FBR Suggests New CGT on Non-Residents’ Capital Assets

FBR Suggests New CGT on Non-Residents’ Capital Assets

PkRevenue.com – In a move aimed at tightening tax regulations, the Federal Board of Revenue (FBR) has proposed the imposition of capital gains tax (CGT) on the disposal of capital assets by non-residents.

The proposal, part of the forthcoming 2024-25 budget, seeks to address existing loopholes in the current tax framework.

FBR tax managers highlighted that there have been several transactions involving non-residents who are investing in Pakistan or acquiring shares in Pakistani companies. Under the current provisions of the Income Tax Ordinance, 2001, non-residents are not subject to the same withholding tax requirements as residents, creating a gap in the tax collection process.

According to the FBR, Section 37(6) of the Income Tax Ordinance, 2001, which governs the application of withholding tax, becomes inapplicable to non-residents. This technical anomaly has led to situations where non-residents can avoid paying taxes on capital gains from the sale of assets in Pakistan.

To rectify this issue, the FBR has proposed an amendment that would require the seller to deduct and deposit the applicable tax when a non-resident disposes of capital assets. This amendment aims to ensure that non-residents are taxed similarly to residents, thereby closing the current loophole.

The proposed change is expected to have significant implications for non-resident investors and could impact the attractiveness of Pakistan as an investment destination. However, FBR officials argue that this measure is necessary to create a more equitable tax system and ensure that all individuals and entities contributing to economic activities in Pakistan are subject to appropriate taxation.

The proposal has generated mixed reactions from the business community. While some stakeholders support the move for its potential to increase tax revenues and create a level playing field, others worry that it might deter foreign investment at a time when Pakistan is striving to attract more international capital.

As the government prepares to finalize the budget for the upcoming fiscal year, the inclusion of this CGT amendment will be closely watched. The outcome will likely influence future investment decisions and the overall economic landscape of Pakistan.

With these proposed changes, the FBR aims to enhance the efficiency and fairness of the tax system, ensuring that all parties engaging in the Pakistani market contribute their fair share to the country’s fiscal health.