Tax Rates on Foreign Transactions via Credit or Debit Cards Unveiled for Tax Year 2024

Tax Rates on Foreign Transactions via Credit or Debit Cards Unveiled for Tax Year 2024

Tax rates on foreign transactions through credit or debit cards have been unveiled for tax year 2024 by the Federal Board of Revenue (FBR).

In a move aimed at regulating and taxing foreign transactions made through credit or debit cards, the Federal Board of Revenue (FBR) in Pakistan has announced the tax rates for the tax year 2024.

This decision, outlined in Section 236Y of the Income Tax Ordinance, 2001, signifies a strategic effort by the government to streamline and monitor cross-border financial activities.

Effective immediately, the FBR has introduced a withholding tax on foreign payments conducted through credit cards, debit cards, or prepaid cards. This measure is designed to ensure that individuals participating in international transactions contribute their fair share to the country’s tax revenue.

According to the newly implemented tax structure, individuals making foreign payments through debit or credit cards will incur a 5 percent withholding tax on the gross amount remitted abroad. This tax is applicable at the time of the transfer of any sum remitted outside Pakistan. The move is expected to not only enhance revenue streams for the government but also bring more transparency to cross-border financial activities.

However, it’s worth noting that there is a provision for taxpayers to offset the deducted tax against their total liability. This adjustable feature provides some relief to individuals who engage in foreign transactions, ensuring that the tax burden remains proportionate and fair.

In a bid to encourage active participation in the taxpayer system, the government has incorporated an incentive for individuals on the active taxpayers list. Those who are part of this list will benefit from the standard 5 percent tax rate on foreign transactions. On the other hand, individuals not on the active taxpayers list will face a doubled tax rate of 10 percent on the gross amount remitted abroad.

The FBR’s decision is in line with broader efforts to enhance tax compliance and ensure that all citizens contribute to the country’s economic development. By imposing taxes on foreign transactions, the government aims to curb any potential misuse of international financial channels and foster a culture of financial responsibility among its citizens.

Section 236Y of the Income Tax Ordinance, 2001, empowers banking companies to collect advance tax on behalf of individuals involved in credit card, debit card, or prepaid card transactions with foreign entities. This provision facilitates a streamlined process for tax collection, making it more efficient and less burdensome for both financial institutions and taxpayers.

As the tax year 2024 unfolds, individuals engaging in international transactions through credit or debit cards will need to factor in these new tax rates. It is crucial for taxpayers to stay informed about the latest regulatory developments to ensure compliance and avoid any potential penalties.

The introduction of tax rates on foreign transactions via credit or debit cards for the tax year 2024 reflects the government’s commitment to creating a fair and accountable tax system. The adjustable nature of the withholding tax provides a mechanism for taxpayers to manage their liabilities effectively. As the financial landscape continues to evolve, these measures contribute to the overall economic stability and growth of Pakistan.