Karachi, July 1, 2024 – Pakistan has introduced a normal tax regime for exporters through the Finance Act 2024, detailing the new tax rates on the export of goods. This shift marks a significant change from the previous final tax regime, aiming to streamline and rationalize the tax structure for exporters.
According to tax experts at A. F. Ferguson & Co., the Finance Bill 2024 proposed converting the final tax regime for exporters of goods, Export Processing Zone (EPZ) entities, indirect exporters, and others into a minimum tax regime. This change also includes the collection of an additional advance tax at the rate of 1% for direct exporters of goods.
A new provision has been added in section 147 (Advance Tax) through the Finance Act 2024, requiring specified withholding agents to collect 1% advance income tax from exporters of goods (both direct and indirect) at the time of realization of export proceeds. This amendment supersedes the previous proposal in the Finance Bill to collect advance tax under section 154 of the Income Tax Ordinance, 2001, from direct exporters of goods.
Consequently, the advance tax collection under section 154, as proposed in the Finance Bill, has been withdrawn, simplifying the tax obligations for direct exporters. The revised tax impact on exporters and other related entities is summarized as follows:
| Nature of Transaction | Withholding Agent | Prior to Finance Act | Subsequent to Finance Act | |
|---|---|---|---|---|
| Export of goods | Banks | 1% | 1% | Minimum tax + Advance tax (under section 147) |
| Indirect exporter under inland back-to-back L/C arrangements | Banks | 1% | 1% | Minimum tax + Advance tax (under section 147) |
| Exports by EPZ entities | EPZA | 1% | 1% | Minimum tax + Advance tax (under section 147) |
| Sale of goods by an indirect exporter to certain direct exporters and export houses, etc. | Exporters / Export house | 1% | 1% | Minimum tax + Advance tax (under section 147) |
| Clearance of certain exported goods | Collector of Customs | 1% | 1% | Minimum tax + Advance tax (under section 147) |
This restructuring aims to create a more equitable and transparent tax environment for exporters. The transition from a final tax regime to a minimum tax regime ensures that exporters contribute a fair share of taxes while maintaining competitiveness in the international market.
The Finance Act 2024 is expected to have broad implications for the export sector, necessitating adjustments in financial planning and compliance among exporters. Tax professionals and exporters are advised to familiarize themselves with these changes to ensure proper adherence to the new tax regulations and optimize their tax positions accordingly.
As Pakistan continues to evolve its tax policies, such reforms are pivotal in enhancing the efficiency and fairness of the tax system, fostering a conducive environment for economic growth and development.
