Rate of tax on payment through debt, credit cards

Rate of tax on payment through debt, credit cards

The Federal Board of Revenue (FBR) has announced updates to the rate of income tax applicable to payments made abroad through credit or debit cards during the tax year 2021 (July 01, 2020, to June 30, 2021).

The revision is outlined in the Income Tax Ordinance, 2001, which has been updated up to June 30, 2020, incorporating amendments introduced through the Finance Act, 2020.

The modification specifically pertains to the rate of tax under Section 236Y of the Income Tax Ordinance, 2001, which governs the taxation of sums remitted abroad through credit, debit, or prepaid cards.

According to the updated provisions, the rate of tax to be deducted under Section 236Y shall be 1 percent of the gross amount remitted abroad.

Section 236Y – Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards.

(1) Every banking company shall collect advance tax, at the time of transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a credit card transaction, a debit card transaction, or a prepaid card transaction with a person outside Pakistan at the rate specified in Division XXVII of Part IV of the First Schedule.

(2) The advance tax collected under this section shall be adjustable.

This provision outlines the responsibility of banking companies to collect advance tax when facilitating the transfer of funds outside Pakistan through credit, debit, or prepaid cards. The rate of tax, set at 1 percent of the gross amount remitted, is intended to be deducted at the time of the transaction.

The adjustment provision ensures that the advance tax collected can be offset against the taxpayer’s overall tax liability, providing a mechanism for reconciling the tax obligation.

This amendment reflects the government’s ongoing efforts to regulate and monitor financial transactions involving international payments made through electronic means. The 1 percent tax on such transactions aims to generate revenue for the national exchequer while also aligning with broader fiscal policies.

Businesses and individuals engaged in international transactions through credit, debit, or prepaid cards are advised to be aware of these updated tax rates and ensure compliance with the relevant regulations. The FBR’s commitment to adapting tax policies in response to economic changes underscores its dedication to maintaining a fair and transparent tax system in Pakistan.