with both FBR and PRA/SRB, even if not initially generating taxable turnover
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Claim all eligible input tax credits with proper documentation
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Use tax-compliant accounting software or ERP tools
Conclusion
Advertising and marketing agencies in Pakistan are fully taxable under income tax and provincial sales tax laws. From creative services and digital media campaigns to event promotions and influencer marketing, all such services require proper registration, invoicing, and tax filings. With increased digital activity and regulatory enforcement, tax compliance is essential for operational legitimacy and long-term growth.
By ensuring timely registration, transparent accounting, and full tax reporting, agencies can avoid penalties and build sustainable, audit-proof businesses.
