The Federal Board of Revenue (FBR) has updated the withholding tax rates on the purchase of domestic and international air tickets for the tax year 2021. According to the FBR, this update follows the incorporation of amendments made to the Income Tax Ordinance, 2001 through the Finance Act, 2020.
According to the newly issued withholding tax card 2020-2021 issued by the FBR, effective up to June 30, 2020, specific provisions under the Income Tax Ordinance, 2001 have been revised to reflect these changes.
Domestic Air Travel Taxation
The FBR said under Section 236B of the Income Tax Ordinance, 2001, individuals or entities preparing air tickets are required to collect or deduct withholding tax at a rate of five percent of the gross amount of the ticket from purchasers of domestic air travel tickets at the time of sale. This tax is adjustable against the purchaser’s payable tax liability. This measure aims to streamline the collection process and ensure compliance from all domestic air travelers.
International Air Travel Taxation
For international air travel, Section 236L of the Ordinance mandates airlines to collect withholding tax from ticket purchasers at the time of sale. The rates for advance tax on international air travel tickets are structured as follows:
1. First/Executive Class: Rs16,000 per person
2. Other Classes (excluding Economy): Rs12,000 per person
3. Economy Class: The tax rate is zero
These collected taxes are also adjustable against the taxpayers’ overall tax liability, ensuring that the burden is equitably distributed according to travel class and providing some relief for economy class travelers.
Implementation and Compliance
The updated tax card and these specific provisions are part of FBR’s efforts to enhance tax collection efficiency and compliance. By imposing these taxes at the point of ticket sale, the FBR aims to reduce evasion and ensure a smoother tax collection process. The collected withholding taxes will be credited towards the taxpayers’ final tax liabilities, offering transparency and predictability in tax obligations.
Implications for Travelers
The FBR said these changes have significant implications for air travelers, particularly those purchasing first or executive class tickets for international travel. The imposed taxes are substantial, reflecting the government’s intent to generate revenue while maintaining equity among different classes of air travel.
Travelers are advised to account for these taxes when planning their journeys, as the additional costs could influence travel budgets. Airlines and ticket agents must also update their systems to comply with the new tax collection requirements, ensuring accurate and timely remittance to the FBR.
Conclusion
The FBR’s updated withholding tax rates for domestic and international air tickets represent a significant step in streamlining tax collection and enhancing compliance. As the tax year 2021 progresses, these measures will play a crucial role in supporting the government’s revenue objectives and ensuring fair taxation across different segments of air travel.
