Section 50 of the Income Tax Ordinance, 2001 has exempted tax on foreign source income. Issued by the Federal Board of Revenue (FBR) and updated up to June 30, 2021, this section acknowledges the unique circumstances of individuals who are residents solely due to their employment and have a limited stay in Pakistan.
The text of Section 50 of the Income Tax Ordinance, 2001 is concise but impactful:
“50. Foreign-source income of short-term resident individuals.— (1) Subject to sub-section (2), the foreign-source income of an individual—
(a) who is a resident individual solely by reason of the individual’s employment; and
(b) who is present in Pakistan for a period or periods not exceeding three years, shall be exempt from tax under this Ordinance.
(2) This section shall not apply to —
(a) any income derived from a business of the person established in Pakistan; or
(b) any foreign-source income brought into or received in Pakistan by the person.”
Section 50 introduces a specific provision catering to individuals who qualify as short-term residents. To avail of the tax exemption on foreign-source income, the individual must meet two key criteria:
1. Resident Individual by Employment: The individual must be a resident solely due to their employment.
2. Limited Stay: The individual should be present in Pakistan for a period or periods not exceeding three years.
If these conditions are met, the foreign-source income of the short-term resident individual becomes exempt from taxation under the Income Tax Ordinance, 2001.
However, there are exceptions outlined in Subsection (2) of Section 50:
• Income from Business in Pakistan: The exemption does not apply to any income derived from a business established by the individual in Pakistan.
• Foreign-Source Income Brought into Pakistan: The exemption does not cover any foreign-source income that is brought into or received in Pakistan by the individual.
The Finance Act, 2021, which brought amendments to the Income Tax Ordinance, 2001, did not alter the fundamental provisions of Section 50. This reaffirms the stability and continuity of the criteria for exempting foreign-source income for short-term resident individuals.
The disclaimer accompanying the text of Section 50 emphasizes the information’s informative nature and highlights the team’s effort to provide accurate versions of the text, though not assuming responsibility for errors or omissions.
Tax experts commend Section 50 for acknowledging the distinct tax circumstances of short-term resident individuals. This provision recognizes that individuals in temporary employment situations may have foreign-source income that deserves a degree of tax relief during their limited stay in Pakistan.
Section 50 of the Income Tax Ordinance, 2001 reflects a balanced approach to taxation, providing relief to short-term resident individuals with foreign-source income. By offering this exemption, the section aligns with the broader goals of tax fairness and acknowledges the specific challenges faced by individuals in temporary employment situations. This commitment to tailored tax provisions contributes to a more equitable and responsive tax system in Pakistan.
