Karachi, August 3, 2024 – The Federal Board of Revenue (FBR) has reported a staggering 492% increase in the collection of withholding tax on foreign payments made through debit and credit cards during the fiscal year 2023-24. The Large Taxpayers Office (LTO) Karachi revealed that the collection soared to Rs 4.7 billion, up from Rs 785 million in the preceding fiscal year.
According to sources within the FBR, this significant rise in tax collection is attributed to the stringent measures enforced by the LTO Karachi, which required banks registered with the office to deduct withholding tax on foreign payments made through debit and credit cards. This requirement is in accordance with Section 236Y of the Income Tax Ordinance, 2001, introduced through the Finance Act of 2022.
Section 236Y mandates that “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, 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.” This collected advance tax is adjustable against the taxpayer’s annual tax liability.
The withholding tax rates for amounts remitted abroad through credit or debit cards stand at 5% for individuals listed on the Active Taxpayers List (ATL) and 10% for those not on the ATL, as per the updated rates effective until June 30, 2024.
The massive jump in tax collection reflects the effectiveness of the new tax regulations and the compliance of banking institutions. The surge also underscores the growing volume of foreign transactions made by Pakistani residents through debit and credit cards, highlighting an increasing trend towards digital and online international spending.
The FBR’s initiative to tighten the tax net around foreign remittances through debit and credit cards aims to curb tax evasion and enhance the country’s revenue collection. The increased tax revenue is expected to support the government’s fiscal policies and contribute to economic stability.
As the government continues to introduce reforms to broaden the tax base and improve compliance, the surge in withholding tax collection from foreign payments through credit cards serves as a promising indicator of the success of these measures. It also sets a precedent for future tax policy enhancements aimed at increasing transparency and accountability in financial transactions.
