In an effort to provide clarity and streamline the taxation of digital payments, recent amendments have been made to the Income Tax Ordinance, 2001, through the Finance (Supplementary) Act, 2022.
Notably, a significant addition comes in the form of Clause 17B of Section 2, introducing a comprehensive definition of “digital means.”
The new clause aims to elucidate the scope of digital transactions for taxation purposes, encompassing a range of payment and financial services. As outlined in the amended ordinance, “digital means” includes, but is not limited to, the following:
(a) Online Portals or Platforms for Digital Payments/Receipts: This covers various digital platforms facilitating online financial transactions.
(b) Online Interbank Fund Transfer Services: Services that enable the electronic transfer of funds between banks fall under this category.
(c) Online Bill or Invoice Presentment and Payment Services: Platforms that allow for the presentation and settlement of bills or invoices online.
(d) Over-the-Counter Digital Payment Services or Facilities: In-person digital payment services provided at physical locations.
(e) Card Payments Using Point of Sale Terminals, QR Codes, Mobile Devices, ATMs, Kiosks, or Any Other Digital Payments Enabled Devices: This includes a wide array of digital payment methods involving cards, mobile devices, ATMs, and more.
(f) Any Other Digital or Online Payment Modes: A broad category to encompass emerging digital payment methods and modes not explicitly mentioned.
While the term “digital means” was introduced through the Finance (Supplementary) Act, 2022, the lack of an initial definition led to confusion. The recent amendment addresses this issue, providing a comprehensive and clear understanding of what constitutes digital transactions for taxation purposes.
The State Bank of Pakistan (SBP), in its circular letter (PSP & OD Circular Letter No. 5 of 2021 dated October 15, 2021), had previously offered guidance to banks on the definition of digital modes of payments. This guidance, considered relevant for the purposes of the new clause, helped in clarifying certain aspects of digital payments.
Furthermore, the Tax Laws (Third Amendment) Ordinance, 2021, introduced a new Clause (la) under section 21. This clause mandates that every company make payments for transactions exceeding Rs250,000 under a single account head through “digital means” from their designated business bank account. Failure to adhere to this requirement renders the associated expense inadmissible.
Recognizing the challenges and practical difficulties in implementing Clause (la), the Federal Board of Revenue (FBR) had deferred its implementation multiple times, with the latest deadline set for January 31, 2022. The recent amendments, along with the well-defined scope of “digital means,” provide a more robust framework for regulating and taxing digital transactions in Pakistan.
