PSX to collect 3pc income tax on payments to non-residents

PSX to collect 3pc income tax on payments to non-residents

The Pakistan Stock Exchange (PSX) has been mandated to apply a reduced rate of three percent income tax on payments to non-residents, according to officials from the Federal Board of Revenue (FBR).

This amendment, introduced through the Finance Act of 2020, signifies a significant change in the taxation landscape for various service providers involved in a range of sectors.

The FBR officials clarified that the reduced income tax rate of three percent applies to a diverse array of services. These services include:

1. Transport services

2. Freight forwarding services

3. Air cargo services

4. Courier services

5. Manpower outsourcing services

6. Hotel services

7. Security guard services

8. Software development services

9. IT services and IT-enabled services as defined in clause (133) of Part I of the Second Schedule

10. Tracking services

11. Advertising services (other than by print or electronic media)

12. Share registrar services

13. Car rental services

14. Building maintenance services

15. Services rendered by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited

16. Inspection, certification, testing, and training services

This amendment, implemented through the Finance Act of 2020, aligns with the government’s broader strategy to rationalize and simplify the tax structure. By introducing a reduced income tax rate for non-resident service providers, the government aims to encourage foreign investments and ensure a more competitive environment for various sectors.

The inclusion of services such as software development, IT services, and share registrar services under the reduced income tax rate is particularly noteworthy. This move recognizes the importance of these services in the modern economy and acknowledges the potential for growth and innovation in these sectors.

The three percent income tax rate represents a reduction from standard rates, providing relief to non-resident service providers conducting business in Pakistan. This reduction is anticipated to enhance the country’s appeal as a destination for international service providers, fostering economic growth and collaboration.

The services covered by this reduced income tax rate span across multiple industries, from transportation and logistics to information technology and financial services. The decision to apply a uniform three percent rate across these diverse sectors reflects a concerted effort to create a fair and consistent taxation framework.

The inclusion of services provided by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited under this reduced income tax rate signifies a recognition of the vital role played by these entities in the financial landscape of the country. The reduced tax rate is likely to have a positive impact on these institutions and may encourage further development and investment in the financial markets.

As the amendments take effect, the PSX and other service providers covered by this reduced income tax rate will play a crucial role in ensuring compliance and implementation. The FBR’s initiative is expected to contribute to a more favorable business environment, attract foreign investment, and promote economic development across various sectors in Pakistan.