Tax rates on foreign transactions through credit or debit cards have been unveiled for tax year 2024 by the Federal Board of Revenue (FBR).
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Pakistan Announces 400% Increase in Tax on Payment through Debit/Credit Card
Karachi, July 29, 2023 – In a bid to curb the outflow of dollars and bolster its foreign exchange reserves, Pakistan has taken a significant step by announcing a whopping 400 percent increase in taxes on payments made through debit or credit cards.
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Pakistan banks may issue corporate cards for cross-border commercial payments
KARACHI: State Bank of Pakistan (SBP) has allowed banks to issue corporate cards to their business customers for making cross-border commercial payments.
The SBP through a circular dated November 08, 2022 issued to presidents and chief executives of authorized dealers (ADs) in foreign exchange said that banks desirous to facilitate their business customers may issue corporate cards, to be used strictly in accordance with the applicable provisions of the Foreign Exchange Manual and the profile of the customer. “ADs shall institute a robust mechanism to monitor the payments through such corporate cards,” the SBP added.
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According the circular the central bank had observed individuals were using their debit/credit cards for cross-border transactions, which are of commercial nature and are not aligned with their personal needs as well as their risk profile.
In order to ensure judicious use of cards, including virtual cards, it has been decided to place an annual limit of $30,000 per individual on card based cross-border transactions. For the purpose of this circular, the year will start from November 1, 2022, however, limit for the current year will be calculated from the date of issuance of this circular. This limit would be applicable for an individual across the banking industry.
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The SBP advised the banks to conduct proper due diligence of the individual customers at the time of their onboarding/ update of risk profiles and duly incorporate their cross-border payment needs through cards in their profiles.
Banks are also directed to ensure that issuance of multiple cards to a single customer are commensurate with their risk profile and are monitored collectively. Further, banks should only allow those card based cross-border transactions, which are in-sync with the personal needs of the customers and have no commercial purpose.
READ MORE: SBP limits cash up to USD 5,000 taking out of Pakistan
Although, it is the primary responsibility of a customer to ensure that his/ her annual limit is not breached at any time, ADs shall institute a mechanism of ongoing monitoring whereby card based cross-border payments by individuals through single/multiple cards are only allowed in accordance with the limit prescribed above and as per the risk profile of the customer.
Besides, ADs are advised to run an awareness campaign to inform their customers about the contents of this circular and the fact that cross-border commercial payments through cards issued to individuals are not permissible.
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ADs are advised to ensure meticulous compliance of these instructions and bring the same to the notice of all their constituents. Any non-compliance of above instructions may be dealt with under relevant provisions of the Foreign Exchange Regulation Act, 1947 and any pecuniary or administrative action, as deemed necessary, may be initiated against the delinquent ADs.
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Pakistan reintroduces advance tax on foreign payments
ISLAMABAD: Pakistan has reintroduced advance tax on foreign payments made through credit, debit or prepaid cards. The advance tax has been revived through Finance Bill, 2022.
The country presented its federal budget 2022/2023 on June 10, 2022 and made several amendments in tax laws to broaden tax base and plug revenue leakages.
READ MORE: Exchange companies to withhold tax on payment to MTOs
The Finance Bill, 2022 proposed to reintroduce Section 236Y of the Income Tax Ordinance, 2001. The section was omitted through Finance Act, 2021.
Following is the proposed amendment in the Income Tax Ordinance, 2001:
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“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 or debit card or prepaid card transaction with a person outside Pakistan at the rate specified in Division XXVII of Part IV of the First Schedule.
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(2) The advance tax collected under this section shall be adjustable.”
The Finance Bill 2022 proposed advance tax rate on amount remitted abroad through credit, debit or prepaid cards under section 236Y shall be 1 per cent of the gross amount remitted abroad.
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Debt, credit card machines must for POS retailers: FBR
ISLAMABAD: The Federal Board of Revenue (FBR) on Wednesday said retailers, who integrated Point of Sale (POS), must have facility of debt and credit card machines to facilitate their customers in making payments.
The FBR issued Circular No. 05 of 2022 regarding implementation of Rule 150ZEB(II) of the Sales Tax Rules, 2006.
READ MORE: Who are Tier-1 retailers under Sales Tax Act?
The revenue body said that all Tier-1 retailers are expected to maintain the highest standards of documentation, reporting and transparency.
In their endeavors to achieve such high standards, they are integrated with FBR’s IT system for real-time reporting of their economic transactions.
READ MORE: FBR issues list of 608 Tier-1 non-compliant retailers
It has transpired that many integrated Tier-1 retailers are indulged in making cash transactions, which is not only against the overall scheme of things, but also the intended objectives.
In this connection, it is pertinent to note that Rule 150ZEB(II) of the Sales Tax Rules, 2006, mandates that each Tier-1 Retailer “must have the facility of debit and credit card machines installed at each notified outlet and the sales through debit or credit cards shall not be ordinarily refused.”
