Karachi, July 14, 2024 – Officials of the Federal Board of Revenue (FBR) has said that the export of services will continue to be subject to the final tax regime in Pakistan.
This decision comes despite significant changes introduced by the Finance Act, 2024, which shifted the export of goods from the final tax regime to the normal tax regime.
According to the FBR officials, a final tax rate of 0.25% applies to exports of computer software, Information Technology (IT) services, and IT-enabled services by individuals and entities registered with the Pakistan Software Export Board (PSEB). This measure aims to encourage the growth of Pakistan’s burgeoning IT sector while maintaining a streamlined tax process for these exports.
For other service exports, a final tax rate of 1% is applicable. The FBR has specified several categories under this regime, which include:
• Services or Technical Services Rendered Outside Pakistan or Exported from Pakistan: These are services provided by Pakistani entities to foreign clients, either conducted overseas or delivered from within Pakistan.
• Royalty, Commission, or Fees: This includes income derived by resident companies from foreign enterprises as consideration for the use of intellectual property or proprietary knowledge. Such payments cover a wide range of intangible assets, including patents, designs, secret processes, formulas, and other industrial, commercial, or scientific information.
• Construction Contracts Executed Outside Pakistan: Companies engaged in construction projects outside the country fall under this category, reflecting Pakistan’s growing role in international construction and engineering services.
• Foreign Commission Due to an Indenting Commission Agent: This pertains to commissions earned by Pakistani agents for facilitating transactions between foreign buyers and sellers.
• Other Services Rendered Outside Pakistan: The FBR also includes other service exports as notified by the board, ensuring comprehensive coverage of various service sectors.
The decision to maintain the final tax regime for service exports underscores the government’s strategy to provide tax certainty and reduce compliance burdens for exporters. By keeping the tax rates relatively low and straightforward, the FBR aims to foster a conducive environment for service exporters to thrive in the global market.
Officials emphasized that these tax measures are part of a broader effort to enhance Pakistan’s export competitiveness and attract foreign investment. The IT sector, in particular, is seen as a critical driver of economic growth, and the 0.25% final tax rate for IT exports is expected to bolster the industry’s expansion.
The announcement reaffirms its commitment to supporting the export sector while ensuring a fair and efficient tax system. As Pakistan continues to integrate more deeply into the global economy, these tax policies will play a pivotal role in shaping the country’s export landscape.