Pakistan expands tax exemptions under foreign treaties

Pakistan expands tax exemptions under foreign treaties

KARACHI: Pakistan has expanded scope of income tax exemption provided under international tax treaties.

The change has been brought into Section 44 of Income Tax Ordinance, 2001 through Finance Act, 2022.

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Experts at PwC A. F. Ferguson & Co. explained the amendment saying that presently, income received by any person (not being a citizen of Pakistan) engaged as a contractor, consultant, or expert on a project in Pakistan is exempt from tax to the extent provided for in a bilateral or multilateral technical assistance agreement between the Federal Government and a foreign government or public international organization, subject to certain conditions. Such exemption is limited to agreements where ‘technical assistance’ is being provided.

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The Finance Act 2022, has enhanced the scope of above exemption by removing the term ‘technical assistance’ from the above provision, meaning thereby now all sorts of agreement between Federal Government and a foreign government or public international organization would be covered under the above exemption.

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Furthermore, the exemption would also be available to a citizen of Pakistan provided such person is either a non-resident person or a resident person solely by reason of the performance of services under the agreement.

The Act has also empowered the Federal Government to grant exemption on income of any person on a case-to-case basis through a notification in the Official Gazette in respect of an official development assistance financed loans and grant-in-aid, subject to such conditions and limitations as may be specified.

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