Foreign transactions through debit, credit cards generate Rs670 million income tax

Foreign transactions through debit, credit cards generate Rs670 million income tax

KARACHI: The revenue authorities have collected Rs670 million as income tax from foreign transactions through debit or credit card during first eight months of current fiscal year.

The tax was collected by Regional Tax Office (RTO)-II Karachi. The tax office collected only Rs83 million in the corresponding period of the last fiscal year.

The collection of withholding tax was introduced through Finance Act, 2018 and it was second year of the collection under this head.

Section 236Y was inserted to Income Tax Ordinance, 2001 through Finance Act, 2018.

Under this provision, every banking company shall collect advance tax, at the time of transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a credit card transaction, a debit card transaction, or a prepaid card transaction with a person outside Pakistan at the rate of one percent.

However, this tax rate shall be 100 percent more in case the person making transactions is not on the Active Taxpayers List (ATL).

The advance tax collected under this section shall be adjustable.

Sources in the tax office said that the provision was introduced to check the outflows of remittances through debt and credit cards.

They said that foreign payments increased phenomenally due to rise in quantum of foreign trade. People were using plastic money to make payments against their foreign purchases.

The sources further said that many importers instead of opening letter of credit were engaged in direct purchases while making payment through credit cards.

The FBR sources said that the purpose of introducing this provision was to check the transfer of money and its source. They said that the tax deducted on such transactions is adjustable.

However, they said that the FBR is monitoring by obtaining information of persons making foreign transactions from banks issuing debit and credit cards.