Section 154A of Income Tax Ordinance, 2001 tells about the tax payment on exports of IT services. The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2021.
The Ordinance incorporated amendments brought through Finance Act, 2021.
Following is the text of Section 154A of Income Tax Ordinance, 2001:
154A. Export of Services.— (1) Every authorized dealer in foreign exchange shall, at the time of realization of foreign exchange proceeds on account of the following, deduct tax from the proceeds at the rates specified in Division IVA of Part III of the First Schedule –
(a) exports of computer software or IT services or IT enabled services in case tax credit under section 65F is not available;
(b) services or technical services rendered outside Pakistan or exported from Pakistan;
(c) royalty, commission or fees derived by a resident company from a foreign enterprise in consideration for the use outside Pakistan of any patent, invention, model, design, secret process or formula or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided to such enterprise;
(d) construction contracts executed outside Pakistan; and
(e) other services rendered outside Pakistan as notified by the Board from time to time;
(2) The tax deductible under this section shall be a final tax on the income arising from the transactions referred to in this section, upon fulfilment of the following conditions –
(a) return has been filed;
(b) withholding tax statements for the relevant tax year have been filed; and
(c) sales tax returns under Federal or Provincial laws have been filed, if required under the law;
(d) no credit for foreign taxes paid shall be allowed.
(3) The provisions of sub-section (2) shall not apply to a person who does not fulfill the specified conditions or who opts not to be subject to final taxation:
Provided that the option shall be exercised every year at the time of filing of return under section 114.
(4) Where a taxpayer, while explaining the nature and source of any amount, investment, money, valuable article, expenditure, referred to in section 111, takes into account any source of income which is subject to final tax in accordance with the provisions of this section, he shall not be entitled to take credit of a sum that can be reasonably attributed to the business activity or activities mentioned in sub-section (1).
(5) The Board in consultation with State Bank of Pakistan shall prescribe mode, manner and procedure of payment of tax under this section.
(6) The Board shall have power to include or exclude certain services for applicability of provisions of this section.
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