Pakistan amends tax laws for foreign digital transfers

Pakistan amends tax laws for foreign digital transfers

ISLAMABAD: Pakistan has amended tax laws related to digital transfers of money to non-residents for various financial services.

The country on June 10, 2022 presented its federal budget for the fiscal year 2022/2023. The amendment has been brought into the Income Tax Ordinance, 2001 through Finance Bill, 2022.

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A number of amendments have been proposed to Section 6 of the Income Tax Ordinance, 2001:

Following the Section 6 of the ordinance with proposed amendments in (Bold):

6. Tax on certain payments to non-residents.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IV of Part I of the First Schedule, on every non-resident person who receives any Pakistan source royalty, fee for offshore digital fee for money transfer operations, card network services, payment gateway services, interbank financial telecommunication services or fee for technical services.

(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amounts of receipts mentioned in sub-section (1).

(3) This section shall not apply to —

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(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;

(b) any fee where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the nonresident person; or

(c) any royalty or fee for technical services that is exempt from tax under this Ordinance.

(4) Any Pakistani-source royalty, or fee received by a non-resident person to which this section does not apply by virtue of clause (a) or (b) of sub-section (3) shall be treated as income from business attributable to the permanent establishment in Pakistan of the person.

Following is the existing text of Section 6 of Income Tax Ordinance, 2001:

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6. Tax on certain payments to non-residents.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IV of Part I of the First Schedule, on every non-resident person who receives any Pakistan source royalty, fee for offshore digital services or fee for technical services.

(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amount of the royalty, fee for offshore digital services] or fee for technical services.

(3) This section shall not apply to —

(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;

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(b) any fee for technical services or fee for offshore digital services where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the nonresident person; or

(c) any royalty or fee for technical services that is exempt from tax under this Ordinance.

(4) Any Pakistani-source royalty, fee for offshore digital services or fee for technical services received by a non-resident person to which this section does not apply by virtue of clause (a) or (b) of sub-section (3) shall be treated as income from business attributable to the permanent establishment in Pakistan of the person.

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