Karachi, September 9, 2024 – The Federal Board of Revenue (FBR) has reaffirmed that income sourced in Pakistan under international tax treaties will remain exempt from taxation.
The announcement was made as part of the updated Income Tax Ordinance, 2001, issued for the tax year 2024-25. This reaffirms Pakistan’s commitment to honoring its international tax agreements, ensuring that such exemptions remain in place.
Section 44 of the Income Tax Ordinance outlines the specifics of these exemptions. According to the section, any Pakistan-source income that Pakistan is not permitted to tax under a tax treaty will be exempt from taxation. This provision ensures that foreign investors, contractors, and individuals working on international projects in Pakistan are not double-taxed and continue to receive tax relief under agreed-upon treaties.
The ordinance also provides specific exemptions for individuals working in Pakistan under international aid agreements. These individuals, typically non-Pakistani citizens, will have their salaries exempt from tax to the extent provided for in aid agreements between the Pakistani government and foreign governments or international organizations. For the exemption to apply, several conditions must be met:
• The individual must not be a resident of Pakistan or must be a resident solely due to their work under the aid agreement.
• If the aid agreement is with a foreign country, the individual must be a citizen of that country.
• The salary must be paid by the foreign government or international organization and funded through aid to Pakistan.
Moreover, contractors, consultants, and experts working on projects in Pakistan under bilateral or multilateral agreements with foreign governments or international organizations are also granted tax exemptions. For this to apply, the project must be financed through grant funds in accordance with the agreement, and the individual must either be a non-resident or a resident only due to their work on the project. Payments made from these grant funds will not be subject to taxation in Pakistan.
Furthermore, the Federal Government reserves the right to grant additional tax exemptions on a case-by-case basis. This applies particularly to projects financed through official development assistance (ODA), loans, and grants-in-aid. These exemptions are issued through notifications in the official Gazette and can be tailored to specific circumstances.
These tax exemptions reflect Pakistan’s effort to maintain its international financial commitments and support foreign investments and aid projects within the country. They play a crucial role in fostering international cooperation and ensuring that foreign entities can operate within Pakistan without facing double taxation burdens.
