Author: Hamza Shahnawaz

Federal Board of Revenue (FBR) has notified rates of withholding tax for exports and export of services made during the year 2022-2023.

The FBR issued the withholding tax card for tax year 2023 (July 01, 2022 to June 30, 2023) after amending the Income Tax Ordinance, 2001 through changes brought through Finance Act, 2022.

Following is the text of Section 154 related to exports and export of services and rates of withholding tax (in bold):

154. Exports. — (1) Every authorised dealer in foreign exchange shall, at the time of realisation of foreign exchange proceeds on account of the export of goods by an exporter, deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.

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The withholding tax rates on export is one per cent under Section 154(1).

(3) Every banking company shall, at the time of realisation of the proceeds on account of a sale of goods to an exporter under an inland back-to-back letter of credit or any other arrangement as prescribed by the Board, deduct tax from the amount of the proceeds at the rate specified in Division IV of Part III of the First Schedule.

(3A) The Export Processing Zone Authority established under the Export Processing Zone Authority Ordinance, 1980 (VI of 1980), shall at the time of export of goods by an industrial undertaking located in the areas declared by the Federal Government to be a Zone within the meaning of the aforesaid Ordinance, collect tax at the rate specified in Division IV of Part III of the First Schedule.

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(3B) Every direct exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub-Chapter 7 of Chapter XII of the Customs Rules, 2001 shall, at the time of making payment for a firm contract to an indirect exporter defined under the said rules, deduct tax at the rates specified in Division IV of Part III of the First Schedule.

(3C) The Collector of Customs at the time of clearing of goods exported shall collect tax from the gross value of such goods at the rate specified in Division IV of Part III of the First Schedule.

The rate of withholding tax is 1 per cent under Sections 154(3A), 154(3B) and 154(3C).

(4) The tax deductible under this section shall be a final tax on the income arising from the transactions referred to in this section.

“(5) The provisions of sub-section (4) shall not apply to a person who opts not to be subject to final taxation:

Provided that this sub-section shall be applicable from tax year 2015 and the option shall be exercised every year at the time of filing of return under section 114:

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Provided further that the tax deducted under this sub-section shall be minimum tax.”

154A. Export of Services.— (1) Every authorized dealer in foreign exchange shall, at the time of realization of foreign exchange proceeds on account of the following, deduct tax from the proceeds at the rates specified in Division IVA of Part III of the First Schedule –

The withholding tax is 0.25 per cent for export proceeds of computer software, IT Services or IT Enabled services by persons registered with Pakistan Export Board under Section 154A.

The withholding tax rate in any other case is 1 per cent.

(a) exports of computer software or IT services or IT enabled services where the exporter is registered with and duly certified by the Pakistan Software Export Board (PSEB).;

(b) services or technical services rendered outside Pakistan or exported from Pakistan;

(c) royalty, commission or fees derived by a resident company from a foreign enterprise in consideration for the use outside Pakistan of any patent, invention, model, design, secret process or formula or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided to such enterprise;

(d) construction contracts executed outside Pakistan:

(da) foreign commission due to an indenting commission agent;

(e) other services rendered outside Pakistan as notified by the Board from time to time;

(2) The tax deductible under this section shall be a final tax on the income arising from the transactions referred to in this section, upon fulfilment of the following conditions –

(a) return has been filed;

(b) withholding tax statements for the relevant tax year have been filed if required under the Ordinance; and

(b) sales tax returns under Federal or Provincial laws have been filed, if required under the law;

(d) no credit for foreign taxes paid shall be allowed.

(3) The provisions of sub-section (2) shall not apply to a person who does not fulfill the specified conditions or who opts not to be subject to final taxation:

Provided that the option shall be exercised every year at the time of filing of return under section 114.

(5) The Board in consultation with State Bank of Pakistan shall prescribe mode, manner and procedure of payment of tax under this section.

(6) The Board shall have power to include or exclude certain services for applicability of provisions of this section.

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