Karachi, January 15, 2024 – The Federal Board of Revenue (FBR) has allowed a reduced rate of income tax on profit on debt for the year 2024. This decision comes as part of the updated Income Tax Ordinance, 2001, specifically tailored for the tax year 2024.
As outlined in the amended ordinance, the FBR has greenlighted a reduced tax rate on gains arising from profit on debt. The specifics state that the rate of tax to be deducted under sub-section (2) of section 152, pertaining to payments from profit on debt to a non-resident individual without a permanent establishment in Pakistan (excluding those covered under clauses 78 and 79 of Part I of the Second Schedule), shall stand at 10 percent of the gross amount paid.
A noteworthy provision in the updated ordinance declares that the tax deducted on profit on debt from debt instruments, government securities (including treasury bills), and Pakistan Investment Bonds shall be considered final tax on profit on debt payable to a non-resident individual without a permanent establishment in Pakistan. This applies only when the investments are exclusively made through a Special Rupee Convertible Account maintained with a bank in Pakistan.
Additionally, the ordinance delves into the rate of tax to be deducted under sub-section (2) of section 152 for payments to an individual on account of profit on debt earned from a debt instrument, whether conventional or Shariah compliant. In this case, issued by the Federal Government under the Public Debt Act, 1944, and purchased exclusively through a bank account maintained abroad, a non-resident Rupee account repatriable (NRAR), or a foreign currency account maintained with a banking company in Pakistan, the tax rate shall be ten percent of the gross amount paid. Importantly, the tax deducted on such profit on debt is deemed final.
Furthermore, the ordinance specifies that the rate of tax to be deducted under section 151 shall be ten percent from the profit on debt derived from a debt instrument, whether conventional or Shariah compliant. This instrument should be issued by the Federal Government under the Public Debt Act, 1944, or its wholly owned special-purpose company. The purchase must be made by a resident citizen of Pakistan who has already declared foreign assets to the Board through a Foreign Currency Value Account (FCVA) maintained with authorized banks in Pakistan under the foreign exchange regulation issued by the State Bank of Pakistan. Again, the tax so deducted shall be considered final.
Interestingly, the rate of tax to be deducted under sub-section (2) of section 152 or under section 151, as the case may be, shall be zero percent of the gross amount of profit on debt paid, covering cases specified under clauses 78 and 79 of Part I of the Second Schedule.
This move by the FBR is expected to have significant implications for both non-resident individuals and resident citizens, providing clarity on the tax treatment of profit on debt from various sources. As the economy continues to evolve, such measures aim to foster a more conducive environment for investment and financial activities.
