Written by Akhter Syed in Taxation Section 166 of the Income Tax Ordinance 2001 establishes that tax collected or deducted is held in trust for the Federal Government and takes priority over other claims in specified circumstances. The Federal Board of Revenue (FBR) has explained the priority of tax collected or deducted at source under Section 166 of the Income Tax Ordinance 2001 for Tax Year 2027. According to the Ordinance, updated up to June 30, 2026, tax collected under Division II or Chapter XII, or deducted from payments under Division III or Chapter XII, must be held by the collecting or withholding person in trust for the Federal Government. Section 166 stipulates that such tax cannot be attached to satisfy any debt or liability of the person responsible for collecting or deducting it. The provision also establishes safeguards in the event of liquidation or bankruptcy. Where a person who has collected or deducted tax becomes insolvent, the amount…