READ MORE: Tier-1 retailers given deadline for integration
“Accordingly, all integratable Tier-1 Retailers are liable to have debt/credit card machine installed at their outlets and IRS field formations to ensure implementation the rules in this respect,” the FBR added.
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Retailers accepting debit, credit cards payment to be treated as Tier-I
ISLAMABAD: The Federal Board of Revenue (FBR) will bring more retailers into sales tax ambit after the proposal made through Finance Bill, 2021 related to Tier-I retailers.
Tier-I retailers are commonly known for having huge volume sales and operating in a mall, air conditioned environment etc.
Sources in the FBR said that retailer receiving payment through debit card and debit card would also qualify for Tier-I retailers.
KPMG Taseer Hadi & Co. Chartered Accountants in its commentary on Budget 2021/2022 stated that the Section 2(43A) of Sales Tax Act, 1990 provides threshold limit and qualification criteria for tier-1 retailers.
The Finance Bill now proposes to enhance the qualification criteria of tier-1 retailers by following additions
– Retailers of furniture whose shop measures two (2) thousand square feet or more.
– Retailer operating an online market place supplying goods through e-commerce platform, whether the goods are owned by him or not.
– A retailer who has acquired point of sale for accepting payment through debit or credit cards from banking companies or any other digital payment service provider authorized by State Bank of Pakistan.
The Bill further proposes to do away with on incentive of the cash back, up to five percent of the tax involved, to customers of Tier-1 retailer who have integrated their retail outlets with the Board’s computerized system for real-time reporting of sales.
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E-commerce transactions through debit cards up by 152 percent
KARACHI: The online payment through debit cards for e-commerce registered phenomenal growth of 152 percent in first quarter of current fiscal year, according to data released by State Bank of Pakistan (SBP) on Thursday.
The online payment for e-commerce increased to Rs11.1 billion in the first quarter (July – September) 2020/2021 as compared with Rs4.4 billion in the same quarter of the last fiscal year.
The volume of transactions also registered around 200 percent during the period under review. According to SBP data the volume of debt card transactions increased to 3.9 million during first quarter of the current fiscal year as compared with 1.3 million in the same quarter of the last fiscal year.
The total e-commerce transactions registered 81 percent growth during the first quarter of the current fiscal year. The value of e-commerce transactions (payment through debt, credit and pre-paid cards) increased to Rs24.1 billion during the quarter under review as compared with Rs13.5 billion in the same quarter of the last fiscal year.
The e-commerce transactions through credit card increased to Rs12.9 billion during the first quarter of fiscal year 2020/2021 as compared with Rs9.1 billion in the corresponding quarter of the last fiscal year.
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Foreign transactions through debit, credit cards generate Rs670 million income tax
KARACHI: The revenue authorities have collected Rs670 million as income tax from foreign transactions through debit or credit card during first eight months of current fiscal year.
The tax was collected by Regional Tax Office (RTO)-II Karachi. The tax office collected only Rs83 million in the corresponding period of the last fiscal year.
The collection of withholding tax was introduced through Finance Act, 2018 and it was second year of the collection under this head.
Section 236Y was inserted to Income Tax Ordinance, 2001 through Finance Act, 2018.
Under this provision, 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 of one percent.
However, this tax rate shall be 100 percent more in case the person making transactions is not on the Active Taxpayers List (ATL).
The advance tax collected under this section shall be adjustable.
Sources in the tax office said that the provision was introduced to check the outflows of remittances through debt and credit cards.
They said that foreign payments increased phenomenally due to rise in quantum of foreign trade. People were using plastic money to make payments against their foreign purchases.
The sources further said that many importers instead of opening letter of credit were engaged in direct purchases while making payment through credit cards.
The FBR sources said that the purpose of introducing this provision was to check the transfer of money and its source. They said that the tax deducted on such transactions is adjustable.
However, they said that the FBR is monitoring by obtaining information of persons making foreign transactions from banks issuing debit and credit cards.
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Withholding tax rates for foreign fund transfers through debt, credit cards
ISLAMABAD: Federal Board of Revenue (FBR) has issued withholding tax card for tax year 2020, effective from July 1, 2019 and notified 2 percent advance tax to be collected on gross amount of foreign transfers from persons not appeared on Active Taxpayers List (ATL).
The FBR said that every banking company is required to collect advance under section 236Y of Income Tax Ordinance, 2001, from person remitting amounts abroad.
The FBR further explained that the banking companies shall collect the advance tax from a person who has completed a transaction of credit card, or debit card, or pre-paid card, with a person outside Pakistan at the time of transfer of any sum remitted outside Pakistan through a transaction of a credit card or debit card or pre-paid card.
The advance tax shall be one percent on a person who filed income tax return within due date.
In case persons not appearing in the ATL, the applicable tax rate is to be increased by 100 percent i.e. two percent.
The advance tax on persons remitting amounts abroad through credit or debit or prepaid cards under Section 236Y was introduced through Finance Act, 2018.
The tax rate under this section during tax year 2019 was one percent of the gross amount remitted abroad for filers and three percent for non-filers.