Islamabad, February 7, 2025 – The Federal Board of Revenue (FBR) has updated the income tax rates applicable to export proceeds for the tax year 2021, covering the period from July 1, 2020, to June 30, 2021.
These revised rates are part of the updated Income Tax Ordinance, 2001, which incorporates amendments introduced through the Finance Act, 2020.
Under Section 154 of the Income Tax Ordinance, 2001, the new tax rates on export proceeds have been established to ensure compliance with taxation policies and improve revenue collection. The revised rates specify that:
1. A 1% income tax shall be deducted from export proceeds under sub-sections (1), (3), (3A), (3B), and (3C) of Section 154.
2. A 5% income tax shall be deducted under sub-section (2) of Section 154 for specific export-related transactions.
3. Under sub-section (2) of Section 153, a 1% income tax shall be applied to certain transactions. However, in the case of the auction sale of immovable property, the tax rate shall be 5% of the gross sale price.
The income tax on export proceeds applies to all transactions processed through authorized foreign exchange dealers, ensuring that tax deductions are made at the time of realization of foreign exchange proceeds. Additionally, banking companies are required to deduct income tax when processing payments under inland back-to-back letters of credit or other prescribed arrangements.
The Export Processing Zone Authority is also mandated to collect income tax at the specified rate when goods are exported by industrial undertakings operating within designated export processing zones. Similarly, direct exporters and export houses registered under the Duty and Tax Remission for Exports Rules, 2001, must deduct income tax at the prescribed rate when making payments to indirect exporters.
Furthermore, the Collector of Customs is responsible for collecting income tax on the gross value of goods at the time of clearing exports. This tax is considered final tax on income arising from the relevant transactions unless an exporter opts out of final taxation, in which case the deduction serves as minimum tax.
The revised income tax rates aim to streamline revenue collection, reduce tax evasion, and enhance compliance within Pakistan’s export sector. The FBR’s ongoing efforts to update tax regulations align with broader economic policies aimed at strengthening the country’s foreign exchange reserves and improving transparency in export-related transactions.